Health, income and relative deprivation: Evidence from the BHPS

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Abstract

It is believed that income affects health directly but it is argued that indirect income effects due to relative deprivation may be equally important. This paper investigates these relationships using parametric and semiparametric panel data models which ameliorate problems of misspecification and unobservable heterogeneity. By allowing for a flexible functional form of income we ensure that coefficients on relative deprivation variables are not an artefact of a highly non-linear relationship between health and income. The results provide strong evidence for the impact of income on self-reported measures of health for men and women. These results are robust across a range of techniques and are resilient to the inclusion of measures of relative deprivation. The parametric results for relative deprivation largely reject its influence on health, although there is some evidence of an effect in the semiparametric models.

Introduction

This paper is motivated by the growing literature on the relationship between health, income and the distribution of income. There is considerable evidence that income is a determinant of individual health (Ettner, 1996, Pritchett and Summers, 1997, Subramanian and Kawachi, 2004), this is often referred to as the absolute income hypothesis. However, there are a number of indirect mechanisms that may or may not be important determinants of health (Deaton, 2003). Indirect effects may be due to income inequality, relative deprivation, or other equally complex pathways. These pathways are often, unhelpfully, grouped together under the heading of the relative income hypothesis. The impact of such indirect mechanisms is still controversial, while evidence of ill-health due to the influence of hierarchy and inequality has been documented (Marmot et al., 1978, Sapolsky, 1993, Subramanian and Kawachi, 2004), there are a number of studies that do not support these findings (see Wilkinson and Pickett (2006) for a recent review).

This paper focuses on the impact of income and of relative deprivation on individual health. The impact of relative deprivation is one version of the relative income hypothesis. We use the definition of relative deprivation of Wagstaff and van Doorslaer (2000) which is defined as the difference between an individual's income and the income of individuals in their reference group. This differs from a hypothesis based on rank, where only position matters, however, for estimation the two may be indistinguishable due to the high collinearity between measures of income difference and rank (Subramanian and Kawachi, 2004). Another form of the relative income hypothesis is the income inequality hypothesis which focuses on overall income inequality, this measure is not considered in this paper, although the findings in this literature, as part of the wider relative income hypothesis, are important for motivating our paper.

A measure of relative deprivation is included as an extra regressor in models of the determinants of self-assessed health (SAH) and psychological well-being. Panel data allows us to control for individual heterogeneity which may be confounding the relationship. Semiparametric estimation is used to allow for a flexible functional form with respect to income. This will prevent the coefficient on relative deprivation being contaminated by higher order non-linearity in the relationship between health and income which is not captured by the usual logarithmic transformation.

The results from simple OLS models indicate that income and relative deprivation are both key determinants of health. However, as we progress through more sophisticated estimation strategies we find that the impact of income remains, while that of relative deprivation disappears. Only in robust semiparametric models of psychological well-being for men do we find that relative deprivation is statistically significant.

Section snippets

The literature

Economics has a long tradition of incorporating relative income and status into models of individual utility maximisation. Duesenberry (1949) hypothesised that individuals’ desire for self-esteem makes them emulate the consumption patterns of those who are on a higher socioeconomic rung of the ladder. Frank, 1985a, Frank, 1985b, Frank, 1997 considered the impact of positional goods and subjective well-being. Empirical work in economics has also started to investigate issues of interdependent

Methods

This paper specifically focuses on the estimation of the deprivation hypothesis: that individual health is affected by the difference between the individual's income and the income of individuals higher up the income distribution.2 Estimating the models raises a number of challenges. Firstly, it may be that individuals with high incomes have good health due

Data

The models are estimated using 11 waves of data from the British Household Panel Survey (BHPS), with the initial sample having been collected in 1991. It is a longitudinal sample of over 5000 households, containing over 10,000 adult individuals.

The longitudinal nature of the BHPS requires that individuals be re-interviewed each year. All individuals who were interviewed at wave one were re-interviewed (unless they dropped out, e.g., because of death or lack of cooperation) and these are known

Results

As our interest lies on the role of income and relative deprivation we only focus on these results.16, 17

The relationship between income and self-reported health

The literature on the impact of health on income is diverse and often controversial (Frijters et al., 2005). However, a non-linear relationship between health and income is often reported in the literature (Ettner, 1996), and the results in Table 3, Table 4 are largely in line with these results. Concentrating on results from the UK there is a large body of evidence in favour of income increasing health at a decreasing rate. Gravelle and Sutton (2006) and Benzeval et al. (2001) using the

Conclusion

This paper has made a number of contributions to the literature. Firstly, we have provided further evidence on the relationship between health and income. We find clear income effects for SAH for both men and women, and effects of income on GHQ for women. However, these effects are small in magnitude. The results for SAH do conform with the general literature, although this paper has highlighted a number of problems which we outline below.

Secondly, we have demonstrated that the specification of

Acknowledgements

The authors would like to acknowledge the comments of the referees as well as participants at the Health, Econometrics and Data Group, York. John Wildman would like to acknowledge the funding of the Leverhulme Trust. All the opinions expressed in this work are those of the authors.

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    The BHPS data were supplied by the Economic and Social Research Council Research Centre on Micro-Social Change, British Household Panel Survey. Colchester, Essex: The Data Archive, SN: 3953. Neither the original collectors of the data nor the Archive bear any responsibility for the analysis or interpretations presented here.

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