EUROPEAN PAPERS ON THE NEW WELFARE

Multidimensional Perspective on the Well-being of Older People

3.3 Older People’s Well-being: The Multidimensional Measure

This subsection reports on the empirical work towards incorporating financial costs of disability for older people. By ‘costs’ it is meant here all those extra expenses that people incur as a result of their disability. Thus, focus is exclusively on the extra costs of living that people incur because of their disability, such as additional heating, laundry and transport costs, or special equipment. It does not include the opportunity cost of ill health and disability — i.e. loss of personal earnings, or earnings foregone by friends and relatives in providing unpaid care, nor does it reflect any loss in subjective well-being as a direct result of being disabled.4
Here, results shown are restricted to illustrating how the relative ranking of various subgroups of older people is affected when we to take into account differences in disability status and costs associated with disability in the interpersonal comparison of economic well-being. The actual measurement of costs of disability are reported in detail in Zaidi (2008, pp. 129-140).
As is obvious from the specification of the income term in Model 10 of Table 5.8 (Zaidi 2008, pp. 137), the additional costs of disability varies with income. Therefore, the additional-needs factor arising due to disability is calculated separately for each income decile group, using the average income of each of these income groups as the reference income. These computations, reported in Table 3, show that the disability equivalisation factor is different for different income groups. For a single disabled person, the factor ranges from about 1.65 to 1.25 from the bottom income group to the top income group, implying that a disabled person in the bottom income group needs about 65% more than his current income and a disabled person in the top income group needs about 25% more than his current income in order to maintain their living standards. For pensioner couples, the factors are smaller if only one of them has a disability (ranging from 1.29 to 1.11), but they are larger if both of them have a disability (ranging from 1.87 to 1.34). The revised income definition, referred to as needs-adjusted income, is calculated using these disability equivalisation factors for single persons and for multi-person households in different income decile groups, as well as equivalisation factors for household size and composition.

Table 3: Equivalisation for disability, subdivided across income decile groups

zaidi-tab3.gif

Notes: (1) Average income corresponds to average annual household income, expressed in nominal prices of 1998-99.
Source: Author’s calculations from the 1999 BHPS.

The rest of this section is subdivided into two parts:
•    First, we analyse the proportion of different subgroups of older people in the cumulative income distribution derived on the basis of the same decile-thresholds as used in the earlier analysis (the thresholds defined based on income of older population, used in Table 1).5 These analyses highlight the shift in income ranking as a result of the correction on the basis of the financial costs of disability.
•    Second, we examine the poverty status computed on the basis of the same poverty line as used in Table 2. These analyses show how the poverty incidence and the poverty intensity change when we account for additional costs that arise due to disability.
a.     Incorporating costs of disability: income ranking of subgroups
In this subsection, it is examined how the relative economic positions of various subgroups of older people change when we take into account the differences in their disability status. Results show that a greater fraction of older people is found among low-income groups when corrected for differences in disability across households. About 20% of all older people are found below the first decile-threshold (see Table 4 below), which almost doubles the fraction below the first low-income cut-off used in Table 1. Likewise, the proportion below the second decile-threshold has risen: almost one-third of all fall below this threshold as opposed to about 27% of all without the disability equivalisation. Looking at the situation of various subgroups, close to one-fourth of all widow(er)s, those aged 80 or more, and those who live as tenants are found below the first low income threshold. These groups were already identified as the high-risk groups when using income adjusted for household size only, and these results provide a clear indication of the coupling of disadvantage in terms of income and disability for these subgroups.
b.     Incorporating costs of disability: poverty results
Using the 60% cut-off, the poverty incidence amongst older people almost doubled (from 22.6% to 36.5%) when using the needs-adjusted income instead of the size-adjusted income. These results, reported in Table 2, are based on the same poverty threshold as derived using the median level of size-adjusted income, mainly for the fact that these poverty thresholds are rather close to the minimum income guarantee in Great Britain. High poverty groups remain those who are widow(er)s, divorced, separated or never married, those who live as tenants, and those who are in the oldest age groups (aged 75-79, 80-84, and 85+).
The poverty intensity results, as given by the median poverty gap, show that there are not only more poor but also the average level of resources of the poor are much lower when using the needs-adjusted income as the measure of household resources. As noted in earlier results, the relative ranking of the subgroups for poverty incidence and poverty intensity is not affected by the use of the needs-adjusted income instead of size-adjusted income. However, it is safe to conclude that unadjusted incomes significantly understate the problem of low income amongst older people.

Table 4: Incorporating costs of disability: relative position of subgroups of older people within the overall population (cumulative shares in income decile groups of the overall population)

zaidi-tab4.gif

Notes: (1) Income deciles are calculated based on net household income before housing costs for the overall population.
Source: Author’s calculations from the 1999 BHPS.

Table 5: Incorporating costs of disability: poverty incidence and poverty intensity amongst older people

zaidi-tab5.gif

Notes: (1) Poverty intensity refers to ‘median’ poverty gap, which is preferred over ‘mean’ poverty gap since it provides a better measure of the average income of poor people.
Source: Author’s calculations from the 1999 BHPS.

4. Conclusions
This paper reports on the multidimensional analyses of older people’s well-being as undertaken in Zaidi (2008). It uses income and health as the two single dimensions, each chosen for their importance to the well-being of older people. These analyses are then supplemented by the multidimensional measurement analysis, which brings these two dimensions together.
This study emphasised the importance of adopting the multidimensional approach when evaluating personal well-being of this particular subgroup. A clear policy conclusion is the need that older people’s income entitlements ought to be duly adjusted to take into account additional needs arising due to additional costs of living associated with disability and limiting health. An important extension of this work is an expansion to include other base dimensions of older people’s well-being, and an examination of the dynamics of needs-adjusted resources during old age.

4 A full-scale discussion of this approach, as well as a discussion on how it distinguishes itself from other approaches, is beyond the scope of the work reported in this subsection. For this purpose, see author’s other work (Zaidi and Burchardt 2005).
5 By decile-thresholds we mean the maximum income that a decile income group has. For instance, in terms of 1998/99 prices, the first decile income group has about £100 per week as the maximum income (per adult equivalent).

References

Atkinson, A.B., Cantillon, B., Marlier, E. and Nolan, B. (2002): Social Indicators: The EU and Social Inclusion, Oxford, Oxford University Press.

Bardasi, E., Jenkins, S.P. and Rigg, J.A. (2003): Documentation for Derived Current and Annual Net Household Income Variables, BHPS waves 1-10, Institute of Social and Economic Research, University of Essex, Colchester.

Sen, A.K. (1997): On Economic Inequality, Oxford, Clarendon Press.

Zaidi, A. and Burchardt, T. (2005): “Comparing Incomes when Needs Differ: Equivalisation for the Extra Costs of Disability in the UK”, Review of Income and Wealth, 51, 1, pp. 89-114.

Zaidi, A. and Sidorenko, A. (2008): “Features and Challenges for Population Ageing: The European Perspective”, World Demographic Association Discussion Paper, No. 2008/5, University of St. Gallen, Switzerland.

Zaidi, A. (2008): Well-being of Older People in Ageing Societies, Public Policy and Social Welfare Series, Aldershot, Ashgate (www.euro.centre.org/detail.php?xml_id=1356).


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