1.  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

2. 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 security is 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

3. 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

4. ‘Peace of Mind’ pathway into middle class E DUCATION J OB SECURITY P EACE OF M IND I NVESTMENT IN C ULTURAL C APITAL I NCOME A SSETS /W EALTH jjjjj

5. Testing the ‘Peace of Mind’ narrative  World Value Survey, 5 th wave (2005-2008) 23 middle-income countries (lower cutoff: $1,250 GNI p.c.; upper cutoff: $12,500 GNI p.c.) → 37,150 households

6. Operationalisation of ‘PoM’ pathway into middle class E DUCATION J OB SECURITY P EACE OF M IND I NVESTMENT IN C ULTURAL C APITAL I NCOME A SSETS /W EALTH jjjjj E DUCATION ON ISCED SCALE J OB SKILL ON ISCO SCALE E STIMATED INCOME L AST YEAR ’ S S AVINGS S ENSE OF CONTROL NEWS CONSUMPTION INTEREST IN POLITICS IMPORTANCE TERTIARY EDUCATION ( GIRL - TO - BOY ) MEMBERSHIP IN ARTISTIC / CULTURAL ORGANIZATION P ERSONAL RESOURCE THAT ABSORBS THE IMPACT OF NEGATIVE SHOCKS ON MENTAL HEALTH ( BUFFER AGAINST STRESS ) ( THOITS, 1995 ; YOUNG 2001 ; LEVER, PIÑOL & URALDE, 2005 )

7. 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. FullRestricted

8. Results – working respondents

9. Results – all respondents

10. Conclusion  Overall, ‘peace of mind’ narrative fits data reasonably well, but a number of additional relations improve fit:  ‘Peace of mind’ also predicted by relative income, 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