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Keeping up with the Schmidts: An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context

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  • Gundi Knies
  • Simon Burgess
  • Carol Propper

Abstract

We test empirically whether people's life satisfaction depends on their relative income position in the neighbourhood, drawing on a unique dataset, the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics. Relative deprivation theory suggests that individuals are happier the better their relative income position in the neighbourhood is. To test this theory we estimate micro-economic happiness models for the years 1994 and 1999 with controls for own income and for neighbourhood income at the zip-code level (roughly 9,000 people). There exist no negative and no statistically significant associations between neighbourhood income and life satisfaction, which refutes relative deprivation theory. If anything, we find positive associations between neighbourhood income and happiness in all cross-sectional models and this is robust to a number of robustness tests, including adding in more controls for neighbourhood quality, changing the outcome variable, and interacting neighbourhood income with indicators that proxy the extent to which individuals may be assumed to interact with their neighbours. We argue that the scale at which we measure neighbourhood characteristics may be too large still to identify the comparison effect sought after.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 24.

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Length: 35 p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp24

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Keywords: Life satisfaction; neighbourhood effects; comparison income; reference group;

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References

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  1. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  2. 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.
  3. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  4. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  5. Mike Shields & Mark Wooden, 2003. "Investigating the Role of Neighbourhood Characteristics in Determining Life Satisfaction," Melbourne Institute Working Paper Series wp2003n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. 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.
  7. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, vol. 94(3), pages 730-740, June.
  8. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  9. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  10. M. Sirgy & Terri Cornwell, 2002. "How Neighborhood Features Affect Quality of Life," Social Indicators Research, Springer, vol. 59(1), pages 79-114, July.
  11. Gundi Knies & C. Katharina Spieß, 2007. "Regional Data in the German Socio-Economic Panel Study (SOEP)," Data Documentation 17, DIW Berlin, German Institute for Economic Research.
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Cited by:
  1. Abel Brodeur & Sarah Flèche, 2013. "Where the Streets Have a Name: Income Comparisons in the US," PSE Working Papers halshs-00795198, HAL.
  2. repec:ese:iserwp:2014-08 is not listed on IDEAS
  3. Joerg Dittmann & Jan Goebel, 2010. "Your House, Your Car, Your Education: The Socioeconomic Situation of the Neighborhood and its Impact on Life Satisfaction in Germany," Social Indicators Research, Springer, vol. 96(3), pages 497-513, May.
  4. Gundi Knies, 2010. "Income Comparisons among Neighbours and Life Satisfaction in East and West Germany," SOEPpapers on Multidisciplinary Panel Data Research 298, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Peter Eibich & Nicolas R. Ziebarth, 2013. "Examining the Structure of Spatial Health Effects in Germany Using Hierarchical Bayes Models," SOEPpapers on Multidisciplinary Panel Data Research 620, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.
  7. Lucinda Platt & Gundi Knies & Alita Nandi, 2014. "Life Satisfaction, Ethnicity and Neighbourhoods: Is There an Effect of Neighbourhood Ethnic Composition on Life Satisfaction?," CReAM Discussion Paper Series 1407, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  8. Gundi Knies, 2012. "Income Comparisons Among Neighbours and Satisfaction in East and West Germany," Social Indicators Research, Springer, vol. 106(3), pages 471-489, May.

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