The Empirical Framework and estimation strategy

Objective measurement of relative deprivation

The theoretical foundation of this chapter bases on the concept of relative deprivation put forward by Runciman (1969) and operationalized by Yitzhaki (1979) and Stark and Yitzhaki (1988). As stated earlier, the notion of relative deprivation is that even if I can be satisfied in absolute terms, our level of satisfaction depends on what I see around us. In this study also I conceptualize that youth satisfaction in life depends on absolute and relative income (or wealth) of their own or parents, their social capital and the social capital of their peer groups.

As stated earlier, I decompose ‘objective’ measures of relative deprivation (RD) along three different dimensions: income, non-income, and social capital. Relative income deprivation (RD) (which is commonly based on income and computed using Yitzhaki index) is defined as the gaps between the individual’s (or household’s) income (or wealth) and the incomes (or wealth) of all individuals or households richer than their within a reference group. According to this measure, individuals or households within the same reference group and with identical income, Y, all experience the same level of relative deprivation. The same is true with other dimensions of relative deprivation such as social

0 .1 .2 .3 0 .1 .2 .3 0 .1 .2 .3 0 5 10 0 5 10 0 5 10 0 5 10 1 2 3 4 5 6 7 8 9 10 11 12 D e n si ty SWB across woredas

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capital deprivation (SD) and non-monetary relative deprivation (NID) (i.e. deprivation in material assets). With some extension of Stark and Zawojska (2015), I model the link between relative deprivation of the different dimensions and youth well-being using objective measures of RD in the following way. Consider a youth population of n in which every member of n has a positive level of income, Yi. Income distribution of youth (or households) are given by 𝑌1< 𝑌2 < ⋯ < 𝑌𝑛; where 𝑌𝑖

denotes the income of the household to which youth i belong. In the same manner, the social score distribution like the income distribution are given by 𝑆1< 𝑆2< ⋯ < 𝑆𝑛; where Si denotes the social

score (or capital) of the ith youth. Like-wise, the non-income items or material possessions that display one’s social status compared to those generally owned in his or her reference groups are also given by 𝑁𝐼1< 𝑁𝐼2, … < 𝑁𝐼𝑛; where 𝑁𝐼𝑖 denotes the non-income items (or patterns) of the ith youth belonging

to a household.

Thus, I define the utility (or well-being) function, Ui, of youth i belonging to population n as follows:

𝑈𝑖(𝑌1, … , 𝑌𝑛) = 𝛽𝑖𝑌𝑖+ (1 − 𝛽𝑖)𝑅𝐷𝑖𝑟(𝑌1, … , 𝑌𝑛)

+ 𝜃𝑖𝑆𝑖 + (1 − 𝜃𝑖)𝑆𝐷𝑖𝑟(𝑆1, … , 𝑆𝑛)

+ 𝛿𝑖𝑁𝐼𝑖 + (1 − 𝛿𝑖)𝑁𝐼𝐷𝑖𝑟((𝑁𝐼1, … , 𝑁𝐼𝑛) (4.1)

Where 𝑅𝐷𝑖𝑟(. ) is a measure of relative income deprivation; 𝛽𝑖Ͼ (0,1) expresses the weight accorded by

youth i to ther parents’ incomes; (1-𝛽𝑖) expresses the intensity of concerns that youth i attach to relative

income; 𝑆𝐷_𝑖𝑟 (.) and 𝑁𝐼𝐷_𝑖𝑟 (.) are measures of relative social deprivation and relative non-monetary deprivation, respectively; θi Ͼ (0,1) is the weight accorded by youth i to their social capital; (1 − 𝜃𝑖) and (1-δi ) denote the intensity of concern that youth i attach to relative social capital and relative non- monetary income, respectively; r denotes types of self-identified reference groups presented in Table 4.3. Relative income, relative non-income and relative social deprivations of youth i, who are members of a reference group of n individuals (i.e. the subpopulation of all individuals belonging to the same reference group (r) such that i=1, 2,…, n), are defined as the weighted sum of the excesses of incomes, non-incomes and social capitals higher than Yi, Si, NIi such that the excesses are weighted by their relative incidence, respectively.

To operationalize objective measures of relative deprivation, I calculated relative deprivation for each youth within identified reference group using the Yitzhaki index (Yitzhaki, 1979). For instance, the relative income deprivation function of youth i with household income, Yi, who is a member of a self- identified reference group (r) of n individuals, is given as follows:

𝑅𝐷𝑖𝑟(𝑌1, … , 𝑌𝑛) = 1

𝑛∑ (𝑌𝑗

𝑛

𝑗=𝑖+1 − 𝑌𝑖) (4.2)

Where 𝑌𝑗>𝑌𝑖; noting that for any j≤i, max {𝑌𝑗−𝑌𝑖, 0} = 0; j is individuals whose income are greater than

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number of individuals who are in the r reference group. Note that n varies with the kinds of reference groups used. With this measure of relative income deprivation, an individual (or household) i with say income Y is deprived of all income above Y (Stark and Taylor, 1991), i.e., RDi=RDi (RIi), where RI denotes relative income in comparison to the reference group. Therefore, individuals within the same reference group and with identical income Y all experience the same level of relative income deprivation. The Yitzhaki index is an ‘upward looking’ index of deprivation by construction. Based on this construction, I model and calculate ‘r=12’ estimates of RD for each youth i. One of the prominent findings in this study that deserves special attention is the direction of the effect of relative income deprivation on SWB. If the economic success (income in this case) of other individuals or households in the reference groups depresses youth welfare, it means that the coefficient of RD (1 − 𝛽𝑖) is negative

and interpreted as ‘’status effect’’. On the other hand, youth well-being can be positively affected by the income of the relevant peer groups. Under such conditions, I expect that the coefficient of RD (1 − 𝛽𝑖) is positive and can be an indication of a ‘’signal effect or positive source of information’’- higher

income of others in the reference group indicate higher prospects for youth, that shapes future expectations and decisions. It means also that youth build aspirations based on the achievements of other peers such as based on the standard of living of other youth of similar age, occupation, etc. Positive effect of relative deprivation on SWB could be also related to pure ‘’economic externalities’’, where relative income (deprivation) act as a proxy for the benefits of living with rich(er) people or wealthy neighbourhoods (Ferrer-i-Carbonell, 2005). It’s possible that the two effects could exist simultaneously. In this case, when the status effect dominate the signal effect, the coefficient of relative deprivation is negative, whereas the effect is positive when vice-versa.

Similarly, I compute social relative deprivation obtained from social capital indicators, as the weighted sum of the excess of social scores higher than 𝑆𝑖 such that the excess is weighted by its relative

incidence: 𝑆𝐷𝑖𝑟(𝑆1, … , 𝑆𝑛) = 1 𝑛∑ (𝑆𝑗− 𝑆𝑖) 𝑛 𝑗=𝑖+1 (4.3)

Where 𝑆𝑗> 𝑆𝑖; noting that j≤i, max {𝑆𝑗−𝑆𝑖, 0} = 0.

A similar approach is used in Elgar et al. (2016). Mathematically, the same approach is also employed to compute relative non-income (non-monetary) deprivation (NID) from the non-income scores/items (NI) as follows: 𝑁𝐼𝐷𝑖𝑟(𝑁𝐼1, … , 𝑁𝐼𝑛) = 1 𝑛∑ (𝑁𝐼𝑗− 𝑁𝐼𝑖) 𝑛 𝑗=𝑖+1 (4.4)

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Though I cannot determine a priori, I expect that relative social deprivation and non-monetary relative deprivation are negatively associated with youth well-being. However, large social networks improve well-being significantly (Akay et al., 2012).

Generally, a utility function encompassing the three dimensions of relative deprivations and other related factors, important for well-being can be expressed in the following relation:

𝑈(𝑖, ℎ) = 𝑆𝑊𝐵(𝑅𝐷𝑖𝑟, 𝑆𝐷𝑖𝑟, 𝑁𝐼𝐷𝑖𝑟, 𝑌𝑖, 𝑆𝑖, 𝑁𝐼𝑖) (4.5)

Alternatively, the above relationship can be expressed as follows where the different dimensions of relative deprivation are the function of the respective income, social capital, and non-income of the reference groups:

𝑈(𝑖, ℎ) = 𝑆𝑊𝐵(𝑅𝐷𝑖𝑟(𝑌𝑖, 𝑌𝑗), 𝑆𝐷𝑖𝑟(𝑆𝑖, 𝑆𝑗), 𝑁𝐼𝐷𝑖𝑟(𝑁𝐼𝑖, 𝑁𝐼𝑗), 𝑌𝑖, 𝑆𝑖, 𝑁𝐼𝑖 ) (4.6)

Where r, i, j, and h as defined earlier.

Estimation strategy

Given the ordinal nature of the dependent variable, SWB, the ordered probit specification would be an appropriate method employed in regression. In order to make full use of the panel nature of our data and controlling for otherwise unobserved individual characteristics and potentially different use of the underlying satisfaction scale across individuals, an ideal approach would be to employ a fixed effects estimator. Unfortunately, such a fixed-effects ordered probit estimator does not exist in standard statistical software packages. As an approximation, I use linear fixed-effects regression models, in addition to the use of random-effects ordered logistic regression models. The first alternative approximation has been commonly used in literature (Ferrer-i-Carbonell and Frijters, 2004; D’Ambrosio and Frick, 2006; for instance).

Our default model specification considers SWB as latent:

𝑆𝑊𝐵𝑖𝑡∗ = 𝛽𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒log(𝑌𝑖𝑡,ℎ) + 𝛾 𝑍𝑖𝑡+ 𝜎𝑘+ 𝑢𝑖𝑡 (4.7)

Where 𝑆𝑊𝐵_𝑖∗ is the self-reported SWB of youth i on a subjective scale ranging from 1 to 9; 𝑌𝑖 is absolute

per capita income (PCI) of youth i that belongs to household h in year t (in log form); Zi is a vector of observable individual, household and community characteristics which affect wellbeing; 𝜎𝑘 is district

and other individual level fixed effects (unobservable time invariant) that captures unobservable differences, and 𝑢𝑖 is the error term, which is assumed to be normally distributed with mean zero and

variance one. I compare our results using multiple reference groups against this benchmark model. To test the impacts of the different dimensions of relative deprivation on the well-being of youth, I extend our specification in (4.7) above as follows:

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+ 𝜃𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑆𝑖𝑡+ 𝜃𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑆𝐷𝑟(𝑆𝑖𝑡)

+ 𝛿𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑁𝐼𝑖𝑡+ 𝛿𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑁𝐼𝐷𝑟(𝑖𝑡) + 𝑍𝑖𝑡′𝛾 + 𝜎𝑘+ 𝑢𝑖𝑡 (4.8)

Where 𝑅𝐷𝑟(𝑌𝑖) is the income relative deprivation of youth i with respect to the reference group, r; 𝑆𝑖

is an index constructed from different indicators of social capital-different indicators used to compute social index is presented in appendix; 𝑆𝐷𝑟_{(𝑆𝑖) is social relative deprivation of youth i in the reference}

group, r, defined in the same way as above; 𝑁𝐼𝑖 is non-income index computed from the different scores

of non-income which are economic indicators (see appendix A4.1); 𝑁𝐼𝐷𝑟_(𝑁𝐼

𝑖) is non-income relative

deprivation of youth i who belongs to reference group, r, defined above; (. ) 𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 and (. ) 𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒

are parameters for absolute and relative income, non-income and social capital to be estimated, respectively. In the estimations, I employ a number of different specifications to check the robustness of our results. For instance, I separately estimate the different specifications presented above for youth members and youth household heads, and for young men and women. I also include father and mother characteristics (Eq.4.9), and interaction terms (Eq. 10), to the above specifications, expressed as follows: 𝑆𝑊𝐵𝑖𝑡∗ = 𝛽𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒log(𝑌𝑖𝑡,ℎ) + 𝛽𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 log(𝑅𝐷𝑟(𝑌𝑗𝑡)) + 𝜃𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑆𝑖𝑡+ 𝜃𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑆𝐷𝑟(𝑆𝑗𝑡) + 𝛿𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑁𝐼𝑖𝑡+ 𝛿𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑁𝐼𝐷𝑟(𝑁𝐼𝑗𝑡) + 𝜌𝐹𝑖𝑡+ 𝜇𝑀𝑖𝑡+ 𝑍𝑖𝑡′𝛾 + 𝜎𝑘+ 𝑢𝑖𝑡 (4.9) 𝑆𝑊𝐵𝑖𝑡∗ = 𝛽𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒log(𝑌𝑖𝑡,ℎ) + 𝛽𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 log(𝑅𝐷𝑟(𝑌𝑗𝑡)) + 𝜃𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑆𝑖𝑡+ 𝜃𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑆𝐷𝑟(𝑆𝑗𝑡) + 𝛿𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝑁𝐼𝑖𝑡+ 𝛿𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑁𝐼𝐷𝑟(𝑁𝐼𝑗𝑡) + 𝛽𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒log(𝑌𝑖𝑡,ℎ) ∗ 𝐸𝑑𝑢𝑚𝑜𝑚 +𝜌𝐹𝑖𝑡+ 𝜇𝑀𝑖𝑡+ 𝑍𝑖𝑡′𝛾 + 𝜎𝑘+ 𝑢𝑖𝑡 (4.10)

Where F and M denote father and mother characteristics. As stated earlier, I expect that absolute income, non-income and social networks or social capital affect SWB positively (𝛽𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒> 0; 𝜃𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 >

0; 𝛿𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒> 0), implying a higher income, non-income and social networks or social capital is

associated with a higher welfare. However, the effects of relative income deprivation, non-income deprivation and social deprivation are a priori undetermined i.e. their effects could be negative or positive.

I pre-determined that I would not use combinations in the analysis where the minimum number of individuals in the reference group is less than 5. I will use the whole sample “all” as a reference group, an indicator of the same ethnic group. To control for as well as to capture the likely impact of youth’s own separate income on well-being, I include a dummy variable (1 if youth have a separate cash income, 0 otherwise).

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For further robustness check, I propose an alternative specification to Eq (4.8) expressed as follows:

𝑆𝑊𝐵𝑖𝑡∗ = 𝛼 log(𝑌𝑖𝑡) + 𝛽𝑟log(𝑦̅𝑟𝑡) + 𝑛 log(𝑆𝑖𝑡) + 𝑎𝑟log(𝑆̅𝑟𝑡) + 𝑏 log(𝑁𝐼𝑖𝑡) + 𝑚𝑟log(𝑁𝐼̅̅̅̅𝑟𝑡) + 𝑍𝑖𝑡′𝛾 + 𝜎𝑘+ 𝑢𝑖𝑡 (4.11) Where in this equation 𝑦̅𝑟 is the average income of reference group r, defined as:

𝑦̅𝑟= 1

𝑛∑ (𝑦𝑖

𝑟 𝑛

1 ); Where 𝑦𝑖 is income of individual i in the reference group r, and the same method of

computation and interpretation is applied for average social and non-income of reference group r; the rest as defined earlier; 𝛽𝑟_{, 𝑎}𝑟_{, 𝑚}𝑟_{denote relative deprivation of income, relative social deprivation and}

relative non-income deprivation, respectively. I find virtually similar conclusions, not reported here. Unlike that of the Yitzhaki index where individual’s RD is the weighted sum of the excesses of incomes, non-income or social capital higher than individual’s income, non-income, or social capital such that each excess is weighted by its relative incidence; individuals compare their income, non-incomes or social capital to the average income, non-income or social capital of their reference group.