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

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  • Paul Frijters
  • John P. Haisken-DeNew
  • Michale A. Shields

Abstract

We quantify the value of changes in life circumstances in Germany following reunification. To this end, we develop and implement a fixed-effect estimator for ordinal life satisfaction in the German Socio-Economic Panel. We find strong negative effects on life satisfaction from being recently fired, losing a spouse through either death or separation and time spent in hospital, whilst we find strong positive effects from income and marriage. Using a new casual decomposition technique, we find that East Germans experienced a continued improvement in life satisfaction after 1990 to which increased household incomes contributed around 12%. Most of the increase is explained by improved average circumstances, such as public services. For West Germans, we find virtually no change in satisfaction between 1991 and 1999.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 828.

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Length: 37 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:mlb:wpaper:828

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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Fax: +61 3 8344 6899
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Web page: http://www.economics.unimelb.edu.au
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Related research

Keywords: Life satisfaction; German Reunification; Random and Fixed-Effects Panel Models; Causal Decomposition;

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References

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  1. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  2. Hamermesh, Daniel S., 1999. "The Changing Distribution of Job Satisfaction," IZA Discussion Papers 42, Institute for the Study of Labor (IZA).
  3. Oswald, Andrew, 1997. "Happiness and Economic Performance," The Warwick Economics Research Paper Series (TWERPS) 478, University of Warwick, Department of Economics.
  4. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  5. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
  6. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  7. 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.
  8. Gerdtham, Ulf-G & Johannesson, Magnus, 1997. "The Relationship between Happiness, Health and Socio-economic Factors: Results Based on Swedish Micro Data," Working Paper Series in Economics and Finance 207, Stockholm School of Economics.
  9. 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.
  10. Hunt, Jennifer, 2000. "Why Do People Still Live in East Germany?," IZA Discussion Papers 123, Institute for the Study of Labor (IZA).
  11. Ravallion, Martin & Lokshin, Michael, 2000. "Identifying welfare effects from subjective questions," Policy Research Working Paper Series 2301, The World Bank.
  12. Bruno S. Frey & Alois Stutzer, . "Happiness, Economy and Institutions," IEW - Working Papers 015, Institute for Empirical Research in Economics - University of Zurich.
  13. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  14. Andrew Clark & Yannis Georgellis & Peter Sanfey, 1999. "Scarring: The Psychological Impact of Past Unemployment," Studies in Economics 9903, Department of Economics, University of Kent.
  15. 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.
  16. Bernard M.S. van Praag & Paul Frijters, 1999. "The measurement of welfare and well-being; the Leyden approach," School of Economics and Finance Discussion Papers and Working Papers Series 071a, School of Economics and Finance, Queensland University of Technology.
  17. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  18. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June.
  19. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  20. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
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Citations

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Cited by:
  1. Bruce Headey & Mark Wooden, 2004. "The Effects of Wealth and Income on Subjective Well-Being and Ill-Being," The Economic Record, The Economic Society of Australia, vol. 80(s1), pages S24-S33, 09.
  2. repec:ese:iserwp:2006-42 is not listed on IDEAS
  3. 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.
  4. Paul Frijters & John P. Haisken-DeNew & Michael Shields, 2003. "Estimating The Causal Effect of Income on Health: Evidence from Post Reunification East Germany," CEPR Discussion Papers 465, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  5. 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.
  6. Ada Ferrer-i-Carbonell, 2002. "Income and Well-being," Tinbergen Institute Discussion Papers 02-019/3, Tinbergen Institute.
  7. Diaz-Serrano, Luis, 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).
  8. Ada Ferrer-i-Carbonell, 2002. "Income and Well-being," Tinbergen Institute Discussion Papers 02-019/3, Tinbergen Institute.
  9. William H. Greene & David A. Hensher, 2008. "Modeling Ordered Choices: A Primer and Recent Developments," Working Papers 08-26, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Kalyuzhnova, Yelena & Kambhampati, Uma, 2008. "The determinants of individual happiness in Kazakhstan," Economic Systems, Elsevier, vol. 32(3), pages 285-299, September.
  11. Díaz Serrano, Luis, 2008. "Individual Aspirations and Satisfaction:Quantifying the Importance of Homeownership," Working Papers 2072/13268, Universitat Rovira i Virgili, Department of Economics.
  12. Demoussis, Michael & Giannakopoulos, Nicholas, 2008. "Analysis of domain satisfactions: Evidence from a panel of Greek women," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(4), pages 1347-1362, August.
  13. Luis Cabral & Ben Polak, 2007. "Dominant Firms, Imitation, and Incentives to Innovate," Working Papers 07-6, New York University, Leonard N. Stern School of Business, Department of Economics.

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