Measuring Economic Insecurity Using a Counting Approach. An Application to Three EU Countries

• Published date: 01 September 2020
• Author: Marina Romaguera‐de‐la‐Cruz
• Date: 01 September 2020
• DOI: http://doi.org/10.1111/roiw.12428

© 2019 Internation al Association for Re search in Inco me and Wealth

558

MEASURING ECONOMIC INSECURITY USING A COUNTING

APPROACH. AN APPLICATION TO THREE EU COUNTRIES

Marina roMaguera-de-la-Cruz*

Universidad de Alcalá

EQUALITAS

In this paper, we propose the use of a multidimensional approach to the measurement of economic inse-

curity in three European countries. We combine six different unidimensional indicators proxying the

subjective and objective determinants of economic insecurity into a single index based on a counting

approach method, which allows us to measure the incidence and the intensity of the phenomenon. Using

longitudinal data from the European Union Statistics on Income and Living Conditions (EU-SILC)

from 2008 to 2016, we find that the incidence of insecurity falls as income grows, being significantly

present in middle-income households both in Spain and France but not in Sweden. Interestingly, in all

three countries, the contribution of different dimensions to insecurity changes as household income

grows, while for all income levels a higher education and being employed in a non-fixed term contract

are strongly related to a lower probability of being economically insecure.

JEL Codes: D63, I31

Keywords: counting approach, economic insecurity, EU-SILC, panel data, subjective and objective

measures

1. introduCtion

Traditionally, the study of individual well-being has focused on the measure-

ment of inequality and poverty in a static and a dynamic perspective and on the

evaluation of the most effective policies to reduce them. Until recent years, the

literature has paid little attention to the role of economic insecurity in modifying

the individual perception of well-being, given a level of inequality and poverty.

However, since the seminal works of Osberg (1998), Osberg and Sharpe (2005)

and Hacker (2005), academics have become increasingly aware of the prominent

role of insecurity in the measurement of well-being and have begun to study its

dimensions and evolution and, most importantly, have continued to discuss the

way economic insecurity should best be measured.

There is not yet a consensus on the definition of economic insecurity, even

if some common elements may be already drawn from the relevant literature.

Note: The author acknowledges financial support from the Ministerio de Economía y

Competitividad, the Agencia Estatal de Investigación, and Fondo Europeo de Desarrollo Regional

(ECO2016-76506-C4-2-R).

*Correspondence to: Marina Romaguera-de-la-Cruz, Departamento de Economía, Facultad de

CC. Económicas, Empresariales y Turismo, Universidad de Alcalá, Plaza de la Victoria, 2, 28802,

Alcalá de Henares, Spain (marina.romaguera@uah.es)

Review of Inc ome and Wealth

Series 66 , Number 3, September 2020

DOI : 10.1111 /roi w.124 28

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Review of Income and Wealth, Series 66, Number 3, September 2020

559

© 2019 Internation al Association for Re search in Inco me and Wealth

Insecurity can be understood as the anxiety produced by anticipating future eco-

nomic losses and the awareness of not being capable of overcoming them (Osberg,

1998, 2018; Osberg and Sharpe, 2002, 2005; Hacker et al., 2010; Bossert and

D’Ambrosio, 2013, 2016; Berloffa and Modena, 2014; D’Ambrosio and Rohde,

2014; Ivlevs, 2014; Rohde et al., 2014, 2015; Rohde and Tang, 2018). Starting

from this idea, economic insecurity has implications for individual well-being and

should be analyzed beyond inequality and poverty. Even if economic insecurity

could show a positive correlation with other indicators of economic well-being,

this phenomenon is not based on current financial strain but on future economic

distress. Furthermore, while inequality indices are based on a static perspective

and analyze the income distribution in a given point in time, economic insecurity

is based on the dynamics of certain economic hazards, which could potentially

impact their feelings and behavior. Given that economic insecurity involves future

situations and individuals’ perspectives, its measurement is a complex issue. Our

main purpose in this paper is to evaluate the level and evolution of economic inse-

curity in three European countries in recent years (from 2009 to 2016), focusing on

its determinants and main changes during the Great Recession. We build a variety

of indicators based on a counting approach and follow a comprehensive method

put forward by Rohde et al. (2015) that allows us to construct an individual mea-

sure of economic insecurity that combines past experiences while predicting key

future states that are most likely to determine the insecurity felt in the present

(Osberg, 2015).

To illustrate the functioning of our proposed measure of economic insecurity,

we analyze three European countries that show different levels and trends of this

phenomenon based on the IEWB Economic Security Index (Osberg and Sharpe,

2002, 2005; see Figure A1). Our final selection includes Spain as a country with low

levels of economic security and a downward trend (the IEWB Economic Security

Index has dropped 17.9 percent between 1980 and 2014), France as a country with

an intermediate level of economic security in the EU context which, in contrast

with Spain, has increased in the last 30years (with a positive growth rate of 4.2

percent between 1980 and 2014), and Sweden, a country with high levels of secu-

rity and a downward trend, even if smaller than that observed in Spain (a negative

growth rate of 9.1 percent between 1980 and 2014). Thus, the empirical part of this

paper aims to contribute to the analysis of economic insecurity in European coun-

tries, where analysis on this matter are still scarce (D’Ambrosio and Rohde, 2014;

Rohde et al., 2014), and focusses on three of them in which insecurity has different

patterns. Moreover, we aim to provide an improvement in the measurement of

insecurity by considering objective and subjective indicators as determinants of the

phenomenon and by analyzing the impact of the probabilities of certain hazards

from a household perspective. We also provide guide for researchers aiming to esti-

mate insecurity measures for EU countries using the currently available longitudi-

nal data sets from the European Union Statistics on Income and Living Conditions

(EU-SILC). Therefore, our approach could be straightforwardly applied in a wider

European context in a comparative way in future research. Furthermore, the mea-

surement of economic insecurity has relevant policy implications, as it can help

identify the most insecure subgroups in the population and the kind of policies

that should be carried out to reduce insecurity levels.