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Income Satisfaction Inequality and Its Causes

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Author Info
Ada Ferrer-i-Carbonell
Bernard M. S. van Praag

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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 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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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 367.

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Length: 25 p.
Date of creation: 2003
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Handle: RePEc:diw:diwwpp:dp367

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Related research
Keywords: Equivalent Income; Financial Satisfaction; Income Satisfaction; Income Inequality; Variance Decomposition.;

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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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References listed on IDEAS
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. 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. [Downloadable!] (restricted)
  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)
    Other versions:
  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. Theil, Henri, 1979. "The measurement of inequality by components of income," Economics Letters, Elsevier, vol. 2(2), pages 197-199. [Downloadable!] (restricted)
  6. 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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  7. 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)
  8. 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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  9. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September. [Downloadable!] (restricted)
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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. [Downloadable!]
  11. 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)
  12. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June. [Downloadable!] (restricted)
  13. 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)
  14. 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)
  15. 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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  16. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September. [Downloadable!] (restricted)
  17. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  18. Frey, Bruno S. & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  19. Van Praag, Bernard M.S., 1977. "The perception of welfare inequality," European Economic Review, Elsevier, vol. 10(2), pages 189-207. [Downloadable!] (restricted)
  20. Amartya Sen, 1999. "The Possibility of Social Choice," American Economic Review, American Economic Association, vol. 89(3), pages 349-378, June. [Downloadable!] (restricted)
  21. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
  22. Bernard M. S. van Praag & P. Frijters & Ada Ferrer-i-Carbonell, 2001. "The Anatomy of Subjective Well-Being," Discussion Papers of DIW Berlin 265, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
Full references

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. Hanna Dudek, 2008. "Subjective aspects of economic poverty. Ordered response model approach," Working Papers 29, Department of Applied Econometrics, Warsaw School of Economics. [Downloadable!]
  8. 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!]
  9. Inmaculada García & José Molina & María Navarro, 2007. "How Satisfied are Spouses with their Leisure Time? Evidence from Europe," Journal of Family and Economic Issues, Springer, vol. 28(4), pages 546-565, December. [Downloadable!] (restricted)
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