LC and LC-IRT Models in the Identification of Polish Households with Similar Perception of Financial Position

Abstract

One of the pillars of sustainable development is related to the elimination of poverty and improvement of quality of life. Financial situation of the households plays a crucial role in the subjective well-being, quality of life and overall satisfaction. According to most recent Eurostat data, Poland is one of the countries with the lowest level of subjective material well-being. In this paper we aim to find latent structures of Poles with similar tendency of self-reporting their income position additionally influenced by the socio-economic features and analyze the item characteristics of the questionnaire as well. To address the questions at hand, first we apply the variant of finite mixture models, i.e., latent class (LC) model for data from all, eight waves (2000–2015) of the Polish Household Panel. We are especially focused on the constrained version of the model under IRT parameterization. We compare the results for LC and LC-IRT models and show the influence of the covariates such as family type, socio-economic status and place of living on the probability of belonging to the three identified classes of Polish households, based both on multinomial and global logit parameterization. In this way we can show which types of families tend to be more satisfied with their financial position and those whose members are prone to belong to the worst situated group of Poles. Note that, we present the results for the data including survey weighs, being omitted in most of the studies concerning Polish financial well-being.