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Income Satisfaction Inequality and its Causes

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  • Ada Ferrer-i-Carbonell

    ()
    (SEO, Amsterdam Economics, University of Amsterdam)

  • Bernard M.S. Van Praag

    ()
    (University of Amsterdam)

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 permanent income explains the largest part of Income Satisfaction Inequality; for non-working individuals, the age distribution is very relevant as well. Additionally, other variables such as number of adults, education, and having a partner explain most of the remaining Income Satisfaction Inequality. This discussion paper has been published in 'Journal of Economic Inequality', 2003, 1(2), 107-27.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-014/3.

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Date of creation: 25 Feb 2002
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Handle: RePEc:dgr:uvatin:20020014

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Web page: http://www.tinbergen.nl

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Keywords: Equivalent Income; Financial Satisfaction; Income Satisfaction; Inequality ; Variance Decomposition; Welfare;

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References

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  1. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
  2. Hunt, Jennifer, 2000. "Why Do People Still Live In East Germany?," CEPR Discussion Papers 2431, C.E.P.R. Discussion Papers.
  3. 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.
  4. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 2(3), pages 337-369.
  5. Bruno S. Frey & Alois Stutzer, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series 246, CESifo Group Munich.
  6. van Praag, B. M. S. & Frijters, P. & Ferrer-i-Carbonell, A., 2003. "The anatomy of subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 51(1), pages 29-49, May.
  7. Yew-Kwang, Ng, 1997. "A case for Happiness, Cardinalism, and Interpersonal Comparability," Departmental Working Papers _081, Chinese University of Hong Kong, Department of Economics.
  8. Amartya Sen, 1999. "The Possibility of Social Choice," American Economic Review, American Economic Association, vol. 89(3), pages 349-378, June.
  9. Hunt, Jennifer, 1999. "Determinants of Non-Employment and Unemployment Durations in East Germany," CEPR Discussion Papers 2182, C.E.P.R. Discussion Papers.
  10. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  11. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  12. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  13. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  14. Van Praag, Bernard M.S., 1977. "The perception of welfare inequality," European Economic Review, Elsevier, vol. 10(2), pages 189-207.
  15. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  16. Theil, Henri, 1979. "The measurement of inequality by components of income," Economics Letters, Elsevier, vol. 2(2), pages 197-199.
  17. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June.
  18. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  19. 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.
  20. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
  21. 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.
  22. Richard A. Easterlin, 2000. "The Worldwide Standard of Living since 1800," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 7-26, Winter.
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