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Income Satisfaction Inequality and its Causes

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  • Ada Ferrer-i-Carbonell

    ()

  • Bernard Van Praag

    ()

Abstract

In this paper, the concept of Income Satisfaction Inequality is operationalized on the basis of individual responses to an Income Satisfaction question posed in the German Socio- Economic Panel (GSOEP). Income satisfaction is the subjective analogue of the objective income concept and includes objective income inequality as a special case. The paper introduces a method to decompose Income Satisfaction Inequality according to the contributions from variables such as income, education, and the number of children. Given the panel structure of the data, inequality may be attributed partly to permanent individual circumstances and partly to transitory changes. The paper shows that by far the largest part of the satisfaction inequality has to be ascribed to unobserved heterogeneity. Distinguishing between a structural and an unexplained part of inequality we find that income explains the largest part of structural Income Satisfaction Inequality together with household membership; for non-working individuals, the age distribution is very relevant as well.

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File URL: http://hdl.handle.net/10.1023/A:1026109706836
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Bibliographic Info

Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 1 (2003)
Issue (Month): 2 (August)
Pages: 107-127

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Handle: RePEc:kap:jecinq:v:1:y:2003:i:2:p:107-127

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Web page: http://springerlink.metapress.com/link.asp?id=111137

Related research

Keywords: equivalent income; financial satisfaction; income inequality; income satisfaction; variance decomposition;

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References

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  1. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
  2. Hunt, Jennifer, 2000. "Why Do People Still Live in East Germany?," IZA Discussion Papers 123, Institute for the Study of Labor (IZA).
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  4. Yew-Kwang, Ng, 1997. "A case for Happiness, Cardinalism, and Interpersonal Comparability," Departmental Working Papers _081, Chinese University of Hong Kong, Department of Economics.
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  10. Ada Ferrer-i-Carbonell & Bernard M.S. van Praag, 2002. "The Subjective Costs of Health Losses due to Chronic Diseases," Tinbergen Institute Discussion Papers 02-023/3, Tinbergen Institute.
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  17. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166 Elsevier.
  18. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
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