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Why the Middle Class Invests in its Future: An Empirical Test of the ‘Peace of Mind’ Narrative in Middle Income Countries. Rick Mourits & Luuk van Kempen EADI conference Bonn – June 24, 2014. . The ‘Peace of Mind’ narrative (I) .

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Why the Middle Class Invests in its Future:

An Empirical Test of the ‘Peace of Mind’ Narrative

in Middle Income Countries

Rick Mourits

&

Luuk van Kempen

EADI conference

Bonn – June 24, 2014

  • 


The peace of mind narrative i
The ‘Peace of Mind’ narrative (I)

  • 1. Calvo (2008); risk of falling (back) into poverty is “ever-present, oppressing source of stress” for those just above the poverty line → middle class sufficiently ‘distant’ from poverty line to enjoy “peace of mind”

  • 2. Banerjee & Duflo (2008; 2011):

    “nothing seems more middle class than the fact of having a steady well-paying job”

    • Job securityis crucial in order to avoid being consumed by “existential stress”

    • Complex survival-oriented tactics imply a drain on mental energy for investment in future (self) → weak “navigational capacity” (cf. Appadurai, 2004)

  • 3. Psychology of scarcity

    (Mullainathan & Shafir, 2013; Mani, Mullainathan, Shafir & Zhao, 2013; Haushofer & Fehr, 2014)

    • Scarcity of money leads to i) cognitive overload, and ii) attentional capture

    • Lack of “mental bandwith”today compounds tomorrow’s scarcity problem


  • The peace of mind narrative ii
    The ‘Peace of Mind’ narrative (II)

    • Evidence on supposed inhibition to invest in one’s future, as a consequence of deleterious psychological mechanisms triggered by (near-)poverty, is mostly anecdotal or micro in scope

    • Our ambition: a broader test whether job (and thus income) security indeed frees up ‘mental space’ to invest in oneself, using cross-country evidence

    • Objective: Contribute to our understanding of what sets the middle class apart from the poor and investigate whether there are self-reinforcing dynamics at play

      • Focus on MICs / emerging economies

    • Method: structural equation model (and multilevel regression analysis)

    • Question: Are the data compatible with the ‘peace of mind’ narrative?

    • What type of investment?

      • Cultural capital; not instrumental in ‘making ends meet’

      • Human capital investment may pay off even in short or medium run


    Peace of mind pathway into middle class

    jjjjj

    ‘Peace of Mind’ pathway into middle class

    Investment in Cultural Capital

    Peace of Mind

    Education

    Job security

    Assets/Wealth

    Income


    Testing the peace of mind narrative
    Testing the ‘Peace of Mind’ narrative

    • World Value Survey,5th wave (2005-2008)

    • 23middle-income countries (lower cutoff: $1,250 GNI p.c.; upper cutoff: $12,500 GNI p.c.) → 37,150 households


    Operationalisation of pom pathway into middle class

    jjjjj

    Operationalisation of ‘PoM’ pathway into middle class

    Personal resource that absorbs the impact of negative shocks on mental health (buffer against stress)

    (thoits, 1995; young 2001; lever, piñol&uralde, 2005)

    • news consumption

    • interest in politics

    • importance tertiary education (girl-to-boy)

    • membership in artistic/ cultural organization

    Investment in Cultural Capital

    Peace of Mind

    Sense of control

    Education

    Education on isced scale

    Job security

    Job skill on isco scale

    Assets/Wealth

    Last year’s Savings

    Income

    Estimated income


    Structural equation modeling
    Structural Equation Modeling

    Structural Equation Modeling, also SEM, is like regression analysis:

    it estimates the linear effects of independent variables on Y.

    However, it can do more!

    • Test whether models fit the data

      SEM tests whether a restricted model has less explanatory power than a full

      model, i.e., whether certain paths (relations) are redundant.

      Full Restricted




    Conclusion
    Conclusion

    • Overall, ‘peace of mind’ narrative fits data reasonably well, but a number of additional relations improve fit:

      • ‘Peace of mind’ also predicted by relativeincome, not only by education/job skills

      • Cultural capital investment also directly predicted by education/job skills, not only through ‘peace of mind’

    • Analysis suggests that ‘sense of control’ and cultural capital are class-dependent

    • However, analysis based on rather crude proxies → need for better data, especially on mental health

    • If narrative holds true, interesting implications for development interventions:

      • Benefits of interventions that would assist households in ‘navigating’ the future (e.g. trainings on business planning, financial management etc.)

      • ‘Costs’ of complex interventions that further increase cognitive load on participants


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