Social identity and perceived income adequacy

• Date: 01 May 2020
• DOI: http://doi.org/10.1111/rode.12646
• Author: Ashwini Deshpande,Deepti Goel
• Published date: 01 May 2020

Rev Dev Econ. 2020;24:339–361. wileyonlinelibrary.com/journal/rode

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© 2020 John Wiley & Sons Ltd

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INTRODUCTION

Perceptions about income adequacy, in addition to actual income adequacy, are a critical part of indi-

vidual well-being.1

For instance, an assessment of subjective income among the elderly contributes to

the discussion about how much income might be adequate for their happiness and well-being (Litwin

and Sapir, 2009). Also a fair amount of literature investigates the effect of perceptions about income

Received: 24 July 2018

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Revised: 4 December 2019

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Accepted: 18 December 2019

DOI: 10.1111/rode.12646

REGULAR ARTICLE

Social identity and perceived income adequacy

DeeptiGoel1

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AshwiniDeshpande2

1Azim Premji University, Bangalore, India

2Ashoka University, Sonipat, India

Correspondence

Deepti Goel, Azim Premji University, 134

Doddakannelli, Sarjapur Road, Bangalore

560035, India.

Email: deepti.goel@apu.edu.in

Abstract

Economists are increasingly interested in subjective well-

being, but the economic literature on perceptions of income

adequacy, which is one of the factors that shape subjective

well-being, is little. Our paper fills this lacuna. We utilize na-

tionally representative data on perceptions of amounts con-

sidered as remunerative earnings from self-employment in

India and examine how these are earnings shaped by social

identity, namely, caste. We also investigate if institutional

change such as the introduction of an employment guaran-

tee scheme alters these perceptions. Finally, we examine

the relationship between caste identity and actual earnings.

We find that caste identity does shape both perceptions of

income adequacy and actual earnings: lower-ranked groups

perceive lower amounts as being remunerative and also earn

lower amounts. Further, the employment guarantee scheme

alters self-perceptions differentially for different caste

groups, but in more nuanced ways than our ex-ante beliefs.

KEYWORDS

caste, discrimination, income adequacy, India, perceptions

JEL CLASSIFICATION

J15; O15

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GOEL and dESHPandE

adequacy on the larger matrix of factors that shape subjective well-being, such as life satisfaction

(Coke, 1992), self-rated health (Cairney, 2000), depressive symptoms (St John, Blandford, and Strain,

2006), health inequalities (Wildman, 2003), and even mortality (Blazer, Sachs-Ericsson, and Hybels,

2005). Most of this literature is on older adults; however, the issue of perception of income adequacy

is pertinent to adults of all ages.

While economists are increasingly interested in subjective well-being, the economic literature on

perceptions of income adequacy, which is one of the factors that shape subjective well-being, is little.

Factors that determine these perceptions, especially the role of social identity and policy change, have

not been investigated well. Our paper fills this lacuna. We examine the relationship between social

identity and perceptions of income adequacy and investigate whether a policy change, namely, the

introduction of an employment guarantee scheme, can alter it.

We examine these questions using nationally representative survey data on amounts considered as

remunerative from self-employment among different caste groups in India that have an implicit status

hierarchy. The contemporary caste system in India consists of thousands of jatis or castes that do not

necessarily follow a linear hierarchy. These jatis are divided into four administrative categories that

define data collection for the purposes of affirmative action, which is mostly caste-based: Scheduled

Castes (SCs), which includes a list of formerly untouchable and lowest-ranked jatis that prefer to use

the term “Dalit” (meaning “oppressed”) as a term of pride; Scheduled Tribes (STs), which consists

of a list of marginalized tribal communities referred to as Adivasis, (the original inhabitants); Other

Backward Classes (OBCs), a collection of low- to middle-ranking castes and communities eligible for

affirmative action; everyone else is clubbed into a residual category called “Others,” which can be

used as a proxy for upper castes (UCs).

We focus on three major questions. First, we explore if the amounts considered as remunerative

from self-employment vary in a way that lower-ranked caste groups find lower amounts to be re-

munerative. This might be the case if they suffer from lower self-worth, internalize expectations of

discrimination, or are influenced by lower earnings of other workers in their caste group and place an

internal ceiling on what they realistically expect to earn.

Second, we assess whether policy change could affect perceptions of caste groups differentially.

Specifically, we examine whether the introduction of the world’s largest workfare program, the Mahatma

Gandhi National Rural Employment Guarantee Scheme (MGNREGS), alters perceptions in such a way that

lower-caste groups find higher amounts to be remunerative. We expect MGNREGS to have a differential ef-

fect by caste because it specifically targets poorer households that are disproportionately ST or SC. Being an

employment guarantee program, MGNREGS would increase their reservation earnings, which might affect

their perceptions about remunerative earnings. Third, we examine the relationship between caste identity

and actual earnings, and whether MGNREGS affects actual earnings of caste groups differentially.

Our main results are as follows: based on two cross sections of data from the Employment-

Unemployment Survey (EUS), in 2004-5, relative to UCs, STs perceived 7%–19% lower wages, SCs

5%–16% lower wages, and OBCs 3%–10% lower amounts as remunerative. The corresponding figures

for 2009-10 were 9%–17% for both STs and SCs and 5%–10% for OBCs. In addition, MGNREGS had a

positive effect on OBC perceptions vis-à-vis those of UCs, and this improvement was mainly the result

of a direct impact on OBC perceptions, rather than due to an improvement in their economic conditions.

The EUS does not have data on actual earnings for the self-employed. We use a unique method

wherein we exploit responses to two distinct survey questions to indirectly infer actual earnings from

the data. We find that in 2004-5, STs, SCs, and OBCs earned amounts that were 18%–30%, 17%–29%,

and 8%–17%, respectively, lower than that earned by UCs.2

For studying the impact of MGNREGS

on actual earnings, we use consumption expenditure as a proxy for actual earnings.3

We find that

MGNREGS did not change the consumption expenditure of OBCs vis-à-vis that of UCs.