Collect the data about the quality of standard of living of 20 families
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Introduction
It is commonly assumed that a family’s current income is a good proxy measure of its living standards. This assumption lies behind the widespread use in many countries of income, in various forms and in comparison with some benchmark standard, as a measure of whether a family unit is in poverty. One problem with using income itself as a component of a living standards measure is that it complicates the analysis of the relative importance of income as against various other factors that might influence living standards. Income can not then be included with other explanatory variables, since it is itself the ‘living standard’ variable whose determinants we seek to understand.
An alternative approach is to use standard of living indicators that do not include income. This approach uses information on the extent to which people exhibit symptoms of low living standards, such as an inability to access basic goods and services or to participate in desired social activities, together with self-assessments, to construct an index measure of living standards. It is then possible to explore empirically the strength and interaction of various factors, including income, on this index. Income can enter an explanatory model because it is not a direct component of the living standards measure one is seeking to explain.
This approach was adopted in a work programme to measure and evaluate the living standards of older New Zealanders, commissioned by the Super 2000 Taskforce and continued and extended in 2001 by the then Ministry of Social Policy. A survey of older people was conducted in 2000, and a new Material Well-being Scale was developed.[1]Regression analysis published at the time indicated that the material living standard that older New Zealanders are able to enjoy in their retirement depends on their current net income, albeit rather weakly, as well as a number of other socio-economic factors, such as accumulated assets and accommodation costs.[2]
In this paper we revisit the estimated relationships between the living standards of older people and their current income and accommodation costs. The objective of this work is to extend the previous analysis to better understand the source(s) of these observed relationships, and the extent to which they reflect direct effects of current income and accommodation costs on well-being as opposed to acting as proxies for other factors that determine living standards in retirement. For this purpose we focus specifically on testing the following two hypotheses implied by the previous analysis: first, that only current income, and not the source of income, is associated with well-being; and second, that only accommodation costs, and not the type of accommodation tenure, is associated with well-being.
It is important to emphasise that it is not the objective of this paper to provide a critique of the general methodology or findings of the original report. Thus, for instance, we remain silent on the broader issues concerning the validity of such methods of modelling living standards, and statistical implications of such issues as the opposite skewness of the well-being index and income distributions.[3] We also accept the linear regression framework for modelling the influences on living standards. Rather, we take on face value the underlying basis for the reported analysis, and use the regression specification(s) adopted as the point of departure for a re-evaluation of these two specific issues.
It is commonly assumed that a family’s current income is a good proxy measure of its living standards. This assumption lies behind the widespread use in many countries of income, in various forms and in comparison with some benchmark standard, as a measure of whether a family unit is in poverty. One problem with using income itself as a component of a living standards measure is that it complicates the analysis of the relative importance of income as against various other factors that might influence living standards. Income can not then be included with other explanatory variables, since it is itself the ‘living standard’ variable whose determinants we seek to understand.
An alternative approach is to use standard of living indicators that do not include income. This approach uses information on the extent to which people exhibit symptoms of low living standards, such as an inability to access basic goods and services or to participate in desired social activities, together with self-assessments, to construct an index measure of living standards. It is then possible to explore empirically the strength and interaction of various factors, including income, on this index. Income can enter an explanatory model because it is not a direct component of the living standards measure one is seeking to explain.
This approach was adopted in a work programme to measure and evaluate the living standards of older New Zealanders, commissioned by the Super 2000 Taskforce and continued and extended in 2001 by the then Ministry of Social Policy. A survey of older people was conducted in 2000, and a new Material Well-being Scale was developed.[1]Regression analysis published at the time indicated that the material living standard that older New Zealanders are able to enjoy in their retirement depends on their current net income, albeit rather weakly, as well as a number of other socio-economic factors, such as accumulated assets and accommodation costs.[2]
In this paper we revisit the estimated relationships between the living standards of older people and their current income and accommodation costs. The objective of this work is to extend the previous analysis to better understand the source(s) of these observed relationships, and the extent to which they reflect direct effects of current income and accommodation costs on well-being as opposed to acting as proxies for other factors that determine living standards in retirement. For this purpose we focus specifically on testing the following two hypotheses implied by the previous analysis: first, that only current income, and not the source of income, is associated with well-being; and second, that only accommodation costs, and not the type of accommodation tenure, is associated with well-being.
It is important to emphasise that it is not the objective of this paper to provide a critique of the general methodology or findings of the original report. Thus, for instance, we remain silent on the broader issues concerning the validity of such methods of modelling living standards, and statistical implications of such issues as the opposite skewness of the well-being index and income distributions.[3] We also accept the linear regression framework for modelling the influences on living standards. Rather, we take on face value the underlying basis for the reported analysis, and use the regression specification(s) adopted as the point of departure for a re-evaluation of these two specific issues.
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