Income deprivation and mental well-being: The role of non-cognitive skills

- Income deprivation, as measured by the Yitzhaki index, is negatively related with mental health.
- This association is 36.6% (men) and 51.9% (women) more intense among neurotic individuals.
- Extraverted men and conscientious women are also more deprivation-sensitive (31.1% and 45.9%, respectively).

We show that the positive relation between income deprivation and mental health is affected by an individual's non-cognitive skills. Income deprivation is operationalized as the Yitzhaki index, i.e., as a function of the sum of income differences between an individual and others in her reference group who are more affluent. Non-cognitive skills are extracted from a Locus of Control questionnaire and the Big Five Inventory, a self-report measurement of an individual in regard to five aspects of personality: conscientiousness, neuroticism, extraversion, agreeableness and open-mindedness. The results, based on the 2002-2010 waves of the German Socio-Economic Panel dataset (SOEP), show that deprivation is negative and significantly related with mental health. However, neurotic individuals are more deprivation-sensitive than are others. Compared to the mean effect, a one standard deviation rise in neuroticism is associated with a deprivation effect that is 36.6% and 51.9% larger among men and women, respectively. Although to a lesser extent, extraverted men and conscientious women are also found to be more deprivation-sensitive than are others, the corresponding figures being 31.1% and 45.9%, respectively. These findings suggest that personality differences should be taken into account in the design of policies, practices and initiatives aimed at alleviating the well-being costs of income deprivation.