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Investigating the Role of Neighbourhood Characteristics in Determining Life Satisfaction

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  • Mike Shields

    ()
    (Department of Economics, The University of Melbourne)

  • Mark Wooden

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper reports on an analysis of life satisfaction data collected as part of the first wave of the Household, Income and Labour Dynamics in Australia (HILDA) Survey. More specifically, the clustered nature of the HILDA sample was used to test the role of neighbourhood effects in accounting for inter-personal differences in self-reported life satisfaction scores. A regression model predicting individual differences in life satisfaction was developed and tested for men and women separately. When this model was estimated allowing for fixed neighbourhood effects (based on the Census Collection District in which a sample member resides), strong support for sizeable effects were found. Indeed, observable individual and household characteristics (such as age, sex, employment status and household income) were only found to account for about 12 to 14 per cent of the variation in measured life satisfaction. Of the variance unexplained, close to 10 per cent could be accounted for by unobserved differences across neighbourhoods. While identifying the presence and magnitude of neighbourhood effects proved to be relatively straightforward, determining the source of these neighbourhood differences is a very different matter. Essentially, these neighbourhood effects can arise either because individuals in the same neighbourhood tend to behave similarly because they face similar environments or have similar characteristics, or because the behaviour of individuals is affected by the behaviour of other residents of the neighbourhood. Some evidence was uncovered to suggest that the latter type of effect might be relatively more powerful in explaining differences in life satisfaction. Unfortunately, this conclusion is tentative at best, with measurable neighbourhood characteristics only found to have a relatively small impact on the overall explanatory power of the regression models.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2003n24.

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Length: 43 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:iae:iaewps:wp2003n24

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References

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  1. Mark Wooden & Simon Freidin & Nicole Watson, 2002. "The Household, Income and Labour Dynamics in Australia (HILDA)Survey: Wave 1," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 339-348.
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Citations

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Cited by:
  1. Headey, Bruce & Wooden, Mark, 2004. "The Effects of Wealth and Income on Subjective Well-Being and Ill-Being," IZA Discussion Papers 1032, Institute for the Study of Labor (IZA).
  2. David G. Blanchflower & Andrew J. Oswald, 2005. "Happiness and the Human Development Index: The Paradox of Australia," NBER Working Papers 11416, National Bureau of Economic Research, Inc.
  3. repec:ese:iserwp:2007-19 is not listed on IDEAS
  4. Gundi Knies & Simon Burgess & Carol Propper, 2007. "Keeping Up With the Schmidts: An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context," The Centre for Market and Public Organisation 07/173, Department of Economics, University of Bristol, UK.
  5. 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).
  6. Stavrova, Olga & Schlösser, Thomas & Fetchenhauer, Detlef, 2011. "Are the unemployed equally unhappy all around the world? The role of the social norms to work and welfare state provision in 28 OECD countries," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 159-171, February.
  7. 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.
  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.
  9. Rosanna Scutella & Mark Wooden, 2006. "Effects of Household Joblessness on Subjective Well-Being," Melbourne Institute Working Paper Series wp2006n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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