Methods and Statistics in SocioEconomic Research UNIT 3

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Methods and Statistics in Socio-Economic
ResearchUNIT 3
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Table of Contents

• Part I
• The Objectivity in Social Sciences
• Introduction to Social Statistics on Poverty and
  Income Inequality
  
• Deciles Shares
• Percentiles
• Gini Coefficient
• Poverty Rates
• Part II
• Group Work

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• PART I
• The Objectivity in Social Sciences
• Introduction to Social Statistics on Poverty and
  Income Inequality

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The Objectivity in Social Sciences

• For Dewey (1938), the problem of objectivity of
  social research is, in reality, a false problem.
  
  
• Instead of desperately looking for objective
  explanations, social scientists should rather pay
  attention that the conceptual framework used is
  adequate for each phase of study.
• By so doing, the focus of research inevitably
  changes.
  
• From an impartial and Wertfrei (free of values)
  analysis, using Max Webers words, the logic of
  investigation inexorably shifts to the search for
  the best possible method, which can be helpful to
  clarify a specific scientific problem.

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The Objectivity in Social Sciences

• Diltheys (1894) classical distinction between
  Sciences of the Nature and Sciences of the Spirit
  
  
• Sciences of the Nature involve facts which can be
  easily explained through the use of mathematical
  procedures, while
  
• Sciences of the Spirit (in which social sciences
  are probably the best example) necessarily
  require a multi-level pattern of analysis.
  
• Here, the exploration of the spirit, of the
  psychology of individuals, but also of the
  history and of the culture of a nation is crucial
  to improve understanding of the scientific
  problem (what in German is called Verstehen).

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The Objectivity in Social Sciences

• As a direct consequence, DAS VERSTEHEN (THE
  UNDERSTANDING) becomes strictly connected to a
  determined Weltanschauung, another German word,
  used to describe the way how we look at the
  world, which is determined by the socio-cultural
  environment in which we live.
• Max Weber writes that there is no pure objective
  scientific analysis of cultural life (1904). He
  says that WERTFREIHEIT (Freedom of Values) is
  a myth.
• The consensus around a determined set of theories
  becomes, using Kuhns words, a matter of
  consensus around a determined PARADIGMA accepted,
  in toto or in part, by the scientific community.

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The Objectivity in Social Sciences

• The aim of this Unit, however, is NOT to resolve
  the problem of objectivity in social research.
  
• Rather, the aim of this Unit is to show a way of
  exploring poverty and income inequality through
  the use of some basic social statistics.
  
• These objective measures of social distance may
  be, in fact, a useful tool for reducing poverty
  and its associated disadvantages.

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Poverty and Income Inequality

• This Unit is based on Cerami, Alfio (2003) 'The
  Impact of Social Transfers in Central and Eastern
  Europe', LIS Working Paper no. 356, Luxembourg
  Luxembourg Income Study. http//www.lisproject.org
  /publications/liswps/356.pdf
• World Bank (2001), Poverty Manual, Washignton DC
  World Bank http//www.worldbank.org/wbi/povertyana
  lysis/manual/index.html
  

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Definition of Poverty

• Poverty means either
• lack of command over commodities in general
  (i.e., a severe constriction of the choice set
  (Watts 1968)) or
  
• a specific type of consumption (e.g., too little
  food energy intake) deemed essential to
  constitute a reasonable standard of living in a
  society, or lack of "ability" to function in a
  society.
• put it differently, whether households or
  individuals have enough resources or abilities to
  meet their needs. (World Bank 2001, ch.1, p.1)

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Relative vs. Absolute Poverty

• Poverty can be described according to the axis of
  relative versus absolute poverty (Smeeding,
  2002).
  
• Relative poverty is understood in terms of the
  lack of material resources and usually calculated
  as 40, 50 or 60 of average income/expenditure
  of the population.
• By contrast, the term absolute poverty is more
  ambiguous. Carmel (1999) defines it as a
  chimera, since its measurement strongly depends
  on the definition of basic needs that we give, so
  that it may exist when or where a person is
  unable to buy enough food, water, or clothing,
  but it may also exist in absence of these extreme
  situations.
• In the course of this Unit, poverty will refer to
  all those people who find themselves below 60 of
  the median. This is the official poverty line
  proposed by the European Union for comparisons
  among member states (Eurostat, 2000).

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Determinants of Poverty

• The World Bank (2001) identifies the following
  causes of poverty
  
• Regional level characteristics (ie. areas
  characterized by geographical isolation,
  inhospitable climatic conditions, but also
  gender, ethnic, and racial inequality)
• Community level characteristics (ie.
  infrastructure availability of schools and
  medical clinics in the area, and distance to
  local administrative centers).
• Household and individual level characteristics
• Demographic characteristics
• Household size and structure (i.e. large
  households)
  
• Dependency ratio (ie. family members not in
  labour force )
  
• Gender of the household head (households headed
  by women)

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Determinants of Poverty

• Economic characteristics
• Household employment (ie. rate of participation
  or unemployment)
  
• Household incomes (level of income as well as its
  distribution among the household members)
  
• Structure of household consumption expenditures
  (food and non-food spending)
  
• Household property (tangible goods such as land,
  cultivated areas, livestock, agricultural
  equipment, machinery, buildings etc) and its
  financial assets (liquid assets, savings and
  other financial assets).

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Determinants of Poverty

• Social characteristics
• Health within the Household (households living
  standards, including nutritional status, health
  status, etc).
  
• Education (ie. literacy rate of households
  members)
  
• Shelter (the overall framework of personal life
  of the household, incliuding housing, services,
  and the environment).

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Measuring Poverty

• Poverty and well-being can be measured in
  numerous ways.
  
• One common approach is to measure economic
  welfare on household consumption expenditure or
  household income, assigning to each resident in
  the household a share of the total amount.
• Other approaches include non-monetary measures of
  individual welfare (infant mortality rates in the
  region, life expectancy, household spending on
  food, housing, and child schooling).
• The well-being of an individual is a broader
  concept and cannot be exhaustively reduced to the
  individuals command over commodities. (World
  Bank 2001)

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Measuring Poverty

• According to the World Bank (2001), a good
  measure of poverty should
  
• allow one to assess the effects of projects, or
  crises, or government policies, on poverty,
  
• permit one to compare poverty over time,
• enable one to make comparisons with other
  countries, and
  
• target the poor with a view to improving their
  position. (World Bank 2001, ch.1, p.3)

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Decile Shares

• Decile shares are commonly used not only to
  demonstrate how unequal income distribution can
  be in one country or among many countries, but
  also used to display where changes occur.
• Lower-income groups are the three bottom deciles,
  middle-income groups are the four middle deciles,
  while high-income groups are the top three
  deciles (The Canberra Group, 2001, p.97).

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Decile Shares
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Decile Shares

• Taking as example the Czech Republic in 1992,
  Figure 1 can be read as follows a) the lowest
  income individuals (Decile 1-3) received 19
  percent of total net disposable income b) the
  middle-income individuals (Decile 4-7) received
  approximately 37 percent, c) while the highest
  income individuals received about 44 percent.
• From a brief comparison, we can conclude that
  inequality in income distribution drastically
  increased in all countries since the first years
  of transition.
• The percentage of total net disposable income
  also moved from the bottom to the top of income
  deciles.

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Percentiles

• Another way to display income inequality is
  through the use of percentiles of the
  distribution as percentages of the median.
  
• The 10th percentile (P10) represents, for
  example, a household in the bottom decile, while
  the 90th percentile (P90) represents a household
  in the highest income decile.
• The difference between the 10th and the 90th
  percentile corresponds to the distance between
  lowest and highest income groups, while the ratio
  between the incomes of those at the 90th and 10th
  percentiles (the so-called Decile Ratio
  P90/10) quantifies the gap between the richest
  and the poorest.
• The percentiles can be, therefore, seen as a
  measure of social distance.

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Percentiles
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Percentiles

• Taking as example the Czech Republic in 1992, it
  might be affirmed that a low-income citizen (P10)
  had an income equal to 65 percent of the median,
  while a high-income citizen (P90) had an income
  equal to 155 percent of the median.
• In other words, high-income individuals had 2.4
  times (P90/10Decile Ratio) the income of
  low-income individuals.
  

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GINI Coefficient

• How would social inequality change if social
  transfers would not be in place?
  
• In other words, what kind of scenario would
  prevail if less fortunate citizens would not have
  access to some form of income replacement?
  
• The following figure shows the Gini coefficient
  before and after disbursement of social
  transfers.
  
• The Gini coefficient measures the concentration
  of income and ranges from 0 in case of extreme
  equality (all households have the same income) to
  1 in case of extreme inequality (one household
  has the total income at disposal for all
  households.

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GINI Coefficient
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GINI Coefficient

• From the analysis of this figure, it is
  immediately clear that a society without social
  transfers would be a more unequal society.
  
• The degree of inequality would dramatically
  increase at the expenses of lower social classes
  if some form of redistribution was not in place.
  
• Estonia, Hungary and Poland, especially, would be
  particularly vulnerable to income inequality, but
  no country would be an exception.
  

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Poverty Rates

• Poverty rates concern all those people who find
  themselves below a determined poverty line
  (usually 40, 50 or 60 of the median of net
  disposal income).
• The following figure analyses the change in
  poverty rates among the total population before
  and after the disbursement of social transfers.
  
• This figure is to be read as follows, the first
  segment of the bar represents the poverty rate
  with social transfers, while the second segment
  represents the ratio without social transfers.

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Poverty Rates
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Poverty Rates

• As a general conclusion, it can be affirmed that
  poverty rates greatly vary from country to
  country and according to how poverty is measured.
  
• A country may display a low level of poverty when
  measured at 40 of the median, but high if
  measured at 60 of the median.
  
• Estonia (2000) is the country that displays the
  highest poverty rate, followed by Poland
  (1995,1999), Romania (1995, 1997) and Slovenia
  (1997,1999).
• The situation becomes even worse if we exclude
  from the net disposable income the revenues from
  social transfers. In this case, overall poverty
  rates in Central and Eastern Europe would be much
  higher.

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• PART II
• Group Work

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Exercise Unit Three

• Students will be required to critically discuss
  some basic social statistics concerning one or
  more EU Member State.
  
• Steps to follow
• 1. Go to the web-site of the course
• http//www.policy-evaluation.org/euresearch/
• 2. Click on Statistics
• 3. Download the documents
• 4. Choose a country (eg. UK)
• 5. 4. Read, analyse and discuss the statistics on
  income inequality provided (eg. poverty rates).
  Particularly important here is to understand how
  many poor people exist in a country and which is
  their possibility to escape from this trap.

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Key Questions

• Key questions
• Which is the situation of the country in terms of
  poverty and income inequality?
  
• Is poverty increasing? If yes, why?
• Is income inequality increasing? If yes, why?
• Is the increase/decrease in income inequality
  connected with the economic performance of the
  country?
  
• Is the increase/decrease in income inequality
  connected with political decisions?