How important is rank to individual perception of economic standing? A within-community analysis

Abstract

Using the Indonesia Family Life Survey data, this paper is the first of its kind to explore empirically whether rank-position within one’s community matters to individual perception of where he or she stands on the self-defined economic ladder. By applying a multi-level modeling equation approach on responses to the subjective economic ladder (SEL) question, I find that it is not the mean income or expenditure of a reference group that affects SEL but rather the individual’s ordinal ranking within a reference group (for example, the individual is from the 5th or 40th richest household in the community). Consistent with Hirsch (Hirsch, F.: Social limitation to growth. Harvard University Press, Cambridge (1976)), SEL depends significantly more on the rank-position of the positional goods and less on the nonpositional goods owned by the individual.