“Economic insecurity” might be an increasingly prominent topic of public debate, but until recently, it’s been notably lacking from the academic literature. “There are not many papers that try to define and measure what economic insecurity is,” said Conchita D’Ambrosio.
D’Ambrosio is a professor at the University of Luxembourg who works with Walter Bossert of Université de Montréal. She presented the fruits of that research last week at a talk at Dalhousie titled “Relative Measures of Economic Insecurity”.
Economic insecurity, said D’Ambrosio, can’t be completely equated with poverty. Nor is it an objective assessment of someone’s economic circumstances. Instead, economic insecurity is in part a psychological phenomenon — “the anxiety produced by variations in economic resources and by anticipation of the difficulty in recovering from losses. It’s more the change that gives rise to your fear, because you get used to what you have. So when you see what you have changing, that makes you feel insecure.”
D’Ambrosio bases her research at the individual level because each individual’s subjective experience plays a central role in his or her feeling of insecurity. The societal index of insecurity is determined by taking the mean of these individual values.
Changes in Wages
This individual insecurity is measured first by looking at the changes in wages. Even increases can make people feel insecure, said D’Ambrosio, because they reduce the predictability of what they’ll have in the future. But of course wage decreases exacerbate insecurity more, because they leave the individual with less of a buffer against poverty.
Measured on a scale of 1 to 3, wages that remain constant at 2-2-2, said D’Ambrosio, provide more security than wages that change in a sequence of 2-3-2, and much more security than a 2-1-2 sequence.
Wages here also include the entitlements, or social safety net, that an individual has access to, such as EI, health care and so on. When these entitlements are cut, the individual’s security goes down too.
Because a person does not live in isolation, and because one’s perceived insecurity results “from the fact that he works in a labour market,” economic insecurity also takes into account national employment rates.
The choice to include this variable, said D’Ambrosio, comes from a basic principle of macroeconomics: that when more people are employed, each employee has more bargaining power and therefore increased wages and job security.
The change in wages, said D’Ambrosio, tells us how well the individual “can absorb economic shocks” and the employment rates “gives an idea of the dynamics of the labour market that may makes the individual feel more or less secure.”
Societal Index of Insecurity
When a mean of the individual level of insecurity is taken, the country that is most insecure is the country that is most insecure in both wages and employment rate.
With this index, D’Ambrosio ranked the economic insecurity of the countries of southern Europe. Despite its many economic problems – problems that D’Ambrosio herself is a symptom of, having been forced to leave her native country to seek work elsewhere — Italy is the least insecure, due to factors such as the relative stability of wages for those in Italy that have jobs. “If you have a job, what you make doesn’t change much.”
But when the economic insecurity for only those under 25 is measured, “the plague of youth unemployment shows” said D’Ambrosio, and Italy becomes the most insecure, with Slovenia assuming the top spot.
Greece also fares poorly when those under 25 are counted, but better when they’re not; on the index of 25 and over, Spain is more insecure than Greece. “Even if Greece is in this deep recession it doesn’t show in the insecurity of individuals.”
To some extent, this shows the limitations of the model in capturing the colloquial experience of insecurity; D’Ambrosio said that they only analyzed employees, which make up 83.3 per cent of the labour force. Yet this leaves out that paradigmatically precarious group, the unemployed.
Nonetheless, measuring economic insecurity as a partly subjective reality helps provide an answer to what, exactly, economic insecurity is.
“It’s due to the changes you see around you.”
How to increase security for European populations struggling with the effects of austerity is perhaps a more difficult question.
“In Italy we are taxing more and we are spending less, we’re just cutting everything.”