Adaptation to Poverty in Long-Run Panel Data

Abstract

We consider the link between poverty and subjective well-being and focus in particular on potential adaptation to poverty. We use panel data on almost 54,000 individuals living in Germany from 1985 to 2012 to show, first, that life satisfaction falls with both the incidence and intensity of contemporaneous poverty. We then reveal that there is little evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. We cannot identify any cause of poverty entry that explains the overall lack of poverty adaptation.

Economic Hardship and Well-Being: Examining the Relative Role of Individual Resources and Welfare State Effort in Resilience Against Economic Hardship

“…Furthermore, people tend to gravitate back to their previous happiness level once the initial phase of increased happiness subsides (DiTella et al 2007). Interestingly, this adaptation effect has not been found for income loss (Burchardt 2005;Clark et al 2014). The detrimental effects of economic losses on well-being are longer lasting.…”

“…Given the stronger well-being effects of income declines (Wolbring et al 2013) and its longer-lasting negative effects (Burchardt 2005;Clark et al 2014), it is opportune for research to focus on the conditions under which a decline in living standards has negative well-being effects. Furthermore, changes in income overlook other elements of the standard of living that may have a more direct relationship with happiness.…”

Poverty Profiles and Well-Being: Panel Evidence from Germany

“…However, almost no work, to the best of our knowledge, has considered income poverty as such as a determinant of satisfaction with life in a multivariate setting. Following Clark et al (2014), we here first look at the effects of both being poor and poverty intensity (d 0 and d 1 in the terminology above).…”

“…In particular, poverty is a complex phenomenon which affects all of the psychological, social and economic dimensions of an individuals' life, and it is unclear whether its relationship to subjective well-being can be inferred from the general analysis of income. As in Clark et al (2014), our first question here then explicitly considers the relationship between both the incidence and intensity of current income poverty and current well-being.…”

“…As opposed to Clark et al (2014), where the focus is on adaptation within the poverty spell, we next ask what happens to individual well-being once the poverty spell is over, i.e. the individual is no longer poor.…”