In search of the poor
Duncan Watson*
Middlesex University Business School, The Burroughs, Hendon, London NW4 4BT, UK
Received 4 December 1998; received in revised form 16 April 2000; accepted 8 May 2000
Abstract
Economists tend to adopt an empiricist approach to poverty, commonly calculating it as the proportion of the population that fall below some speci®ed income threshold. This ap-proach has been developed to take into account heterogeneous household needs by using income equivalence scales, but most other individual characteristics are totally ignored. This paper questions the relevance of this approach by considering the individualÕs perception of poverty and how it relates to their income and other characteristics. Logit modelling tech-niques are used to investigate the determinants of poverty perception and to ascertain whether income is an important determinant, or whether other socio-economic factors dominate. The ®ndings suggest that limiting the analysis to an income threshold will restrict our under-standing of the nature of poverty and the problem it presents to our society. Ó 2000 Elsevier Science B.V. All rights reserved.
PsycINFO classi®cation:3040
JEL classi®cation:D60; I31
Keywords:Poverty perception; Income; Equivalence scales
www.elsevier.com/locate/joep
*Tel.: +44-181-3625989.
E-mail address:[email protected] (D. Watson).
1. Introduction
Numerous de®nitions of poverty have been used in research over the years. Rowntree (1901) de®nes poverty as when `total earnings are insucient to obtain the minimum necessities of merely physical eciency', but with the growth of income for even the poorest members of Western society, attention has turned to relative measures. For example, Townsend (1979) de®nes pov-erty as the inability to meet needs that are conventionally desired or expected in society due to resource constraints. In contrast, Jackson (1972, p. 13) de®nes poverty as `inadequate social functioning', suggesting that an individual's deprivation is related to the powerlessness over both his/her life and weak in¯uence over the organisation of society. Such interdisciplinary de®nitions suggest that research into poverty must draw on the methods and concepts of many disciplines. Economists, however, have tended to take a more empiricist approach, for example calculating poverty as the proportion of the population that fall below some speci®ed income threshold.1 This approach has been developed to take into account heterogeneous household needs, by using in-come equivalence scales, but most other individual characteristics are ignored. While the income threshold approach has its uses in analysing the dynamics of income inequality, if it is to be of value in the analysis of poverty other in-dividual speci®c factors need to be unimportant. One means of testing this is to consider the individualÕs perception of poverty and how this relates to their actual income, the composition of their household and other socio-economic characteristics. To this end, this paper examines whether income and equiva-lence scales provide sucient information to understand the nature of poverty perception. It proposes that poverty perception can be understood by distin-guishing between perceived consumption needs and satisfaction with income. Regression techniques are then used to investigate whether income and household composition are sucient to determine an individual's welfare perception, or whether it is dominated by other socio-economic characteristics.
2. Theory and method
The traditional economistÕs empiricist approach suggests that poverty is determined by equivalised income. This approach can be traced to the
neo-1For a review of this method and alternative methods of measuring poverty see Atkinson (1987),
classical model of economic choice, which postulates that there is a set of possible objects of choice that an economic agent ranks according to his/her particular preferences. Since the agent is confronted with one or more constraints, he/she must maximise his/her utility by choosing the highest-ranking alternative available in his/her restricted choice set. Fig. 1 illustrates this optimisation process by comparing an individualÕs choice of con-sumption of necessities (N) and luxuries (L). The individualÕs optimal choice is given by the combination of N* of necessities and L* of luxuries. This model distinguishes between preferences and constraints, with poverty then de®ned as a severe constriction in the available choice set. For in-stance, if PP represents the poverty line, Fig. 1 suggests that the economic agentÕs income is such that only combinations of goods that are associated with poverty can be chosen. In more complex analysis, however, no single budget constraint, PP, can be used to de®ne a universal poverty threshold. Economic agentsÕ heterogeneity can aect expenditure needs (e.g., number of children, housing costs) and poverty is determined once income is ad-justed to take into account such heterogeneous needs. The question arises as to whether restricting the analysis to such equivalised income measures is sucient in understanding the nature of welfare perception, given that such perception could be determined by variables that are independent of income needs.
Consider the following depiction of individual i's perceived deserved in-come (YD):
YiDYiei; 1
whereYi is the current income, ei re¯ects preferences and attitudes towards job characteristics and ei2 ÿ1;1, describing the degree of perceived underpayment (overpayment) when positive (negative).
Assuming that initially all income derives from his/her labour, the mag-nitude and sign of ei will depend on the individual's wage entitlement per-ceptions. If he/she feels underpaid ei will be positive and he/she will feel relatively deprived. Using Eq. (1) perceived income needs for individual i
(YiN) can be then presented as
YiNYiDgi; 2
wheregi re¯ects consumption needs and preferences, gi 2 ÿ1;1 describ-ing the degree of income needs are above (below) perceived desired income when positive (negative). The variable gi determines whether income needs are met if individuali receives his/her perceived wage entitlement. A positive value ofgidescribes an individual that cannot meet their income needs given that he/she receives their perceived deserved income. If gi is negative the individual, in terms of consumption considerations, will feel a sense of well being.
Eqs. (1) and (2) decompose an individual's poverty perceptions according to employment (i.e., wage rate) and consumption needs. A respondent will report poverty if current income is insucient to meet consumption needs:
YiÿYiN<0: 3
Substituting (1) and (2) into (3), this condition is met when (4) holds:
eigi>0: 4
The paper uses the British Social Attitudes (BSA) survey series. This series, instigated by the Social and Community Planning Research and core funded by the Monument Trust, has been conducted annually since 1983. Sample sizes are approximately 3000 people per year and, prior to 1991, are drawn from the Electoral Register. The survey is designed to yield a representative sample of adults that are aged 18 and over and who are living in private households. In addition to core questions such as income, a wide range of social, economic, political and moral questions are asked. In particular, as a main role for the series is to allow researchers to conduct studies into political attitudes and voting behaviour, a number of attitudinal variables are in-cluded. The BSA data is therefore chosen as it enables wider analysis into the nature of poverty perception.
2.1. Perceived income needs
First, perceived income needs are examined using ordered logit techniques. The dependent variable for this regression analysis is derived from the 1986 BSA survey. By showing the degree to which perceived income needs and actual income diers, it is de®ned in the following manner:
Ci
whereyi is individual iÕs actual income andyiN is individualiÕs perceived in-come needs. The ordered logit modelling technique provides an opportunity Table 1
Poverty perception scenarios
Characteristics Description
ei>0;gi>0 IndividualIviews that, given his/her personal attributes, he/she
deserves a higher income (ei>0). This income is still insuf®cient to meet consumption needs (gi>0)
ei<0; gi>0 gi>jeij) IndividualIviews that, given his/her personal attributes, he/she is overpaid (ei<0) ± e.g., through luck. With regard poverty perceptions, however, this positive feeling is outweighed by the failure of deserved income to meet consumption needs (gi>jeij)
ei>0;gi<0 Although his/her perceived wage entitlement exceeds the amount
needed to meet consumption needs (gi<0), individualIviews that,
to examine whether speci®c socio-economic characteristics affect the prob-ability of an individual reporting each of these categories.2 A positive re-gression coecient implies that an increase in the variable increases the probability of category 3 and decreases the probability of category 0 from being reported.
To investigate the nature of gi the regression speci®cation includes an equivalised income variable, de®ned as annual household income divided by the McClements equivalence scale. 3 The model is therefore examining whether this procedure, by considering household needs, can account for dierences in perceived income needs, or whether it is other socio-economic variables that dominate.
Previous research suggests that education is an important determinant of income need perception. De Vos and Garner (1991) and Saunders and Matheson (1993) analysis of the impact of education on perception of income needed to `makes ends meet' in the US and Australia, respectively, ®nd that education variables are signi®cant in¯uences on the income levels reported. Saunders and Matheson (1993) conclude that life style factors are in¯uential in determining living standard perceptions:
. . .how money income is evaluated is not a purely economic phenome-non in the conventional sense, but is also aected by the social context within which people live their lives and the culture and values which de-velop within that context. (p. 11)
De Vos and Garner (1991) suggest that those investing more resources in education require a higher income to achieve a given level of satisfaction. Thus, in terms of our analysis, education may be correlated with feelings of insucient income, as shown bygi.
Political allegiance can also provide a proxy for dierences in perceptions with regard income needs. It can be taken to roughly respond to a particular set of values and beliefs. For instance, in reference to expenditure percep-tions, Labour supporters may show a greater willingness to depend on state services. In addition, a dummy variable for whether the individual has ex-perienced unemployment in the last ®ve years is included. It is possible that past labour market experiences will alter current income needs perceptions.
The inclusion of any other variables to capture subjective welfare dierences is hampered by data limitation. However, a dummy variable for those ex-pecting real income growth is included.
It may also be the case that the equivalence scale chosen is insucient to fully understand heterogeneous household needs. There may be systematic dierences in the costs attached to speci®c household characteristics. The model therefore includes variables to attempt to illustrate the potential lim-itations of the equivalence scale adopted. In addition, to family structure dummies, the number of old age pensioners in the household is included to analyse the impact of this demographic group on perceived income needs. A regional analysis is also required, with needs potentially dependent on re-gional cost-of-living dierences. A rere-gional average house price measure is also therefore included.
2.2. Poverty perception analysis
To examine the characteristics of those reporting poverty, logit modelling is used. The model estimate the odds of reporting poverty, given particular individual and job characteristics.4A positive (negative) coecient indicates that an individual with that characteristic, ceteris paribus, is more (less) likely to report poverty. In addition, as an estimated coecient increases, the contribution of that particular attribute to the incidence of poverty reporting also rises. The poverty perception variable used is derived from the 1989 BSA survey, which asks whether individuals perceive that they are poor. Given that labour market experiences may determine perceived deserved income and therefore poverty perception, the study focuses on employed respon-dents. BSA data does not provide sucient information to repeat the analysis for the unemployedÕs poverty perception.
To examine whether the poverty threshold approach is sucient to un-derstand poverty perception, the logit analysis includes income variables and the McClements equivalence scale measure. The potential importance of the source of income for ei is also examined, with income separated into the natural log of wage and the natural log of non-personal labour income. It is possible that own-wage effects will dominate cross-household income effects for poverty perception.
An analysis that uses equivalised income thresholds treats poverty as a static phenomenon. Permanent income theory, however, suggests that in-come is smoothed out over an individualÕs lifetime and implies that dynamic aspects of poverty should be considered. Age variables are therefore included in the analysis to consider whether younger and older workers, despite having relatively low current income, can adjust expenditure such that poverty perception is avoided. In addition, further dynamic considerations are ex-amined by including variables for an individualÕs income expectations.
The wage is not the sole component of an employeeÕs compensation package. Non-pecuniary job attributes can adjust the overall utility gained from employment. Wage inequality may partially re¯ect legitimate com-pensating dierentials for these job attributes. The logit analysis examines the possibilities of non-pecuniary employment bene®ts by including dummy variables for job interest and job satisfaction. In addition, to examine whether low pay is accepted in return for job training possibilities, a dummy variable for an individualÕs perception of his/her job advancement opportu-nities is included. Further, as wage inequality may intensify dissatisfaction with current income, a dummy variable for those expressing that the pay gap at their place of employment is too high is included.
De Vos and Garner (1991) also argue that the higher educated tend to mix with similar people who normally have higher income than the lower edu-cated. This implies that there is a correlation between education and feelings of overpayment or underpayment, as shown byei. Since individuals compare their living standards to that of their peers, a higher income may be de-manded to avoid poverty perception. This reference group eect is widened to include other characteristics and, together with education variables, the analysis includes variables for region and occupational class.
experienced disproportionately high levels of unemployment.5 Unemploy-ment amongst ethnic minorities is twice as high as that experienced by white people.
The stigma attached with poverty may also dier according to political allegiance. Research by Zucker and Weiner (1993), for instance, ®nds that
ÔconservatismÕis positively correlated with the belief in the importance of the individualistic causes of poverty. The poor are then blamed for their ®nancial position. Some caution is required, however, as political allegiance may be substantially linked to income levels.
3. Results
3.1. Perceived income needs regression
The investigation into the nature of perceived income needs indicates that such needs are an increasing function of income. Table 2, however, shows that the equivalised income is an important determinant of the distinction between actual income and perceived income needs. The results suggest that higher equivalised income signi®cantly reduce the probability of individuals reporting that income needs exceed actual income. This ®nding oers support for the notion that objective measures of income can account for dierences in subjective welfare perception. To provide further interpretation of the coecients, Table 2 also provides the marginal eects of the continuous variables on the probability ofCiequalling 3 (i.e., the partial derivative of the probability of reporting severe perceived income de®ciency with respect to each variable). This indicates the substantive signi®cance of equivalised in-come for perceived inin-come insuf®ciency.
Table 2 shows, however, that other socio-economic variables are impor-tant. For example, as predicted, higher education levels do reduce the probability of reporting insucient income to meet needs. Further, political allegiance is found to be an important determinant of the perceived income needs. It is found that Conservative voters, in comparison to those with al-ternative political allegiances, are signi®cantly less likely to perceive that needs exceed available income. Given that in 1986 a Conservative govern-ment was in power, this may be an indication of satisfaction with the
Government and a reduced inclination to admit that income is not at a satisfactory level. However, the substantive signi®cance of such variables for reporting severe income de®ciency is minor, as holding all other variables at their sample means, the Conservative voter's probability of reporting such de®ciency is only 0.009 higher.
The ®ndings suggest that, ceteris paribus, there is no association between basic family structure and reporting insucient income. The coecients for single respondents and divorced respondents are both insigni®cant. Never-theless, there is evidence to indicate that a simple equivalence scale cannot fully take into account the impact of family structure on needs. As the number of old age pensioners in the household increases, the probability of reporting insucient income to meet needs also increases. A basic ¯aw with objective measures of poverty can be their failure to fully take into account the impact of demographic variables for overall needs. This is further illus-trated by the regional house price variable. It can be assumed that this is a proxy for dierences in regional living expenses. Individuals living in regions with relatively high living expenses will also have relatively high minimum income perceptions. The results suggest that, given all other characteristics, an increase in the average house price will increase the probability of re-porting insucient income to meet needs.
Table 2 also shows that those that have experienced unemployment in the last ®ve years are signi®cantly more likely to report that their income is in-Table 2
Ordered logit resultsa
Variable Coecient Marginal eect [Prob(Ci3]
Constant 16.00
Equivalised income )2.842
)0.0332
Years of education 0.470 0.0055
Total number of OAPs 0.828 0.0097
Log regional dwelling price 0.056 0.0006
Age 0.012 0.0001
Unemployed in last ®ve years 0.495
Positive income expectations )0.649
Male dummy )0.737
aDependent variable is given byC
iin expression 5.
sucient to meet needs. This rejects the hypothesis that unemployment ex-perience will reduce expectations and therefore the minimum income that individuals perceive as necessary. It may be argued instead that periods of unemployment are associated with wealth losses and increased income is then a requirement to restore wealth to its desired level. This implies that mini-mum income perception can only be understood within a dynamic frame-work. This view is supported by the signi®cance of the income expectations coecient, with those expecting real income growth less likely to perceive that their income is insucient to meet their needs. Current perceptions can impact on expectations of the future, a feature that must be considered given that such expectation formation can eect labour market behaviour and therefore economic outcome.
The results indicate that males are signi®cantly less likely to view that their income is insucient to cover consumption needs. Whilst only 8.11% of males report insucient income, 22.87% of the female sample hold this perception. Holding all other variables at their sample means, the estimates suggest that the marginal eect of the gender dummy is substantively sig-ni®cant. The predicated probability of females reporting de®cient income is approximately double that of males. There are numerous possible hypotheses to explain this distinction. For instance, males may see themselves as Ô pro-vidersÕ, with a reduced inclination to admit failure to meet needs. Alterna-tively, females may have a superior understanding of family needs. However, data is not available to fully test such hypotheses. Nevertheless, it raises the issue of theÔfeminisation of povertyÕwhereby the intensity and determinants of poverty dier according to gender.
3.2. Poverty perception logit analysis
The BSA data suggests that poverty perception is common, with 25.67% of those in employment and 39.11% of the unemployed reported poverty in 1989. 6 A logit analysis of the unemployed provides no useful information, with only age and income found to signi®cantly reduce the probability of poverty reporting. It may be argued that the age variable is capturing wealth
6Poverty perception data is also available for 1986. In this year 28.77% of the employed sample
Poverty perception logit results
Characteristic Male employees Female employees
Poverty rate (%) Coecient Marginal eect Poverty rate (%) Coecient Marginal eect
Race
White 23.97 ±a 26.07 ±
Asian 36.36 # 50.00 #
Afro-Caribbean 36.06 1.392 0.199 38.46 0.849 0.123
Family structure
Equivalence scale measure 0.274 0.039 0.428 0.062
Single 23.19 ± 24.74 ±
Married 24.77 1.163 0.166 27.31 0.436 0.063
Divorced 28.57 1.862 0.266 29.49 0.789 0.114
Never divorced ±
Age )0.038 )0.005 )0.044 )0.006
Residential
Owner-occupier 22.22 )0.838 )0.120 24.65 0.067 0.009
Private tenant 32.50 ± 33.33 ±
Council tenant 33.66 )0.499 )0.071 33.33 0.391 0.057
Region
North-east 26.67 )0.293 )0.042 23.68 0.485 0.070
North-west 22.67 )0.299 )0.043 28.57 0.870 0.126
Yorkshire/Humberside 25.00 )0.673 )0.096 16.67 )0.214 )0.031
West Midlands 24.05 )0.299 )0.043 30.00 )0.208 )0.030
Wales 25.00 )0.389 )0.056 23.53 )0.841 )0.122
Scotland 25.42 )0.150 )0.022 24.19 )0.137 )0.020
East Anglia 46.42 0.325 0.047 33.33 0.911 0.132
South-west 20.31 )0.001 )0.0001 28.00 )0.048 )0.007
London 18.60 )0.393 )0.056 29.33 0.445 0.064
East Midlands 28.30 )0.894 )0.128 29.55 0.913 0.132
South-east 22.97 ± 26.77 ±
Skill and education
Years of education 0.373 0.053 )0.528 )0.076
Manual worker 28.46 )0.171 )0.024 30.77 0.074 0.011
Non-manual worker 19.83 ± 24.55 ±
Full-time 23.88 ± 27.14
Part-time 17.49 1.916 0.274 25.60
)0.195 )0.028
Private sector 27.24 ± 26.23 ±
Public sector 21.43 )1.006 )0.144 26.99 )0.220 )0.032
Rise less than in¯ation 30.69 ± 36.84 ±
Political af®liation
Conservative 15.28 )1.258 )0.180 26.04 )0.193 )0.028
Labour 30.71 ± 27.13 ±
Liberal 24.69 )1.316 )0.188 24.00 )0.244 )0.035
Other political party 31.81 )0.346 )0.049 32.00 )0.059 )0.008
No political aliation 35.29 )0.932 )0.133 25.71 )0.814 )0.118
Attitudes towards employment
Pay gap at work is too big 23.74 )0.343 )0.049 25.00 )0.201 )0.029
Pay gap at work is not too big 24.82 ± 27.78 ±
High opportunity to advance 45.55 0.509 0.072 56.11 1.261 0.183
Low opportunity to advance 17.06 ± 15.17 ±
Secure job is interesting 48.48 0.801 0.115 62.86 0.964 0.140
Insecure job is interesting 47.37 0.902 0.129 55.56 1.292 0.187
Job is not interesting 21.86 ± 23.04 ±
Satis®ed in current job 13.82 )1.290 )0.184 12.65 )2.139 )0.310
Not satis®ed in current job 44.53 ± 50.63
Constant 2.339 0.335 10.530 1.526
a(±) refers to the logit reference categories.
eects that are not controlled for. More interesting results are found for those employed, with evidence suggesting that labour market experiences are cru-cial determinants of poverty perception.
Initial analysis suggests that male and female poverty perception is similar, with only 2% more females reporting poverty. However, given the gender dierences found in the previous section, logit analysis decomposes the sample according to gender. These regression results are, given in Table 3, indicate that the nature of poverty perception for males and females does dier substantially. To faciliate comparability, the table also includes the marginal eects of each variable. Such variables, although more useful for continuous variables, provide an approximation to the change in the prob-ability of poverty reporting at the regressor means.
3.2.1. Who are the male working poor?
The male logit models estimated ®nd that, given all other demographic and personal characteristics, the equivalence scale measure is not a signi®cant determinant of poverty perception. This suggests that the equivalised income threshold approach is insucient to understand the nature of male poverty perception. However, income variables are found to be signi®cant determi-nants of such perception. Notably, the wage variable coecient is signi®cant and negative in sign. Thus, although controlling for a plethora of other characteristics, there appears to be an inverse relationship between wage and poverty reporting. The part-time dummy coecient is positive and signi®-cant, indicating that males are concerned with overall earnings. The insig-ni®cance of the occupation class variables also suggests that dierences in poverty reporting across occupational class can be explained by dierences in wage. Moreover, the insigni®cant nature of the income expectation variable suggests that poverty perception is determined by current income. Wegener (1992) ®nds that in West Germany the amount of income respondent's ac-cepted as 'just' rarely deviates from the amount actually received. Assuming this applies to the UK, the results would suggest that the correlation between poverty and wage re¯ect the inability to meet consumption needs (i.e., gi). However, the previous section shows that males are much less likely to view that their income falls short of consumption needs.
result of racial discrimination whereby ethnic minorities fail to get the job or promotion that they deserve or perceive that they deserve. Further analysis is required to fully indicate the impact of social exclusion on welfare percep-tion.
The examination of marital status shows that single and married male respondents have very similar sub-sample poverty perception rates, with married respondents having a rate only 1.58% higher. However, controlling for all other characteristics, Table 3 shows that these dierences are signi®-cant. Married respondents are signi®cantly more likely to report poverty. The importance of family structure is reinforced when divorced respondents are considered, with ®ndings suggesting that it is divorce that has the greatest impact on the probability of poverty perception. Indeed, this variable has also the most pronounced marginal eect.
The sub-sample working poverty rates suggest that poverty perception may be determined by the respondentÕs residential status. Compared to ap-proximately 1 in 3 of private tenants and council tenants, only 1 in 5 of owner-occupiers report poverty. However, average earnings for council tenants and private tenants are only 63% and 82%, respectively, of the av-erage of owner-occupiers. Taking into account wage and other characteristics that might aect perceptions, Table 3 shows that no signi®cant residential status variable can be found. Thus, it is apparent that poverty dierences according to residential status are partially explained by earnings dierences. Considering the dierences in family resources, all forms of residential status must be regarded as an important drain on available income.
Regional relationships such as a distinct north±south divide are not found. The sub-sample poverty perception rates suggest that perception is highest in East Anglia and lowest in London. However, no signi®cant coecients are found. The analysis into income needs given in the previous section suggests that a regional dierence in housing costs is important. However, the in-clusion of such costs in the logit analysis also fails to reveal any signi®cant regional pattern in poverty perception.
cannot account for the dierences in poverty perception. Only 25% of Conservative voters below half the median household income report poverty. This compares to 48% of those supporting other parties. Political aliation may describe dierences in values and perceptions. For instance, the stigma attached with poverty may be such a costly feature for Conservatives that lower poverty reporting, given available resources, is ensured. A Conserva-tive government is also in power during the year of our study. While Con-servative supporters are less willing to suggest failure of Government poverty alleviation policies, Labour supporters are more likely to oer the converse. The signi®cance of job characteristics in this analysis is mixed. Perceptions regarding the magnitude of the pay gap, for instance, are found to be in-signi®cant. No evidence that this variable modelsei more distinctly is found. However, those reporting job interest are much more likely to report poverty. An initial logit analysis found that these dierences are signi®cant, suggesting that, given wages and all other characteristics, those that report high job interest are relatively more likely to report poverty than those reporting otherwise. This could be the result of compensating dierentials whereby employees on low pay are compensated with non-pecuniary bene®ts. Thus, in inequality (4) it is the inability to achieve desired consumption (i.e., high levels of gi) that determines the poverty reporting decision. However, this theory can be discounted since a signi®cant positive relationship is found for those perceiving that their job is interesting and that it also is insecure. A negative relationship is found only for jobs that are also perceived as secure. Thus, a more likely explanation for poverty reporting is the fear that job opportunities are going to deteriorate.7
The sub-sample poverty rates show that those reporting high employment advancement opportunities are more likely to perceive that they are poor than those reporting low advancement opportunities. The logit analysis suggests that these dierences are signi®cant. Given all other characteristics, respondents with high employment advancement opportunities are signi®-cantly more likely to report poverty. This again raises question with regards the dynamic nature of poverty. Given the possibility of job advancement, those perceiving that they are poor are applying only a short-term horizon. The possibility of improved income in the future could also increase feeling of
7This is in contrast to unemployment history. Through experimentation it was not possible to ®nd a
current income inadequacy. However, the marginal eect on this variable is much smaller than other variables, indicating that other socio-economic variables have more pronounced eects on the probability of poverty per-ception.
The sub-sample analysis shows that those individuals that are satis®ed in their current employment are substantially less likely to report poverty. Given both the signi®cance of the job satisfaction coecient and the mag-nitude of its marginal eect, the logit analysis supports the notion that such dierences in labour market experience are important determinants of pov-erty perception. Reporting job satisfaction could indicate satisfaction with the current compensation package, with earnings at a suciently high level to meet perceived basic needs. However, as shown in the previous section, males rarely perceive that their minimum income requirements are above their average income. Other elements within job satisfaction should therefore be considered. For instance, employment compensation is not wholly in terms of wage and satisfaction can be derived from non-pecuniary bene®ts.
The above analysis, by focusing on statistical signi®cance, does not fully consider substantive signi®cance. To illustrate the importance of the vari-ables included in the logit model the estimated probabilities of reporting poverty will be considered. Speci®cally, the estimated probability of a male with speci®c characteristics is calculated and the impact of varying these characteristics investigated. The individual is initially considered to be a 30-year-old male earning £3 an hour, with £10,000 non-personal labour income, 10 years of education, an equivalence scale measure of 1 and having all characteristics given by the reference categories in Table 3. Such an analysis shows that, whilst wage and non-personal labour income are signi®cant de-terminants of poverty perception, marginal changes have only a relatively minor impact on estimated probability of reporting poverty. For example, an increase of the wage rate to £4 only decreases the estimated probability of poverty reporting by 11.6%. Moreover, an increase in non-personal labour income of £1000 only decreases the estimated probability of poverty re-porting by 3.3%. In comparison, if the male reports job satisfaction the es-timated probability falls by 62.6%. Job interest is also found to have substantial importance, with someone having an insecure interesting job 60.5% more likely to report poverty.
3.2.2. Who are the female working poor?
equivalence scale measure for females is positive and signi®cant. This sug-gests that as household needs increase, as shown by the magnitude of the equivalence scale measure, the probability of reporting poverty also in-creases. The analysis into income needs also indicated substantial gender dierences, with females more likely to report income insuciency. This ®nding, together with the signi®cance of the equivalence scale measure, is compatible with the notion that females have a superior understanding of household needs.
Notably, the nominal wage coecient is negative in sign but, in contrast to male poverty results, is insigni®cant. Controlling for other characteristics suggests that no signi®cant relationship between wage and poverty reporting exists. This may be explained by the traditional role of the male as the main breadwinner. The analysis, however, assumes that the relationship between wage and the log odds of poverty reporting is linear. Nevertheless, replacing the linear wage variable with a simple quadratic relationship does not im-prove the results. Interaction eects may also be occurring. The following logit model is therefore also used:
log pi
1ÿpi
ab1b2 Hi Wi b3Hibk Cik; 6
wherepiis the conditional probability that theith person reports poverty,Wi the nominal wage of theith person,Hithe hours worked by individuali, and
Cik is a vector of dummy variables capturing ith persons characteristics k. This model replaces the wage variable with variables that distinguish wage rate and hours worked. Thus, as hours worked,Hi, increases by 1 the effect of an additional £1 on the wage rate is increased by b2. A positive and sig-ni®cant interactive term (Wagehoursworked) would suggest that as the number of hours increases, the effect of an additional £1 on the wage rate on poverty reduction is diminished. However, no such signi®cant variables are found. Unlike male poverty perception, there is no evidence that wage affects female perception.
growth are less likely to report poverty, suggesting that the time horizon used to form poverty opinion diers across gender. Such ®ndings again illustrate that welfare perception can only be understood by examining males and females separately.
As with males, a signi®cant relationship between job interest and poverty reporting is found. However, this again is only a signi®cant feature if the respondent's present employment is also judged as insecure. Therefore, it is likely that these ®ndings re¯ect a fear that current employment opportunities are likely to deteriorate. Nevertheless, the ®ndings do indicate some further gender dierences in poverty perception. For instance, in comparison to male poverty reporting, the sub-sample poverty rate distinction between employ-ment with high and low perceived opportunities to advance is much greater. Those reporting high opportunities to advance are nearly four times more likely to report poverty than those reporting low job advancement oppor-tunities. The marginal eect of female advancement opportunities on the probability of poverty perception, in comparison to males, is also more pronounced. A potential explanation for this ®nding is the higher risk of periodical non-participation in the labour market to raise a family. Thus, the compensatory value of job training opportunities for low wages is less im-portant for future earnings and feelings of income inadequacy increase. The ®nding that income expectations are a signi®cant determinant of female poverty perceptions supports the relevance of such a longer-term view of poverty perception.
4. Conclusion
The main purpose of this paper was to consider the adequacy of using in-come thresholds to de®ne poverty. When analysing poverty in terms of minimum income needs the results suggest that equivalent income can ac-count for a signi®cant amount of the variation in reported needs. The sig-ni®cance of regional dwelling prices and family structure variables, however, suggested that it could certainly not account for all perceived income needs dierences. Perception variables, such as income expectations, were also sig-ni®cant and indicated the complex nature of income needs formation. This is further shown by the substantial dierence between males and females in the reporting of income needs, with males much less likely to report needs that exceed actual income. However, the overwhelming majority of the sample (84%) report that their income is sucient to meet consumption needs.
A logit analysis into poverty perception also indicated that a wider range of socio-economic variables must be considered to fully consider the nature of poverty. Clearly any analysis that focuses on an income-based threshold and ignores other factors will provide only a limited understanding of the nature of poverty and the problem it presents to our society. Own-wage ef-fects are only found to be signi®cant determinants of poverty perception for males. For females income expectation was found to be of greater impor-tance.
This is an important ®nding as income-based threshold approaches to poverty are often used to examine the need for, and the impact of, redis-tributive policies. The resulting poverty measures, together with income in-equality measures, such as the Atkinson Index,8are then used to describe the welfare gain resulting from a more equitable income distribution. The ®nd-ings in this paper suggest that such a general analysis will ignore important features of poverty and will fail to accurately measure the welfare loss in-volved.
Acknowledgements
I am grateful for comments from Paul Dunne, John Sessions and two referees.
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