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The Value of Reunification in Germany: An Analysis of Changes in Life Satisfaction

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  • Shields, Michael

    (University of Melbourne)

  • Paul Frijters
  • John P Haisken-DeNew

Abstract

Recent years have seen a considerable increase in the number of economists researching the role of income, employment status and other demographic characteristics in determining individual life satisfaction or happiness. In this paper we investigate how life satisfaction is affected by a large exogenous shock, namely, reunification for East Germans. In particular, we identify the effects of the substantial increase in real household income and increased unemployment. We implement a new fixed-effect estimator for ordinal life satisfaction in the German Socio-Economic Panel and develop a decomposition approach that accounts for new entrants and panel attrition. We find that average life satisfaction in East Germany increased by around 20% in the years following reunification, leading to a clear convergence with West Germany. Importantly, increased real household incomes in East Germany accounted for around 35-40% of this increase.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 186.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:186

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Keywords: life satisfaction; German reunification; random and fixed-effects panel models; causal decomposition;

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References

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  8. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
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  10. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  11. Jennifer Hunt, 2000. "Why Do People Still Live in East Germany?," Discussion Papers of DIW Berlin 201, DIW Berlin, German Institute for Economic Research.
  12. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
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  14. Ravallion, Martin & Lokshin, Michael, 2000. "Identifying welfare effects from subjective questions," Policy Research Working Paper Series 2301, The World Bank.
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  17. Theodossiou, I., 1998. "The effects of low-pay and unemployment on psychological well-being: A logistic regression approach," Journal of Health Economics, Elsevier, vol. 17(1), pages 85-104, January.
  18. Shields, Michael A & Wailoo, Allan, 2002. "Exploring the Determinants of Unhappiness for Ethnic Minority Men in Britain," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(4), pages 445-66, September.
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Citations

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Cited by:
  1. Ada Ferrer-i-Carbonell, 2002. "Income and Well-being," Tinbergen Institute Discussion Papers 02-019/3, Tinbergen Institute.
  2. Luis Diaz-Serrano, 2006. "Housing Satisfaction, Homeownership and Housing Mobility: A Panel Data Analysis for Twelve EU Countries," IZA Discussion Papers 2318, Institute for the Study of Labor (IZA).
  3. Mark Wooden & Bruce Headey, 2004. "The Effects of Wealth and Income on Subjective Well-Being and Ill-Being," Melbourne Institute Working Paper Series wp2004n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Robert Drago & Mark Wooden & Yi-Ping Tseng, 2004. "Investigating the Role of Neighbourhood Characteristics in Determining Life Satisfaction," Melbourne Institute Working Paper Series wp2004n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Claudia Senik, 2003. "What Can we Learn from Subjective Data ? The Case of Income and Well-Being," DELTA Working Papers 2003-06, DELTA (Ecole normale supérieure), revised Oct 2003.
  6. repec:ese:iserwp:2006-42 is not listed on IDEAS
  7. William Greene, 2007. "Discrete Choice Modeling," Working Papers 07-6, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Claudia Senik, 2002. "Que nous apprennent les données subjectives ? Une application au lien entre revenu et bien-être," DELTA Working Papers 2002-20, DELTA (Ecole normale supérieure).

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