Enhancing Poverty Abatement Programs: A Subjective Well-Being Approach

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1 Enhancing Poverty Abatement Programs: A Subjective Well-Being Approach Mariano Rojas Department of Economics Universidad de las Americas, Puebla, Mexico Abstract: This paper follows a subjective well-being approach to distinguish among experienced poverty, experienced economic poverty, and income poverty. The subjective well-being approach deals with persons of flesh and blood and who are in their circumstance. The paper uses a life satisfaction conception of well-being to define experienced poverty. Based on a domains-of-life approach, the paper shows that experienced poverty (low life satisfaction) is a broader and richer concept than experienced economic poverty (low economic satisfaction) and than income poverty (low income level). It is shown that different conceptions of poverty lead to substantial dissonance in the classification of persons as poor: not all income-poor persons are in experienced poverty, while some non income-poor persons are in experienced poverty. The paper deals with some reasons for these dissonances; it argues that experienced poverty captures the multidimensionality and complexity of being human in a way that income poverty can not do. The investigation questions the assumption used in designing social policies which maintains that raising the income received by persons automatically translates into greater well-being. It shows that public policies oriented towards the abatement of income -and experienced economic- poverty could have a greater well-being impact if they recognize the complexity of human beings and if they take into consideration how satisfaction in other domains of life is affected. Hence, public policy should not only be concerned about getting people out of income poverty, but also about placing them in a life-satisfying situation. 1. Introduction This paper uses a subjective well-being approach and it distinguishes between experienced poverty, experienced economic poverty, and income poverty. According to the approach, a human being is in experienced poverty if she has low life satisfaction; while she is in experienced economic poverty if she has low economic satisfaction. The income poverty definition follows a traditional income criterion: a person is in income poverty if she is beneath a pre-determined income line. The subjective well-being literature (van Praag and Ferrer-i-Carbonell, 2004; Easterlin, 2001; Diener et.al., 1993) has found that income is a relevant explanatory variable for economic satisfaction; though its explanatory capacity is not substantially high. In addition, the relationship between life satisfaction and income is statistically significant; however, the estimated coefficient is relatively tiny and the explanatory capability of income is astonishingly small; hence, income is not a relevant explanatory variable for life satisfaction. The 1

2 paper builds on these findings to propose that income poverty is not a good proxy for experienced poverty. Thus, the investigation focuses on the link between experienced poverty, experienced economic poverty, and income poverty. It shows that these poverty conceptions are conceptually different and that they lead to different classifications of people as poor. It is argued that experienced poverty, which is defined in terms of a person s evaluation of her life satisfaction, is a broader and richer well-being concept; while experienced economic poverty restrains itself to the study of satisfaction in just one domain where human beings are being human. In addition, income has a limited capacity to capture the richness of both economic and life satisfaction; thus, income poverty is not expected to be strongly associated to experienced poverty. Hence, while some concordance between income poverty and experienced poverty is expected, it is also possible to find dissonance, this is: persons who are classified as poor on the basis of their income, but who could not be considered as being in experienced poverty -on the basis of their self-assessed life satisfaction-. The dissonance also emerges for people who have low life satisfaction but who enjoy income levels that place them beyond the income poverty classification. The paper shows that the reasons for these dissonances must be found in the multiplicity of factors associated to what it means to be a human being, as well as in the limitations of the income-based poverty definitions to capture this multiplicity. A domains-of-life approach is used to explain how experienced poverty emerges from a multidimensional perspective of what it means to be a human being. Life satisfaction refers to a person s assessment of her life as a whole; this global assessments of life plays important evaluation and decision purposes (Haybron, 2003), it also provides useful information about how she is experiencing life (Veenhoven, 1991 and 1993; Eid and Diener, 2004; Kim-Prieto et al., 2005) Furthermore, this one-dimensional assessment of life as a whole can be explained in an intricate way- from a person s satisfaction in many concrete areas where she is being a human being (Rojas, 2006a and 2007a). Thus, the explanatory factors of experienced poverty have to be found in those many dimensions of being, which clearly go beyond the economic one. In summary, the paper shows the advantages of the subjective well-being approach to capture the complexity of a person s well-being; it also shows that incomebased poverty approaches can not fully capture this complexity. The domains-of-life 2

3 literature is used to illustrate the reasons for income-based poverty measures being limited. The paper is structured as follows: Section 2 discusses the subjective well-being approach. Section 3 presents the domains-of-life literature. Section 4 establishes the conceptual difference between experienced, economic and income poverty from a subjective well-being approach. Section 5 discusses the Mexican database, as well as the construction of the relevant variables for the empirical analyses. Section 6 studies the situation of experienced and income poverty in Mexico. Section 7 deals with the existence of dissonances and concordances in the classification of people as poor when different criteria are followed. Section 8 uses the domains-of-life approach to explain the nature of these dissonances; it shows that experienced poverty deals with a richer conception of well-being and of what being human means. In addition, section 8 elaborates on how it would be possible to increase the well-being impact of incomepoverty abatement programs. Section 9 presents some major conclusions from the investigation. 2. The Subjective Well-Being Approach to Poverty Poverty is associated to a situation where a person s well-being is low. 1 Hence, the subjective well-being approach (SWB) is relevant to study poverty because it deals with the proper way of knowing a person s well-being, as well as of identifying and understanding its sources. The approach is based on the following six epistemological principles (Rojas, 2007a): First, it recognizes that a person s well-being is essentially subjective; wellbeing refers to the experience of being well which the person is living. It is the person herself the one who is experiencing her well-being. The approach states that there is little relevance in well-being conceptions that refer to a well-being not experienced by people. Well-being conceptions that are unrelated to people s experience of well-being convey to normative and doctrinal discussions based on rhetoric and power-centered debates. 1 A good reference for common understandings of poverty can be found in the December, 2006 issue of Poverty in Focus, published by UNDP International Poverty Centre. Most contributors to the What is Poverty issue understand poverty either as low well-being, ill-being, or lack of well-being. All but one contributors work with imputed or presumed well-being; the other contributor advocates a well-being assessment based on stated preferences and participatory approaches. 3

4 Second, SWB states that each person is the authority to assess her well-being, because being well or not is a subjective experience. Hence, the approach rejects wellbeing assessments made by third parties such as experts and policy makers. It argues that third parties are not in a better position than the person herself to judge what she is experiencing. Hence, the approach rejects the long-standing philosophical tradition that places the authority of judging a person s well-being on the philosopher or a group of thoughtful people. This philosophical tradition is implicit in most well-being approaches and, in consequence, it has dominated the study of poverty. The subjective well-being approach to poverty distances itself from normative approaches based on presumption or imputation of well-being. It states that approaches based on presumption need corroboration; while approaches based on imputation show a complete disregard for whether people are living the experience of being well or not. Furthermore, there are substantial biases in presumed and imputed assessments of wellbeing; because they are based on the realities (training, values, ways of life, goals and aspirations, social conditioning, and so on) of third-parties rather than on life as people experience it. SWB states that the role of third-parties is not to assess a person s wellbeing but to understand her own assessment through the elaboration and corroboration of theories. Third, SWB deals with the well-being as declared by the person. Well-being is usually declared as an answer to a life-satisfaction, happiness, or having-a-good-life question. Hence, it is a person s evaluation of her life on the basis of a conception of well-being as life satisfaction, happiness, or having a good life. The approach is open to using different well-being conceptions, as long as the assessment is made by the person herself. Fourth, by directly asking people, SWB deals with the well-being of a person of flesh and blood and who is in her circumstance. Thus, SWB differs from approaches that study the well-being of abstract and unrealistic agents (e.g.: academicallyconstructed agents and out-of-context individuals) A person of flesh and blood is being human not only in one academically-defined arena (e.g.: the economic domain) but in all aspects where she acts as a human being, such as her family relations, her pastimes and use of leisure time, her purchasing power and its use, her job and responsibilities, and so on. A person s circumstance refers to the realities of her life her culture, upbringing and nurturing, her goals and values, her childhood experiences, her aspirations, the family she was born in, her place of living, the traditions of her social 4

5 group, and so on-. Every person evaluates her life in her circumstance; there is no person without circumstance, and it does not make sense to think about a person getting out of her circumstance to evaluate her life. 2 Fifth, SWB takes a person s assessment of her well-being as point of departure; it then follows an inferential bottom-up- methodology to identify the sources of a person s well-being. Hence, SWB substantially differs from those approaches that presume without any corroboration what factors are relevant for explaining a person s well-being; it also differs from those approaches that impute a person s well-being on the basis of a list of ingredients or component parts (substantive conception of wellbeing). Normative and presumed well-being approaches to poverty have oriented poverty research to ever expanding lists of presumed relevant factors or ingredients, to the construction of one-dimensional indices, to the study of the properties these indices must satisfy, and to the exploration of how these one-dimensional indices change when the arbitrarily defined factor weights are modified. There has been no intention, and there is little room, to empirically corroborate the soundness of the presumed relevant factors and of their presumed weights. SWB also differs from participatory (stated-preferences) and revealedpreferences techniques. These techniques just provide an ordering of relevant factors which in order to be plausible require from people not only to be able of assessing their well-being, but also to be able of accurately forecasting the impact on their well-being of events which may have never been experienced. SWB is flexible enough to deal and test heterogeneity across persons and across cultures in their relevant well-being explanatory factors. Furthermore, SWB states that universality in explanatory factors is something that must be proven rather than assumed. In addition, the identification and relevance of valuable factors must not be normatively established by thoughtful people, but directly derived through inferential techniques from people s own well-being assessments. Hence, explanatory factors are of value as long as they contribute to a person s well-being as she experiences it. The identification of the sources of well-being requires inferential techniques and an 2 The subjective well-being approach does not exclude a normative discussion about someone s circumstances; but it states that this debate must be explicitly placed in the normative arena, where tolerance and respect should prevail and where a person s satisfaction with life should be taken as an important criterion in the discussion. Any normative debate must face the fundamental questions of who is the authority in judging another person s circumstance and on what basis this authority has arisen. It is clear that coercion and ethnocentricity have played a crucial role in the history of normative debates and in the imposition of criteria to judge someone else s circumstance. 5

6 understanding of persons as they are: of flesh and blood, and who are being in their circumstances. Rather than speculating about the sources of well-being, the expert must follow a scientific process to identify them; this process involves exploration of the data, advancement of theories and testing of hypotheses, re-formulation of theories on the basis of previous findings, and so on. Sixth, SWB calls for a transdisciplinary or at least interdisciplinary- study of well-being. The approach states that it is difficult to seize the complexity of a person s well-being assessment from any single discipline alone. The current analytical compartmentalization of knowledge based on abstract academic agents does not provide adequate theories to completely understand such an issue as human well-being. Those approaches to well-being and poverty that highly rely on specific academic disciplines provide well-being theories that do not fully capture what being human means, because academically constructed agents and out-of-context individuals are incomplete to understand the complexity of a human being. The risk of neglecting or overstressing some human aspects is greater when these academically-biased approaches follow imputed and presumed well-being assessments. Given the current compartmentalization of knowledge, a better understanding of experienced well-being and its sources is attained through interdisciplinary collaboration. The domains-of-life construct to be discussed in the next section- also provides a framework to attain a better understanding of experienced well-being. 3. The Literature on Domains of Life The domains-of-life literature states that life can be approached as a general construct of many specific domains, and that life satisfaction can be understood as a result from satisfaction in these domains of life (Cummins, 1996, 2003; Headey et al, 1984 and 1985; Headey and Wearing, 1992; Meadow et al, 1992; van Praag, Frijters, and Ferrer-i-Carbonell, 2003; van Praag and Ferrer-i-Carbonell, 2004; Rampichini and D Andrea, 1998; Rojas, 2007a and 2006a; Salvatore and Muñoz Sastre, 2001; Saris and Ferligoj, 1996; Veenhoven, 1996) Consequently, a relationship between life satisfaction and satisfaction in domains of life is hypothesized. The enumeration and demarcation of the domains of life is arbitrary; it can range from a small number to an almost infinite recount of all imaginable human activities 6

7 and spheres of being. 3 Thus, there are many possible partitions of a human life, and the selected partition depends on the researcher s objectives. Nevertheless, Rojas (2006b) argues that any partition must value parsimony -the number of domains must be manageable and domains should refer to clearly separable information 4 -, meaning -the domains of life, as delimited by the researcher, must relate to the way people think about their lives-, and usefulness -the delimitation must contribute to the understanding of the subject-. Some researchers have studied satisfaction in all domains of life (Andrews and Withey, 1976; Campbell et al, 1976; and Campbell, 1981) However, most researchers have focused on the study of satisfaction in a few or just one domain of life (e.g.: jobsatisfaction) The relationship between subjective well-being and a person s condition is also the main research topic of many studies; for example, employment and happiness (Clark and Oswald, 1994; Di Tella et al, 2001) van Praag et al. (2003) study the relationship between satisfaction in different domains of life (health, financial situation, job, housing, leisure, and environment) and satisfaction with life as a whole. Rojas (2006a, 2006b, and 2007a) has also studied the relationship between life satisfaction and satisfaction in domains of life. He has worked with seven domains: health, economic, job, family, friendship, self, and community. He shows that the relationship is complex. 4. Experienced Poverty, Experienced Economic Poverty and Income Poverty SWB conceives poverty as a situation where a person s experienced well-being is low (Rojas, 2006b). Thus, by using a domains-of-life approach, it is possible to distinguish between experienced poverty and experienced economic poverty. The former refers to a situation where a person s well-being a life-satisfaction conception is used in this paper- is low; the later refers to a situation where a person s satisfaction in her economic domain is low. Economic satisfaction relates to just one area of a person s life and, in consequence, experienced poverty is a broader and more complex phenomenon than experienced economic poverty. 3 As it is stated by Cummins The possible number of domains is large. If each term describing some aspect of the human condition is regarded as separate, then their number is very large indeed. (Cummins, 1996, p. 304) 4 Cummins (1996) argues that many terms describing some aspects of the human condition share a great deal of their variance. 7

8 It has been shown that economic satisfaction contributes to life satisfaction; however, it does not determine life satisfaction (Rojas, 2006a, 2006b, and 2007a; van Praag et.al., 2003). Furthermore, economic variables such as income and expenditure are important explanatory variables for economic satisfaction, but not so much for life satisfaction and happiness (Rojas, 2005a and 2006b). Hence, income is not expected to be strongly related to experienced poverty because a person s assessment of her wellbeing does take into consideration her satisfaction in all domains of life where she is being human, and not only her satisfaction in the economic domain (Rojas, 2006a and 2007a) Research based on the domains-of-life approach shows that there is more in life than the standard of living. In addition, there is heterogeneity in life purposes across persons and cultures; hence factors that could be of great importance for some people may be completely irrelevant for others (Rojas, 2005b and 2007b) In consequence, based on research findings about the importance and multidimensionality of areas in which persons are being human it is reasonable to propose that the relationship between experienced poverty and income poverty is weak. 5. The Database 5.1 The survey A survey was conducted in five states of central and south Mexico, as well as in the Federal District (Mexico City) during October and November of A stratifiedrandom sample was balanced by household income, gender and urban-rural areas. People interviewed fall within all national income deciles; however, because of the stratified nature of the sample, there is some under-representation in the bottom national income deciles on the basis of household per capita income- and some overrepresentation in the top national deciles. 6 The sample of 1540 questionnaires had a response rate of 96 percent in the household income question. The sample size is acceptable for inference in central Mexico. 5.2 The variables The survey gathered information regarding the following quantitative and qualitative variables: 5 The author expresses his gratitude to CONACYT, Mexico for a grant that financially supported this research. 6 For example, 7.2 percent of people in the sample fall in the first national income decile; 20 percent of people in the sample fall in the first three national income deciles; 37.4 percent of people in the sample fall in the first five national income deciles; and 66 percent of people in the sample fall in the first eight national income deciles. 8

9 Demographic and Social Variables: education, age, gender, civil status, household-income dependent persons. Economic Variables: current household income. Life Satisfaction: the following question was asked: Taking everything in your life into consideration, how satisfied are you with your life? A seven-option categorical answering scale was used. The scale s answering options are: extremely unsatisfied, very unsatisfied, unsatisfied, neither satisfied nor unsatisfied, satisfied, very satisfied, extremely satisfied. 7 Life Satisfaction was handled as an ordinal variable, with values between 1 and 7; where 1 corresponds to the extremely unsatisfied category and 7 to the extremely satisfied category. 8 Economic Satisfaction: Four satisfaction questions related to the economic domain of life were asked: How satisfied are you with your income? (income); How satisfied are you with what you can purchase? (purchasing power); How satisfied are you with your housing conditions? (housing condition); and How satisfied are you with your household s financial situation? (financial situation). Each satisfaction question had a seven-option verbal answering scale similar to the one used for the life satisfaction question. Satisfaction questions were handled as cardinal variables, with values between 1 and 7; where 1 was assigned to the lowest satisfaction level and 7 to the highest. A single economic satisfaction variable was built on the basis of factorial analysis with principal components extraction applied to the four answers. The new variable was re-scaled to a 0 to 100 scale. Satisfaction in other Concrete Areas of Life: Twenty questions were asked to inquire about satisfaction in many aspects of life beyond the economic domain, 9 such 7 SWB states that well-being as experienced by the person herself is bounded; hence, satisfaction with life and with domains of life is measured on the basis of bounded scales (van Praag, 1991) This assumption is supported by neurological and evolutionary studies, as well as by philosophical arguments. Neurological and evolutionary studies show that the nervous system of humans -as well as of other animals- does have physical limitations that lead to saturation from stimulation (Kandel et al., 2000; Gallistel et al., 1991; and Simmons and Gallistel, 1994) Evolutionary approaches emphasize the state role of experienced well-being in evolution (Grinde, 1996, 2002; Barkow, 1997; Buss, 2000; Sapolsky, 1999) Philosophy argues that happiness must be considered as a state to be reached (Tatarkiewickz, 1976; Haybron, 2000, 2003) 8 The author has found that results do not substantially differ when life satisfaction is treated as a cardinal rather than as an ordinal variable. Ferrer-i-Carbonell and Frijters (2004) also show that there are no substantial differences when satisfaction is treated either as a cardinal or as an ordinal variable. They state in their conclusions that: We found that assuming cardinality or ordinality of the answers to general satisfaction questions is relatively unimportant to results. 9 The instrument is a shorter version of the Extended Satisfaction with Life Scale developed by Diener et.al. (1985). Alfonso et.al. (1996) have shown that the instrument has strong reliability and validity, that it leads to clearly identifiable domains of life which satisfy psychometric tests for reliability 9

10 as: job conditions, job responsibilities, working shifts, health condition, health services, interpersonal relations and sense of security in the neighbourhood, quality of public services such as trash collection and public transport, family relations (partner, children, rest of family), availability and use of leisure time, relations with friends, and so on. A seven-option answering scale similar to the one used for the life satisfaction question was used. Factor analysis was applied to reduce the number of dimensions and to demarcate the domains of life. Six domains of life beyond the economic one- were distinguished on the basis of the factorial analysis. 10 A regression method was used to calculate each new factor score and to construct a satisfaction variable for each domain; the new variables were re-scaled to a 0 to 100 scale. Thus, satisfaction variables are also available for the following domains of life: - health: satisfaction with current health and with the availability and quality of medical services. - job: satisfaction with job s activity, with job s responsibilities, with working shifts, and with hierarchical working relationships. - family: satisfaction with spouse or stable-partner relationship, with children relationship, and with rest-of-family relationship. - friendship: satisfaction with friends and with availability of time to spend with them. - self: satisfaction with recreational and leisure activities, with availability of time to pursue hobbies and interests, with personal development, and with education. - community environment: satisfaction with community services such as trash collection, public transport, road conditions, public lights, neighborhood safety and trust in local authorities; as well as satisfaction with neighbors. It is obvious that the demarcation of the domains of life is somewhat determined by the original set of twenty-four questions. However, this classification is close to Cummins (1996) and convergent and discriminant validity. Cummins et.al. (1994) have also studied the psychometric properties of domains-of-life satisfaction questions, as well as Gregg and Salisbury (2001). 10 Some people in the survey could not assess their satisfaction in some concrete areas of life. These people were short of information in one or more aspects of life, not because they did not want to provide an answer, but because they did not perform in those aspects of life. Rojas (2006c) studies the situation of domain-absentee persons. 10

11 6. Experienced Poverty and Income Poverty 6.1 Life satisfaction and experienced poverty Table 1 shows the answering frequency for the life-satisfaction question persons answered the question, out of 1536 persons who were asked. It is observed that most people evaluate their lives as satisfactory or better. Table 1 Sample Distribution across Life-Satisfaction Categories Experienced-Poverty classification Satisfaction Percentage Extremely unsatisfied 0.1 Experienced Poverty Very unsatisfied 1.2 Unsatisfied 8.3 Neither unsatisfied nor satisfied 4.4 Moderate Experienced Poverty Satisfied 53.2 No Experienced Poverty Very satisfied 27.5 Extremely satisfied 5.4 Total This investigation follows the Leyden poverty-line approach to define a subjective poverty line in terms of a given satisfaction level (Goedhart, Halberstadt, Kapteyn, and van Praag, 1977; van Praag, Goedhart, and Kapteyn, 1980; van Praag, Spit, and van de Stadt, 1982; van Praag and Ferrer-i-Carbonell, 2004). van Praag and Ferrer-i-Carbonell (2004) work with a cardinal satisfaction variable; in consequence, the numerical value used to set the line has no concrete satisfaction referent. This investigation takes advantage of working with a categorical answering scale; hence, poverty lines have concrete satisfaction referents. Two lines are defined; a line for experienced poverty is set at a life satisfaction level of neither unsatisfied nor satisfied; thus, people who are extremely unsatisfied, very unsatisfied, unsatisfied and neither unsatisfied nor satisfied with their lives are considered as being in experienced poverty. A second line for moderate experienced poverty is defined at the satisfied level on the basis of these people having enough room to improve their life satisfaction. These criteria do imply that 14 percent of people in the sample are in experienced poverty; while 53.2 percent are in moderate experienced poverty. 6.2 Household per capita income and income poverty Table 2 presents the distribution of people in the sample according to their household per capita income persons answered the income question, out of 1536 persons who were asked. It is observed that 14.3 percent of people in the sample have a household per capita income of US$2 dollars per day or less, while 45.4 percent of people are beneath the US$5 dollars per day level. 11

12 Table 2 Sample Distribution across Household Per capita Income Ranges Household per capita income (Y hpc ) in U.S. dollars per day Income-Poverty classification Income Ranges Percentage Income Poverty Y hpc Moderate Income Poverty 2<Y hpc <Y hpc <Y hpc 28.7 Total This investigation uses household per capita income to define income poverty lines. Household per capita income is commonly but not universally- used to define income poverty. 11 This investigation classifies a person as being in income poverty if she lives in a household with a per capita income of US$ 2 dollars per day or less. A person is classified as being in moderate income poverty if she lives in a household with a daily per capita income in between US$2 and US$5 dollars. On the basis of these criteria 14.3 percent of people in the sample are classified as income poor; while 31.1 percent of people in the sample are considered as being in moderate income poverty. 7. Experienced and Income Poverty: Dissonances and Concordances Is income poverty a good proxy for experienced poverty? This section shows that important dissonances do exist in the classification of people as poor when using different poverty conceptions. In other words, it is shown that not all people who are considered as being in income poverty experience low life satisfaction (experienced poverty), and that not all people who are considered as non-income poor experience high life satisfaction. Table 3 shows the existence of dissonances and concordances when the experienced-poverty and the income-poverty classification of people are contrasted. Table 3 Experienced and Income Poverty Dissonances and Concordances In percentages of total survey population Income Poverty Experienced Poverty Poor Non poor Poor Non poor The purpose of this investigation is not to study alternative proxies for the definition of income poverty. Rojas (2007c) shows that household per capita income could be a bad proxy for a person s economic satisfaction because economies of scale at the household level are considerable. 12

13 It is observed that 11.5 percent of people in the survey are classified as poor based on their income (a household per capita income of US$ 2 dollars or less per day) while they are classified as non poor based on their personal assessment of their life satisfaction (a life evaluated as satisfactory or better). In addition, 11.2 percent of people in the survey are not classified as poor on the basis of their income while they are classified as poor on the basis of the experienced poverty criterion. Only 20 percent of those people who are classified as being in income poverty would be considered as being in experienced poverty. Thus, income poverty does not fully capture a person s well-being situation. On the other hand, 13 percent of those people classified as not being in income poverty are in experienced poverty. This dissonance is not big in percentage terms; however, it is large in absolute terms, since a larger percentage of people in the sample falls in the non income-poor category. Table 4 extends the analysis to the expanded classifications of experienced and income poverty, which incorporate the categories of moderate experienced and moderate income poverty. Dissonance emerges in all three income poverty categories; 57 percent of people in the survey would be incorrectly classified if income poverty is used as a proxy for experienced poverty. Thus, for concerns as relevant as the classification of a person as poor, it is clear that the two conceptions of poverty may lead to different consequences. Table 4 Experienced and Income Poverty: Expanded Categories Dissonances and Concordances In percentages of total survey population Income Poverty Experienced Poverty Poor Moderate poor Non poor Poor Moderate Poor Non Poor Why experienced poverty does not closely follow income poverty? The following section uses a domains-of-life approach to explain the reasons for this dissonance and to show that the experienced poverty conception is broader and richer than the income poverty one. 8. A Domains-of-Life Explanation The domains-of-life literature states that life can be approached as an aggregate construct of many specific domains, and that life satisfaction can be understood as the result of satisfaction in the domains of life. In other words, it is argued that a person is 13

14 much more than a consumer or an economic agent; and that she is being human not only when she is consuming goods and services but also when she is spending time and other resources in interpersonal relations (either with a spouse, a partner, children, other family members, friends and neighbors), when she is using her leisure time and pursuing her hobbies, and in other human deeds. This investigation has information about a person s satisfaction in seven domains of life: health, economic, job, family, friends, self and community; thus, it is possible to study the structure of domains satisfaction, as well as their relationship with life satisfaction. 8.1 Satisfaction in domains of life Table 5 shows average satisfaction levels by domain of life. It is observed that on average family satisfaction is relatively high, while community satisfaction is relatively low. Table 5 Satisfaction in Domains of Life Observations Average Health Economic Job Family Friendship Self Community Life satisfaction and satisfaction in domains of life Rojas (2006a and 2007a) has shown that the relationship between satisfaction in domains of life and life satisfaction is complex. The following general specification is used to explain life satisfaction for those persons who perform in all domains of life: 12 LS = f Hea, Eco, Job, Fam, Fri, Sel, Com ) (1) i ( i i i i i i i where: LS i : Life Satisfaction of person i, in a 1 to 7 ordinal scale. Hea i : Health satisfaction of person i, in a 0 to 100 scale. Eco i : Economic satisfaction of person i, in a 0 to 100 scale. Job i : Job satisfaction of person i, in a 0 to 100 scale. Fam i : Family satisfaction of person i, in a 0 to 100 scale. Fri i : Friendship satisfaction of person i, in a 0 to 100 scale. Sel i : Self satisfaction of person i, in a 0 to 100 scale. Com i : Community services satisfaction of person i, in a 0 to 100 scale. 12 It basically refers to working persons who are married and have children. 14

15 Table 6 shows the estimated parameters for regression (1) when an orderedprobit estimation technique is used. Table 6 Life Satisfaction and Satisfaction in Domains of Life Ordered-probit estimation Coefficient Significance Health Economic Job Family Friendship Self Community Cox and Snell Pseudo R-squared It is observed that for working persons who are married and have children, their life satisfaction the probability of being in a specific life-satisfaction category- is highly influenced by family satisfaction. Health satisfaction is also of great relevance; while self, job and economic satisfaction are important. Friendship and community satisfaction do not make a difference in these persons life satisfaction. 13 It is important to further discuss the relationship between life satisfaction and satisfaction in domains of life; it provides useful information about the nature of experienced poverty. First, it is clear that experienced poverty is one-dimensional, because it refers to a person s satisfaction with her life. However, it is also clear that the underlying explanatory factors of experienced poverty are multiple, because they refer to the explanatory factors of a person s satisfaction in many domains of life. These factors are not limited to the economic arena, because the sources of life satisfaction go beyond consumption and production to involve all those areas where a person is being human. Second, it is possible to substitute satisfaction in one domain of life by satisfaction in another domain. Thus, it is possible for a person to be satisfied with her life even in a case where her economic satisfaction is low; this would occur, for example, if her satisfaction in other domains of life were very high. 14 It is also possible for a person to be highly satisfied with her economic situation while being unsatisfied 13 Rojas (2006c) shows that the relationship between life satisfaction and satisfaction in domains of life is different for persons who are domain-absentee; in specific: economic satisfaction becomes more relevant for persons who do not have children or who are not even married; friendship satisfaction is also important for these persons. Satisfaction in the family domain is crucial for persons with no formal job. 14 Bivariate correlations between satisfactions in domains of life are positive, which shows that in the aggregate these satisfactions tend to move in the same direction. However, it is possible to find patterns where the correlation is negative. 15

16 with her life; this would take place, for example, if her self satisfaction were low. The issue of substitutability in domains-of-life satisfaction is of great relevance for experienced poverty and it requires further study. Third, for married persons with children, satisfaction in the family domain is crucial for life satisfaction. High economic satisfaction seems not to be able of compensating for low family satisfaction. Thus, the domains-of-life literature indicates that there is more in life than economic satisfaction, and that satisfaction in other domains is of greater relevance for a person s satisfaction with life. In other words, while experienced poverty depends on satisfaction in many domains of life, income poverty relies exclusively on income. Thus, the relevance of income poverty for experienced poverty depends on how income relates to satisfaction in all domains of life and, in special, in those domains of life that are of greater relevance for life satisfaction. 8.3 Income and satisfaction in domains of life Income poverty would be closely associated to experienced poverty if satisfaction in all domains of life were strongly related to income. A simple regression between satisfaction in each domain of life and the logarithm of household per capita income was run to study the relevance of income in explaining satisfaction in each domain of life; regressions are of the form: where: DS k k k i = + α1 Yhpc, i α 0 ln + μ k = 1, 2,..., 7 (2) k DS i refers to person i s satisfaction in domain k. k i Y hpc,i refers to person i s household per capita income. Table 7 shows the estimated parameters and the goodness of fit for each simple regression. It is observed that the estimated income coefficient is positive and statistically significant in all cases; thus, satisfaction in all domains of life tends to increase with a person s income. However, the estimated coefficient is small in most cases. For example, an increase of 100 percent in household per capita income raises satisfaction in the family domain a crucial domain for life satisfaction- in less than 2 points (in a 0 to 100 scale). Estimated coefficients are also small for other relevant domains such as health and self. The estimated coefficient is relatively large in the case of economic satisfaction; satisfaction in this domain increases in more than 6 points when household per capita income doubles. 16

17 Table 7 Income and Satisfaction in Domains of Life Simple regression analyses Household per capita income in logarithm terms Satisfaction in domain Health Economic Job Family Friendship Self Community Ln Y hpc Prob>t R-squared Furthermore, the goodness of fit of these regressions is very low. Even in the case of the economic domain, the R-squared is just 0.16; this figure indicates that household per capita income alone explains less that 16 percent of the variability in a person s economic satisfaction. The R-squared for other relevant domains, such as family, health, self, and job is negligible. Hence, it is not at all certain that an increase in income is accompanied by an increase in domain satisfaction. Thus, income is not a crucial explanatory variable for satisfaction in most domains of life; not even for satisfaction in the economic domain. In consequence, experienced poverty, which depends on satisfaction in domains of life, is not closely related to income poverty, which is a concept associated to a person s income. 8.4 Income and economic satisfaction The relatively weak relationship between income (in its logarithm value) and economic satisfaction as reflected by an estimated coefficient of 6.2 and an R-squared of is of no surprise for the subjective well-being literature. This literature has stressed that the relationship between income and economic satisfaction is not simple. Consequently, a person may be in income poverty while having high economic satisfaction; she could also be out of income poverty while being economically unsatisfied. Different arguments have been advanced to explain this finding. The Relative Explanation states that the impact of income on a person s economic satisfaction depends on changing standards based on her expectations and social comparisons (Meadow et al, 1992; Parducci, 1968, 1995; Easterlin, 1974, 1995; Diener et al, 1993; Senik, 2003 and 2004). If a person s income increases simultaneously with her reference group s income then there is little impact on that person s satisfaction. The Absolute Explanation assumes that income is relevant for economic well-being as long as it satisfies basic needs; it implies the existence of a threshold beyond which the impact of income on satisfaction is nil (Veenhoven, 1991, 2000). The Adaptation Explanation focuses on a person s ability to adapt to positive and negative events; thus, if a person has high adaptation capabilities she can easily adapt to changes in her 17

18 income, so that her satisfaction level does not vary substantially with income (Brickman et al, 1978). The Aspiration Explanation states that the degree of satisfaction experienced by a person is related to the ratio of her satisfied to total desires. Persons whose desires are fully satisfied tend to be happier than persons who have unsatisfied desires (Michalos, 1985). However, total desires are not completely exogenous to income, and as income increases so do total desires; therefore, happiness does not necessarily increase with income (Fuentes and Rojas, 2001; Easterlin, 2001; Stutzer, 2004) The Conceptual Referent Theory Explanation states that the relevance of income as an explanatory variable for life satisfaction is contingent on a person s life wisdom her notion of what a good life means and involves-; income could be very relevant or completely irrelevant depending on her life wisdom (Rojas, 2005b and 2007b) 8.5 Out of income poverty while being in experienced poverty This paper has stressed the argument that experienced poverty is a broader and richer concept than income poverty, and that its explanatory structure is multidimensional, going beyond the incomplete economic understanding of poverty. It is thus possible for a person to get out of income poverty while remaining in experienced poverty, since a raise in income does not ensure that her satisfaction in most domains of life will increase. Hence, any public policy and development strategy oriented towards the abatement of income poverty should take into consideration its impact on the other domains of life; it could be possible for some policies to reduce income poverty while having little or even a negative impact on experienced poverty because they do not impact satisfaction in other domains of life. Table 8 uses a domains-of-life perspective to further explain why a person may be out of income poverty while remaining in experienced poverty. All people in Table 8 are in experienced poverty; however, some are in income poverty and others are not. Table 8 Average Satisfaction in Domains of Life For People in Experienced Poverty By income poverty category Income Poverty Domain of Life Poor Non Poor Health Economic Job Family Friendship Self Community

19 Table 8 shows that there is a significant increase in average economic satisfaction -from 39.1 to when moving from the income poor to the income non poor. However, there is no improvement in family satisfaction a fundamental domain for experienced poverty in Mexico- and little improvements in domains such as health, friendship, self and community. Hence, for some people, getting out of income poverty is not enough to get out of experienced poverty, because their income improvement shows up only in the economic domain, with little impact in other relevant domains of life. 8.6 Out of experienced poverty while being in income poverty Because experienced and income poverty are not strongly related, it is also possible to get out of experienced poverty while remaining in income poverty. Table 9 uses the domains-of-life perspective to illustrate this possibility. All persons in Table 9 are in income poverty. Table 9 Average Satisfaction in Domains of Life For People in Income Poverty By experienced poverty category Experienced Poverty Domain of Life Poor Non Poor Health Economic Job Family Friendship Self Community Table 9 shows that there are substantial differences in satisfaction in domains of life for people in income poverty. Within the income poor, those persons who are not in experienced poverty show higher satisfaction in all domains of life. Substantial differences are observed in their job, health, self and family satisfaction, as well as in their economic satisfaction. It is noteworthy that their economic satisfaction is higher even under equal economic conditions; this is clearly a consequence of the relationship between income and economic satisfaction being weak. Rojas (2006d) studies the existence of high disparity in economic satisfaction within income groups and argues for the existence of X-inefficiency in the use of income; however, further study is needed on this issue. 19

20 In general, a person can be satisfied with her life even if her income is low; as long as she is moderately satisfied in domains of life such as family, self, health, job, and economic. 8.7 Patterns out of income poverty This paper has shown that it is possible to jump over the income poverty line with little effect in life satisfaction; Pattern A in Graph 1 illustrates this possibility. Pattern B shows a trajectory where a person jumps not only over the income poverty line but also over the experienced poverty line. It is clear that pattern B is preferred to pattern A because income is not an end but a mean for well-being. LIFE SATISFACTION B Out of income and of experienced poverty EXPERIENCED POVERTY LINE D A Out of income poverty while remaining in experienced poverty INCOME POVERTY LINE INCOME Graph 1: Patterns out of Income Poverty What is needed from a person and her society for pattern B to take place rather than pattern A? The domains of life approach states that in concert with an increase in income it is also important to have an increase in satisfaction in most domains of life; in special in those domains that are crucial for life satisfaction, such as the family, self, job and health domains. Table 10 shows the alternative patterns that can be followed out of income poverty. Column D illustrates what could be considered as the point of departure: the situation of persons who are in income poverty (daily household income less than US$2 per capita) and in experienced poverty. Column A shows the situation of people in the sample who are in experienced poverty but not in income poverty; their income places them in moderate income poverty (household per capita income in between US$ 2 to 5 dollars), but their life satisfaction places them in experienced poverty. Column B shows the situation of people who are not in experienced nor in income poverty; they assess 20