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Journal of Economic Psychology 21 (2000) 495±515
www.elsevier.com/locate/joep

In search of the poor
Duncan Watson

*

Middlesex University Business School, The Burroughs, Hendon, London NW4 4BT, UK
Received 4 December 1998; received in revised form 16 April 2000; accepted 8 May 2000

Abstract
Economists tend to adopt an empiricist approach to poverty, commonly calculating it as
the proportion of the population that fall below some speci®ed income threshold. This approach has been developed to take into account heterogeneous household needs by using
income equivalence scales, but most other individual characteristics are totally ignored. This
paper questions the relevance of this approach by considering the individualÕs perception of
poverty and how it relates to their income and other characteristics. Logit modelling techniques are used to investigate the determinants of poverty perception and to ascertain whether
income is an important determinant, or whether other socio-economic factors dominate. The
®ndings suggest that limiting the analysis to an income threshold will restrict our understanding of the nature of poverty and the problem it presents to our society. Ó 2000 Elsevier
Science B.V. All rights reserved.
PsycINFO classi®cation: 3040

JEL classi®cation: D60; I31
Keywords: Poverty perception; Income; Equivalence scales

*

Tel.: +44-181-3625989.
E-mail address: duncan3@mdx.ac.uk (D. Watson).

0167-4870/00/$ - see front matter Ó 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 1 6 7 - 4 8 7 0 ( 0 0 ) 0 0 0 1 6 - 7

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

1. Introduction
Numerous de®nitions of poverty have been used in research over the years.
Rowntree (1901) de®nes poverty as when `total earnings are insucient to
obtain the minimum necessities of merely physical eciency', but with the
growth of income for even the poorest members of Western society, attention

has turned to relative measures. For example, Townsend (1979) de®nes poverty as the inability to meet needs that are conventionally desired or expected
in society due to resource constraints. In contrast, Jackson (1972, p. 13) de®nes
poverty as `inadequate social functioning', suggesting that an individual's
deprivation is related to the powerlessness over both his/her life and weak
in¯uence over the organisation of society. Such interdisciplinary de®nitions
suggest that research into poverty must draw on the methods and concepts of
many disciplines. Economists, however, have tended to take a more empiricist
approach, for example calculating poverty as the proportion of the population
that fall below some speci®ed income threshold. 1 This approach has been
developed to take into account heterogeneous household needs, by using income equivalence scales, but most other individual characteristics are ignored.
While the income threshold approach has its uses in analysing the dynamics
of income inequality, if it is to be of value in the analysis of poverty other individual speci®c factors need to be unimportant. One means of testing this is to
consider the individualÕs perception of poverty and how this relates to their
actual income, the composition of their household and other socio-economic
characteristics. To this end, this paper examines whether income and equivalence scales provide sucient information to understand the nature of poverty
perception. It proposes that poverty perception can be understood by distinguishing between perceived consumption needs and satisfaction with income.
Regression techniques are then used to investigate whether income and
household composition are sucient to determine an individual's welfare
perception, or whether it is dominated by other socio-economic characteristics.
2. Theory and method

The traditional economistÕs empiricist approach suggests that poverty is
determined by equivalised income. This approach can be traced to the neo1
For a review of this method and alternative methods of measuring poverty see Atkinson (1987),
Ringen (1988) and Callan et al. (1993).

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

497

classical model of economic choice, which postulates that there is a set of
possible objects of choice that an economic agent ranks according to his/her
particular preferences. Since the agent is confronted with one or more
constraints, he/she must maximise his/her utility by choosing the highestranking alternative available in his/her restricted choice set. Fig. 1 illustrates
this optimisation process by comparing an individualÕs choice of consumption of necessities (N) and luxuries (L). The individualÕs optimal
choice is given by the combination of N* of necessities and L* of luxuries.
This model distinguishes between preferences and constraints, with poverty
then de®ned as a severe constriction in the available choice set. For instance, if PP represents the poverty line, Fig. 1 suggests that the economic
agentÕs income is such that only combinations of goods that are associated
with poverty can be chosen. In more complex analysis, however, no single
budget constraint, PP, can be used to de®ne a universal poverty threshold.

Economic agentsÕ heterogeneity can a€ect expenditure needs (e.g., number
of children, housing costs) and poverty is determined once income is adjusted to take into account such heterogeneous needs. The question arises
as to whether restricting the analysis to such equivalised income measures is
sucient in understanding the nature of welfare perception, given that such
perception could be determined by variables that are independent of income
needs.
Consider the following depiction of individual i's perceived deserved income (YD ):

Fig. 1. Consumption and the neo-classical model of economic choice.

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

YiD ˆ Yi ‡ ei ;

…1†

where Yi is the current income, ei re¯ects preferences and attitudes towards
job characteristics and ei 2 …ÿ1; 1†, describing the degree of perceived

underpayment (overpayment) when positive (negative).
Assuming that initially all income derives from his/her labour, the magnitude and sign of ei will depend on the individual's wage entitlement perceptions. If he/she feels underpaid ei will be positive and he/she will feel
relatively deprived. Using Eq. (1) perceived income needs for individual i
(YiN ) can be then presented as
YiN ˆ YiD ‡ gi ;

…2†

where gi re¯ects consumption needs and preferences, gi 2 …ÿ1; 1† describing the degree of income needs are above (below) perceived desired income
when positive (negative). The variable gi determines whether income needs
are met if individual i receives his/her perceived wage entitlement. A positive
value of gi describes an individual that cannot meet their income needs given
that he/she receives their perceived deserved income. If gi is negative the
individual, in terms of consumption considerations, will feel a sense of well
being.
Eqs. (1) and (2) decompose an individual's poverty perceptions according
to employment (i.e., wage rate) and consumption needs. A respondent will
report poverty if current income is insucient to meet consumption needs:
Yi ÿ YiN < 0:

…3†

Substituting (1) and (2) into (3), this condition is met when (4) holds:
ei ‡ gi > 0:

…4†

Table 1 presents the alternative poverty perception scenarios that can occur.
Importantly, due to a positive correlation with gi and ei , it is possible that as
current income increases the income levels required to avoid poverty also
increases. Given these alternative explanations for poverty perception, the
paper examines poverty by distinguishing between perceived income needs
and deserved income. This allows a more complete analysis into the determinants of gi and ei . First, to investigate the determinants of gi , the paper
investigates the nature of individualÕs perceived income needs. A more general analysis using a poverty perception variable is then used which enables
the analysis to also consider the determinants of ei .

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

499

Table 1
Poverty perception scenarios
Characteristics

Description

ei > 0; gi > 0

Individual I views that, given his/her personal attributes, he/she
deserves a higher income (ei > 0). This income is still insuf®cient to
meet consumption needs (gi > 0)
Individual I views that, given his/her personal attributes, he/she is
overpaid (ei < 0) ± e.g., through luck. With regard poverty
perceptions, however, this positive feeling is outweighed by the
failure of deserved income to meet consumption needs (gi > jei j)
Although his/her perceived wage entitlement exceeds the amount
needed to meet consumption needs (gi < 0), individual I views that,
given his/her personal attributes, he/she is underpaid (ei > 0)

ei < 0; gi > 0 …gi > jei j)

ei > 0; gi < 0

The paper uses the British Social Attitudes (BSA) survey series. This series,
instigated by the Social and Community Planning Research and core funded
by the Monument Trust, has been conducted annually since 1983. Sample
sizes are approximately 3000 people per year and, prior to 1991, are drawn
from the Electoral Register. The survey is designed to yield a representative
sample of adults that are aged 18 and over and who are living in private
households. In addition to core questions such as income, a wide range of
social, economic, political and moral questions are asked. In particular, as a
main role for the series is to allow researchers to conduct studies into political
attitudes and voting behaviour, a number of attitudinal variables are included. The BSA data is therefore chosen as it enables wider analysis into the
nature of poverty perception.
2.1. Perceived income needs
First, perceived income needs are examined using ordered logit techniques.
The dependent variable for this regression analysis is derived from the 1986
BSA survey. By showing the degree to which perceived income needs and
actual income di€ers, it is de®ned in the following manner:
8

0 if yiN 6 yi ;
>
>
<
1 if yi < yiN 6 …yi ‡ 1000†;
…5†
Ci ˆ
2 if …yi ‡ 1000† < yiN 6 …yi ‡ 2000†;
>
>
:
3 if yiN > …yi ‡ 2000†;

where yi is individual iÕs actual income and yiN is individual iÕs perceived income needs. The ordered logit modelling technique provides an opportunity

500

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

to examine whether speci®c socio-economic characteristics affect the probability of an individual reporting each of these categories. 2 A positive regression coecient implies that an increase in the variable increases the

probability of category 3 and decreases the probability of category 0 from
being reported.
To investigate the nature of gi the regression speci®cation includes an
equivalised income variable, de®ned as annual household income divided by
the McClements equivalence scale. 3 The model is therefore examining
whether this procedure, by considering household needs, can account for
di€erences in perceived income needs, or whether it is other socio-economic
variables that dominate.
Previous research suggests that education is an important determinant of
income need perception. De Vos and Garner (1991) and Saunders and
Matheson (1993) analysis of the impact of education on perception of income
needed to `makes ends meet' in the US and Australia, respectively, ®nd that
education variables are signi®cant in¯uences on the income levels reported.
Saunders and Matheson (1993) conclude that life style factors are in¯uential
in determining living standard perceptions:
. . . how money income is evaluated is not a purely economic phenomenon in the conventional sense, but is also a€ected by the social context
within which people live their lives and the culture and values which develop within that context. (p. 11)
De Vos and Garner (1991) suggest that those investing more resources in
education require a higher income to achieve a given level of satisfaction.
Thus, in terms of our analysis, education may be correlated with feelings of

insucient income, as shown by gi .
Political allegiance can also provide a proxy for di€erences in perceptions
with regard income needs. It can be taken to roughly respond to a particular
set of values and beliefs. For instance, in reference to expenditure perceptions, Labour supporters may show a greater willingness to depend on state
services. In addition, a dummy variable for whether the individual has experienced unemployment in the last ®ve years is included. It is possible that
past labour market experiences will alter current income needs perceptions.

2
3

For details of the ordered probability econometric methodologies see Greene (1999).
This distinguishes household needs by considering number of adults and age of children.

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

501

The inclusion of any other variables to capture subjective welfare di€erences
is hampered by data limitation. However, a dummy variable for those expecting real income growth is included.
It may also be the case that the equivalence scale chosen is insucient to
fully understand heterogeneous household needs. There may be systematic
di€erences in the costs attached to speci®c household characteristics. The
model therefore includes variables to attempt to illustrate the potential limitations of the equivalence scale adopted. In addition, to family structure
dummies, the number of old age pensioners in the household is included to
analyse the impact of this demographic group on perceived income needs. A
regional analysis is also required, with needs potentially dependent on regional cost-of-living di€erences. A regional average house price measure is
also therefore included.
2.2. Poverty perception analysis
To examine the characteristics of those reporting poverty, logit modelling
is used. The model estimate the odds of reporting poverty, given particular
individual and job characteristics. 4 A positive (negative) coecient indicates
that an individual with that characteristic, ceteris paribus, is more (less) likely
to report poverty. In addition, as an estimated coecient increases, the
contribution of that particular attribute to the incidence of poverty reporting
also rises. The poverty perception variable used is derived from the 1989 BSA
survey, which asks whether individuals perceive that they are poor. Given
that labour market experiences may determine perceived deserved income
and therefore poverty perception, the study focuses on employed respondents. BSA data does not provide sucient information to repeat the analysis
for the unemployedÕs poverty perception.
To examine whether the poverty threshold approach is sucient to understand poverty perception, the logit analysis includes income variables and
the McClements equivalence scale measure. The potential importance of the
source of income for ei is also examined, with income separated into the
natural log of wage and the natural log of non-personal labour income. It is
possible that own-wage effects will dominate cross-household income effects
for poverty perception.

4

For further analysis of logit techniques see Aldrich and Nelson (1984).

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

An analysis that uses equivalised income thresholds treats poverty as a
static phenomenon. Permanent income theory, however, suggests that income is smoothed out over an individualÕs lifetime and implies that dynamic
aspects of poverty should be considered. Age variables are therefore included
in the analysis to consider whether younger and older workers, despite having
relatively low current income, can adjust expenditure such that poverty
perception is avoided. In addition, further dynamic considerations are examined by including variables for an individualÕs income expectations.
The wage is not the sole component of an employeeÕs compensation
package. Non-pecuniary job attributes can adjust the overall utility gained
from employment. Wage inequality may partially re¯ect legitimate compensating di€erentials for these job attributes. The logit analysis examines the
possibilities of non-pecuniary employment bene®ts by including dummy
variables for job interest and job satisfaction. In addition, to examine
whether low pay is accepted in return for job training possibilities, a dummy
variable for an individualÕs perception of his/her job advancement opportunities is included. Further, as wage inequality may intensify dissatisfaction
with current income, a dummy variable for those expressing that the pay gap
at their place of employment is too high is included.
De Vos and Garner (1991) also argue that the higher educated tend to mix
with similar people who normally have higher income than the lower educated. This implies that there is a correlation between education and feelings
of overpayment or underpayment, as shown by ei . Since individuals compare
their living standards to that of their peers, a higher income may be demanded to avoid poverty perception. This reference group e€ect is widened
to include other characteristics and, together with education variables, the
analysis includes variables for region and occupational class.
Notions of social exclusion widen traditional poverty analysis to include
analysis into socio-economic and political background. Burchardt et al.
(1999) identify ®ve dimensions within social exclusion: inadequate resources
for consumption, unsatisfactory accumulation of savings, failure to ®nd
economically or socially valued production activities, failure to be politically
active and social interaction problems. Whilst social exclusion issues will be
determined partially by individual characteristics such as health and education, they will also be a€ected by institutional pressures. In order to illustrate
such e€ects, race variables are included in order to investigate the consequence of institutionalised discrimination. Empirical evidence does indicate
that discrimination may be a substantial issue. For instance, ethnic minorities, despite a higher proportion remaining in further education, have

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

503

experienced disproportionately high levels of unemployment. 5 Unemployment amongst ethnic minorities is twice as high as that experienced by white
people.
The stigma attached with poverty may also di€er according to political
allegiance. Research by Zucker and Weiner (1993), for instance, ®nds that
ÔconservatismÕ is positively correlated with the belief in the importance of the
individualistic causes of poverty. The poor are then blamed for their ®nancial
position. Some caution is required, however, as political allegiance may be
substantially linked to income levels.

3. Results
3.1. Perceived income needs regression
The investigation into the nature of perceived income needs indicates that
such needs are an increasing function of income. Table 2, however, shows
that the equivalised income is an important determinant of the distinction
between actual income and perceived income needs. The results suggest that
higher equivalised income signi®cantly reduce the probability of individuals
reporting that income needs exceed actual income. This ®nding o€ers support
for the notion that objective measures of income can account for di€erences
in subjective welfare perception. To provide further interpretation of the
coecients, Table 2 also provides the marginal e€ects of the continuous
variables on the probability of Ci equalling 3 (i.e., the partial derivative of the
probability of reporting severe perceived income de®ciency with respect to
each variable). This indicates the substantive signi®cance of equivalised income for perceived income insuf®ciency.
Table 2 shows, however, that other socio-economic variables are important. For example, as predicted, higher education levels do reduce the
probability of reporting insucient income to meet needs. Further, political
allegiance is found to be an important determinant of the perceived income
needs. It is found that Conservative voters, in comparison to those with alternative political allegiances, are signi®cantly less likely to perceive that
needs exceed available income. Given that in 1986 a Conservative government was in power, this may be an indication of satisfaction with the
5

For instance, see Ogbonna and Noon (1999).

504

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

Table 2
Ordered logit resultsa
Variable
Constant
Equivalised income
Years of education
Total number of OAPs
Log regional dwelling price
Age
Single
Divorced
Conservative voter
Other politics
Equivalence scale
Unemployed in last ®ve years
Positive income expectations
Male dummy

Coecient

Marginal e€ect [Prob(Ci ˆ 3†]



16.00
)2.842
0.470
0.828
0.056
0.012
0.541
0.064
)0.875
0.007
0.119
0.495
)0.649
)0.737

)0.0332
0.0055
0.0097
0.0006
0.0001

a

Dependent variable is given by Ci in expression 5.
Signi®cant at 1%.
**
Signi®cant at 10%.
*

Government and a reduced inclination to admit that income is not at a
satisfactory level. However, the substantive signi®cance of such variables for
reporting severe income de®ciency is minor, as holding all other variables at
their sample means, the Conservative voter's probability of reporting such
de®ciency is only 0.009 higher.
The ®ndings suggest that, ceteris paribus, there is no association between
basic family structure and reporting insucient income. The coecients for
single respondents and divorced respondents are both insigni®cant. Nevertheless, there is evidence to indicate that a simple equivalence scale cannot
fully take into account the impact of family structure on needs. As the
number of old age pensioners in the household increases, the probability of
reporting insucient income to meet needs also increases. A basic ¯aw with
objective measures of poverty can be their failure to fully take into account
the impact of demographic variables for overall needs. This is further illustrated by the regional house price variable. It can be assumed that this is a
proxy for di€erences in regional living expenses. Individuals living in regions
with relatively high living expenses will also have relatively high minimum
income perceptions. The results suggest that, given all other characteristics,
an increase in the average house price will increase the probability of reporting insucient income to meet needs.
Table 2 also shows that those that have experienced unemployment in the
last ®ve years are signi®cantly more likely to report that their income is in-

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

505

sucient to meet needs. This rejects the hypothesis that unemployment experience will reduce expectations and therefore the minimum income that
individuals perceive as necessary. It may be argued instead that periods of
unemployment are associated with wealth losses and increased income is then
a requirement to restore wealth to its desired level. This implies that minimum income perception can only be understood within a dynamic framework. This view is supported by the signi®cance of the income expectations
coecient, with those expecting real income growth less likely to perceive
that their income is insucient to meet their needs. Current perceptions can
impact on expectations of the future, a feature that must be considered given
that such expectation formation can e€ect labour market behaviour and
therefore economic outcome.
The results indicate that males are signi®cantly less likely to view that their
income is insucient to cover consumption needs. Whilst only 8.11% of
males report insucient income, 22.87% of the female sample hold this
perception. Holding all other variables at their sample means, the estimates
suggest that the marginal e€ect of the gender dummy is substantively signi®cant. The predicated probability of females reporting de®cient income is
approximately double that of males. There are numerous possible hypotheses
to explain this distinction. For instance, males may see themselves as ÔprovidersÕ, with a reduced inclination to admit failure to meet needs. Alternatively, females may have a superior understanding of family needs. However,
data is not available to fully test such hypotheses. Nevertheless, it raises the
issue of the Ôfeminisation of povertyÕ whereby the intensity and determinants
of poverty di€er according to gender.
3.2. Poverty perception logit analysis
The BSA data suggests that poverty perception is common, with 25.67% of
those in employment and 39.11% of the unemployed reported poverty in
1989. 6 A logit analysis of the unemployed provides no useful information,
with only age and income found to signi®cantly reduce the probability of
poverty reporting. It may be argued that the age variable is capturing wealth
6

Poverty perception data is also available for 1986. In this year 28.77% of the employed sample
reported poverty. It would have been preferable to apply pooled cross-section techniques to investigate
whether poverty perception changes over time and whether these changes are related to income inequality
changes. This is not possible because of insucient data, particularly in the case of labour market
experience information.

Characteristic

506

Table 3
Poverty perception logit results
Male employees
Poverty rate (%)

Family structure
Equivalence scale measure
Single
Married
Divorced
Never divorced

23.97
36.36
36.06

±a
#
1.392

23.19
24.77
28.57

0.274
±
1.163
1.862
±
)0.038

Age

Marginal e€ect

0.199

Poverty rate (%)
26.07
50.00
38.46

±
#
0.849

24.74
27.31
29.49

0.428
±
0.436
0.789

0.039
0.166
0.266

)0.044

)0.005

Residential
Owner-occupier
Private tenant
Council tenant

22.22
32.50
33.66

)0.838
±
)0.499

Region
North-east
North-west
Yorkshire/Humberside
West Midlands
Wales
Scotland
East Anglia
South-west
London
East Midlands
South-east

26.67
22.67
25.00
24.05
25.00
25.42
46.42
20.31
18.60
28.30
22.97

)0.293
)0.299
)0.673
)0.299
)0.389
)0.150
0.325
)0.001
)0.393
)0.894
±

)0.042
)0.043
)0.096
)0.043
)0.056
)0.022
0.047
)0.0001
)0.056
)0.128

Skill and education
Years of education
Manual worker
Non-manual worker

28.46
19.83

0.373
)0.171
±

0.053
)0.024

)0.120
)0.071

Coecient

Marginal e€ect

0.123
0.062
0.063
0.114

)0.006

24.65
33.33
33.33

0.067
±
0.391

0.009

23.68
28.57
16.67
30.00
23.53
24.19
33.33
28.00
29.33
29.55
26.77

0.485
0.870
)0.214
)0.208
)0.841
)0.137
0.911
)0.048
0.445
0.913
±

0.070
0.126
)0.031
)0.030
)0.122
)0.020
0.132
)0.007
0.064
0.132

30.77
24.55

)0.528
0.074
±

)0.076
0.011

0.057

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

Race
White
Asian
Afro-Caribbean

Female employees
Coecient

Workplace
Full-time
Part-time
Private sector
Public sector

23.88
17.49
27.24
21.43

)0.144

)0.652
)0.547

)0.093
)0.078

Income expectations ± next year
Rise at least as much as in¯ation
Rise less than in¯ation

20.00
30.69

)0.209
±

Political af®liation
Conservative
Labour
Liberal
Other political party
No political aliation

15.28
30.71
24.69
31.81
35.29

)1.258
±
)1.316
)0.346
)0.932

23.74
24.82
45.55
17.06
48.48
47.37
21.86
13.82
44.53

)0.343
±
0.509
±
0.801
0.902
±
)1.290
±
2.339

Attitudes towards employment
Pay gap at work is too big
Pay gap at work is not too big
High opportunity to advance
Low opportunity to advance
Secure job is interesting
Insecure job is interesting
Job is not interesting
Satis®ed in current job
Not satis®ed in current job
Constant

0.274

27.14
25.60
26.23
26.99

)0.195
±
)0.220

)0.028

)0.400
)0.393

)0.058
)0.057

)0.208

)0.032

)0.030

19.37
36.84

)1.433
±

)0.180

26.04
27.13
24.00
32.00
25.71

)0.193
±
)0.244
)0.059
)0.814

)0.028

25.00
27.78
56.11
15.17
62.86
55.56
23.04
12.65
50.63

)0.201
±
1.261
±
0.964
1.292
±
)2.139

)0.029

)0.188
)0.049
)0.133

)0.049
0.072
0.115
0.129
)0.184
0.335

10.530

)0.035
)0.008
)0.118

0.183
0.140
0.187
)0.310
1.526

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

Income
Log of nominal wage
Log of non-labour income

±
1.916
±
)1.006

a

(±) refers to the logit reference categories.
*
Signi®cant at 10%.
**
Signi®cant at 1%.

507

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

e€ects that are not controlled for. More interesting results are found for those
employed, with evidence suggesting that labour market experiences are crucial determinants of poverty perception.
Initial analysis suggests that male and female poverty perception is similar,
with only 2% more females reporting poverty. However, given the gender
di€erences found in the previous section, logit analysis decomposes the
sample according to gender. These regression results are, given in Table 3,
indicate that the nature of poverty perception for males and females does
di€er substantially. To faciliate comparability, the table also includes the
marginal e€ects of each variable. Such variables, although more useful for
continuous variables, provide an approximation to the change in the probability of poverty reporting at the regressor means.
3.2.1. Who are the male working poor?
The male logit models estimated ®nd that, given all other demographic and
personal characteristics, the equivalence scale measure is not a signi®cant
determinant of poverty perception. This suggests that the equivalised income
threshold approach is insucient to understand the nature of male poverty
perception. However, income variables are found to be signi®cant determinants of such perception. Notably, the wage variable coecient is signi®cant
and negative in sign. Thus, although controlling for a plethora of other
characteristics, there appears to be an inverse relationship between wage and
poverty reporting. The part-time dummy coecient is positive and signi®cant, indicating that males are concerned with overall earnings. The insigni®cance of the occupation class variables also suggests that di€erences in
poverty reporting across occupational class can be explained by di€erences in
wage. Moreover, the insigni®cant nature of the income expectation variable
suggests that poverty perception is determined by current income. Wegener
(1992) ®nds that in West Germany the amount of income respondent's accepted as 'just' rarely deviates from the amount actually received. Assuming
this applies to the UK, the results would suggest that the correlation between
poverty and wage re¯ect the inability to meet consumption needs (i.e., gi ).
However, the previous section shows that males are much less likely to view
that their income falls short of consumption needs.
The demographic variables included in the logit analysis indicate that
poverty is a multifaceted concept. For instance, the sub-sample poverty rates
show that Afro-Caribbean respondents are some 12% points more likely to
report poverty. The logit ®ndings show that this di€erence is signi®cant and
that the marginal e€ect of the race variable is relatively large. This may be the

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

509

result of racial discrimination whereby ethnic minorities fail to get the job or
promotion that they deserve or perceive that they deserve. Further analysis is
required to fully indicate the impact of social exclusion on welfare perception.
The examination of marital status shows that single and married male
respondents have very similar sub-sample poverty perception rates, with
married respondents having a rate only 1.58% higher. However, controlling
for all other characteristics, Table 3 shows that these di€erences are signi®cant. Married respondents are signi®cantly more likely to report poverty. The
importance of family structure is reinforced when divorced respondents are
considered, with ®ndings suggesting that it is divorce that has the greatest
impact on the probability of poverty perception. Indeed, this variable has
also the most pronounced marginal e€ect.
The sub-sample working poverty rates suggest that poverty perception
may be determined by the respondentÕs residential status. Compared to approximately 1 in 3 of private tenants and council tenants, only 1 in 5 of
owner-occupiers report poverty. However, average earnings for council
tenants and private tenants are only 63% and 82%, respectively, of the average of owner-occupiers. Taking into account wage and other characteristics
that might a€ect perceptions, Table 3 shows that no signi®cant residential
status variable can be found. Thus, it is apparent that poverty di€erences
according to residential status are partially explained by earnings di€erences.
Considering the di€erences in family resources, all forms of residential status
must be regarded as an important drain on available income.
Regional relationships such as a distinct north±south divide are not found.
The sub-sample poverty perception rates suggest that perception is highest in
East Anglia and lowest in London. However, no signi®cant coecients are
found. The analysis into income needs given in the previous section suggests
that a regional di€erence in housing costs is important. However, the inclusion of such costs in the logit analysis also fails to reveal any signi®cant
regional pattern in poverty perception.
Considering the subjective nature of the poverty de®nition, it is not surprising that attitudinal variables are also important explanations for poverty
perception. Table 3 shows that, in comparison to Labour supporters, Conservative supporters are less likely to report poverty. Labour supporters have
a sub-sample poverty rate that is over double that of Conservative supporters. This distinction, given all other characteristics, is found to be signi®cant in the logit analysis, with a relatively large marginal e€ect. Although
there is a link between political aliation and income levels, this association

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

cannot account for the di€erences in poverty perception. Only 25% of
Conservative voters below half the median household income report poverty.
This compares to 48% of those supporting other parties. Political aliation
may describe di€erences in values and perceptions. For instance, the stigma
attached with poverty may be such a costly feature for Conservatives that
lower poverty reporting, given available resources, is ensured. A Conservative government is also in power during the year of our study. While Conservative supporters are less willing to suggest failure of Government poverty
alleviation policies, Labour supporters are more likely to o€er the converse.
The signi®cance of job characteristics in this analysis is mixed. Perceptions
regarding the magnitude of the pay gap, for instance, are found to be insigni®cant. No evidence that this variable models ei more distinctly is found.
However, those reporting job interest are much more likely to report poverty.
An initial logit analysis found that these di€erences are signi®cant, suggesting
that, given wages and all other characteristics, those that report high job
interest are relatively more likely to report poverty than those reporting
otherwise. This could be the result of compensating di€erentials whereby
employees on low pay are compensated with non-pecuniary bene®ts. Thus, in
inequality (4) it is the inability to achieve desired consumption (i.e., high
levels of gi ) that determines the poverty reporting decision. However, this
theory can be discounted since a signi®cant positive relationship is found for
those perceiving that their job is interesting and that it also is insecure. A
negative relationship is found only for jobs that are also perceived as secure.
Thus, a more likely explanation for poverty reporting is the fear that job
opportunities are going to deteriorate. 7
The sub-sample poverty rates show that those reporting high employment
advancement opportunities are more likely to perceive that they are poor
than those reporting low advancement opportunities. The logit analysis
suggests that these di€erences are signi®cant. Given all other characteristics,
respondents with high employment advancement opportunities are signi®cantly more likely to report poverty. This again raises question with regards
the dynamic nature of poverty. Given the possibility of job advancement,
those perceiving that they are poor are applying only a short-term horizon.
The possibility of improved income in the future could also increase feeling of
7
This is in contrast to unemployment history. Through experimentation it was not possible to ®nd a
signi®cant relationship between unemployment history in the last 5 years and poverty reporting.
Unemployment suggests lower available resources and a drain on wealth. However, it is perceptions in the
future, rather than experiences in the past, that are apparently important in this poverty analysis.

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

511

current income inadequacy. However, the marginal e€ect on this variable is
much smaller than other variables, indicating that other socio-economic
variables have more pronounced e€ects on the probability of poverty perception.
The sub-sample analysis shows that those individuals that are satis®ed in
their current employment are substantially less likely to report poverty.
Given both the signi®cance of the job satisfaction coecient and the magnitude of its marginal e€ect, the logit analysis supports the notion that such
di€erences in labour market experience are important determinants of poverty perception. Reporting job satisfaction could indicate satisfaction with
the current compensation package, with earnings at a suciently high level to
meet perceived basic needs. However, as shown in the previous section, males
rarely perceive that their minimum income requirements are above their
average income. Other elements within job satisfaction should therefore be
considered. For instance, employment compensation is not wholly in terms
of wage and satisfaction can be derived from non-pecuniary bene®ts.
The above analysis, by focusing on statistical signi®cance, does not fully
consider substantive signi®cance. To illustrate the importance of the variables included in the logit model the estimated probabilities of reporting
poverty will be considered. Speci®cally, the estimated probability of a male
with speci®c characteristics is calculated and the impact of varying these
characteristics investigated. The individual is initially considered to be a 30year-old male earning £3 an hour, with £10,000 non-personal labour income,
10 years of education, an equivalence scale measure of 1 and having all
characteristics given by the reference categories in Table 3. Such an analysis
shows that, whilst wage and non-personal labour income are signi®cant determinants of poverty perception, marginal changes have only a relatively
minor impact on estimated probability of reporting poverty. For example, an
increase of the wage rate to £4 only decreases the estimated probability of
poverty reporting by 11.6%. Moreover, an increase in non-personal labour
income of £1000 only decreases the estimated probability of poverty reporting by 3.3%. In comparison, if the male reports job satisfaction the estimated probability falls by 62.6%. Job interest is also found to have
substantial importance, with someone having an insecure interesting job
60.5% more likely to report poverty.
3.2.2. Who are the female working poor?
The female logit results presented in Table 3 suggest that there are some
important di€erences in poverty perception across gender. For instance, the

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

equivalence scale measure for females is positive and signi®cant. This suggests that as household needs increase, as shown by the magnitude of the
equivalence scale measure, the probability of reporting poverty also increases. The analysis into income needs also indicated substantial gender
di€erences, with females more likely to report income insuciency. This
®nding, together with the signi®cance of the equivalence scale measure, is
compatible with the notion that females have a superior understanding of
household needs.
Notably, the nominal wage coecient is negative in sign but, in contrast to
male poverty results, is insigni®cant. Controlling for other characteristics
suggests that no signi®cant relationship between wage and poverty reporting
exists. This may be explained by the traditional role of the male as the main
breadwinner. The analysis, however, assumes that the relationship between
wage and the log odds of poverty reporting is linear. Nevertheless, replacing
the linear wage variable with a simple quadratic relationship does not improve the results. Interaction e€ects may also be occurring. The following
logit model is therefore also used:


pi
…6†
ˆ a ‡ ‰b1 ‡ b2 …Hi †Š…Wi † ‡ b3 Hi ‡ bk …Cik †;
log
1 ÿ pi
where pi is the conditional probability that the ith person reports poverty, Wi
the nominal wage of the ith person, Hi the hours worked by individual i, and
Cik is a vector of dummy variables capturing ith persons characteristics k.
This model replaces the wage variable with variables that distinguish wage
rate and hours worked. Thus, as hours worked, Hi , increases by 1 the effect
of an additional £1 on the wage rate is increased by b2 . A positive and signi®cant interactive term (Wage  hoursworked) would suggest that as the
number of hours increases, the effect of an additional £1 on the wage rate on
poverty reduction is diminished. However, no such signi®cant variables are
found. Unlike male poverty perception, there is no evidence that wage affects
female perception.
Non-personal labour income is found to be a signi®cant determinant of
poverty perception, with the probability of reporting poverty falling as such
income increases. However, compared to the male results, the marginal e€ect
of non-labour income is smaller and therefore it is substantively less important for female poverty perception. An additional ®nding is that, in
contrast to the male analysis, income expectations are also found to be both
statistically and substantively important. Females that are expecting income

D. Watson / Journal of Economic Psychology 21 (2000) 495±515

513

growth are less likely to report poverty, suggesting that the time horizon used
to form poverty opinion di€ers across gender. Such ®ndings again illustrate
that welfare perception can only be understood by examining males and
females separately.
As with males, a signi®cant relationship between job interest and poverty
reporting is found. However, this again is only a signi®cant feature if the
respondent's present employment is also judged as insecure. Therefore, it is
likely that these ®ndings re¯ect a fear that current employment opportunities
are likely to deteriorate. Nevertheless, the ®ndings do indicate some further
gender di€erences in poverty perception. For instance, in comparison to male
poverty reporting, the sub-sample poverty rate distinction between employment with high and low perceived opportunities to advance is much greater.
Those reporting high opportunities to advance are nearly four times more
likely to report poverty than those reporting low job advancement opportunities. The marginal e€ect of female advancement opportunities on the
probability of poverty perception, in comparison to males, is also more
pronounced. A potential explanation for this ®nding is the higher risk of
periodical non-participation in the labour market to raise a family. Thus, the
compensatory value of job training opportunities for low wages is less important for future earnings and feelings of income inadequacy increase. The
®nding that income expectations are a signi®cant determinant of female
poverty perceptions supports the relevance of such a longer-term view of
poverty perception.
A repetition of the male analysis into substantive signi®cance also provides interesting ®ndings for female poverty perception. As with that
analysis the individual is assumed to be a 30-year-old earning £3 an hour,
with £10,000 non-personal labour income, 10 years of education, an
equivalence scale measure of 1 and having all characteristics given by the
reference categories in Table 3. An increase in non-personal labour income
only decreases the estimated probability of poverty reporting by 1.6%.
Income expectation is of crucial importance, with the female expecting
income growth estimated to be 57.6% less likely to report poverty. The
equivalence scale measure is found to be relatively more important than
current income, with a doubling of the equivalence scale measure increasing
the estimated probability of reporting poverty by 17.4%. As with males,
however, job experience variables are found to be important. If the female
is also satis®ed in his current job the estimated probability falls by 76.1%.
Perceiving the current employment to be interesting but insecure increases
the estimated probability by 44.7%.

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D. Watson / Journal of Economic Psychology 21 (2000) 495±515

4. Conclusion
The main purpose of this paper was to consider the adequacy of using income thresholds to de®ne poverty. When analysing poverty in terms of
minimum income needs the results suggest that equivalent income can account for a signi®cant amount of the variation in reported needs. The signi®cance of regional dwelling prices and family structure variables, however,
suggested that it could certainly not account for all perceived income needs
di€erences. Perception variables, such as income expectations, were also signi®cant and indicated the complex nature of income needs formation. This is
further shown by the substantial di€erence between males and females in the
reporting of income needs, with males much less likely to report needs that
exceed actual income. However, the overwhelming majority of the sample
(84%) report that their income is sucient to meet consumption needs.
A logit analysis into poverty perception also indicated that a wider range
of socio-economic variables must be considered to fully consider the nature
of poverty. Clearly any analysis that focuses on an income-based threshold
and ignores other factors will provide only a limited understanding of the
nature of poverty and the problem it presents to our society. Own-wage effects are only found to be signi®cant determinants of poverty perception for
males. For females income expectation was found to be of greater importance.
This is an important ®nding as income-based threshold approaches to
poverty are often used to examine the need for, and the impact of, redistributive policies. The resulting poverty measures, together with income inequality measures, such as the Atkinson Index, 8 are then used to describe the
welfare gain resulting from a more equitable income distribution. The ®ndings in this paper suggest that such a general analysis will ignore important
features of poverty and will fail to accurately measure the welfare loss involved.

Acknowledgements
I am grateful for comments from Paul Dunne, John Sessions and two
referees.
8

As described in Atkinson (1970).

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515

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