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Income Satisfaction Inequality and its Causes

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Author Info
Ada Ferrer-i-Carbonell () (SEO, Amsterdam Economics, Faculty of Economics and Econometrics, University of Amsterdam, and Tinbergen Institute)
Bernard M.S. Van Praag () (Faculty of Economics and Econometrics, University of Amsterdam, and Tinbergen Institute)

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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.

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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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Related research
Keywords: Equivalent Income Financial Satisfaction Income Satisfaction Inequality Variance Decomposition Welfare

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Find related papers by JEL classification:
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September. [Downloadable!] (restricted)
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  3. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  4. Hunt, Jennifer, 1999. "Determinants of Non-Employment and Unemployment Durations in East Germany," CEPR Discussion Papers 2182, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 2(3), pages 337-369. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. Jennifer Hunt, 2000. "Why Do People Still Live in East Germany?," Discussion Papers of DIW Berlin 201, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  8. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
  10. Rafael Di Tella & Robert J. MacCulloch & 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. [Downloadable!] (restricted)
  11. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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  15. Frey, Bruno S. & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  16. Amartya Sen, 1999. "The Possibility of Social Choice," American Economic Review, American Economic Association, vol. 89(3), pages 349-378, June. [Downloadable!] (restricted)
  17. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew M. Jones & Ángel López, 2004. "Allowing for heterogeneity in the decomposition of measures of inequality in health," Working Papers, Research Center on Health and Economics 929, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2005. [Downloadable!]
    Other versions:
  2. Monika Sander, 2007. "Return Migration and the "Healthy Immigrant Effect"," SOEPpapers 60, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  3. Mary C. Daly & Daniel J. Wilson, 2006. "Keeping up with the Joneses and staying ahead of the Smiths: evidence from suicide data," Working Paper Series 2006-12, Federal Reserve Bank of San Francisco. [Downloadable!]
  4. Inmaculada García & Jose Alberto Molina & María Navarro, 2007. "Modelling interdependences between spouses by estimating income satisfaction," Economics Bulletin, Economics Bulletin, vol. 4(10), pages 1-5. [Downloadable!]
  5. José Alberto Molina & María Navarro & Ian Walker, 2007. "Mums and Their Sons, Dads and Their Daughters: Panel Data Evidence of Interdependent Marginal Utilities across 14 EU Countries," IZA Discussion Papers 2734, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Jean-Marc Falter, 2006. "Equivalence Scales and Subjective Data in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(II), pages 263-284, June. [Downloadable!]
  7. José M. Labeaga & José Alberto Molina & María Navarro, 2007. "Income Satisfaction and Deprivation in Spain," IZA Discussion Papers 2702, Institute for the Study of Labor (IZA). [Downloadable!]
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