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Keeping up with the Schmidt`s – 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.

Suggested Citation

  • Gundi Knies & Simon Burgess & Carol Propper, 2008. "Keeping up with the Schmidt`s – An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(1), pages 75-108.
  • Handle: RePEc:aeq:aeqsjb:v128_y2008_i1_q1_p75-108
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    References listed on IDEAS

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    7. 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.
    8. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
    9. M. Sirgy & Terri Cornwell, 2002. "How Neighborhood Features Affect Quality of Life," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 59(1), pages 79-114, July.
    10. 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.
    11. 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.
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    Citations

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    Cited by:

    1. Anita Ratcliffe, 2012. "Wealth Effects or Economic Barometer: Why Do House Prices Matter for Psychological Health?," Working Papers 2012014, The University of Sheffield, Department of Economics.
    2. Knies, Gundi & Nandi, Alita & Platt, Lucinda, 2014. "Life satisfaction, ethnicity and neighbourhoods: is there an effect of neighbourhood ethnic composition on life satisfaction?," LSE Research Online Documents on Economics 55669, London School of Economics and Political Science, LSE Library.
    3. Plum, Alexander & Knies, Gundi, 2015. "Does neighbourhood unemployment affect the springboard effect of low pay?," ISER Working Paper Series 2015-20, Institute for Social and Economic Research.
    4. Abel Brodeur & Sarah Flèche, 2013. "Where the Streets Have a Name: Income Comparisons in the US," CEP Discussion Papers dp1196, Centre for Economic Performance, LSE.
    5. Eibich, Peter & Ziebarth, Nicolas, 2014. "Examining the Structure of Spatial Health Effects in Germany Using Hierarchical Bayes Models," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 305-320.
    6. Abel Brodeur & Sarah Flèche, 2017. "Neighbors' Income, Public Goods and Well-Being," Working Papers 1719E, University of Ottawa, Department of Economics.
    7. Anita Ratcliffe, 2010. "Housing wealth or economic climate: Why do house prices matter for well-being?," The Centre for Market and Public Organisation 10/234, Department of Economics, University of Bristol, UK.
    8. Knies, Gundi, 2010. "Income comparisons among neighbours and life satisfaction in East and West Germany," ISER Working Paper Series 2010-11, Institute for Social and Economic Research.
    9. Anita Ratcliffe, 2015. "Wealth Effects, Local Area Attributes, and Economic Prospects: On the Relationship between House Prices and Mental Wellbeing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(1), pages 75-92, March.
    10. 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: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 96(3), pages 497-513, May.
    11. Gundi Knies, 2012. "Income Comparisons Among Neighbours and Satisfaction in East and West Germany," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 106(3), pages 471-489, May.
    12. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.
    13. 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).

    More about this item

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Z1 - Other Special Topics - - Cultural Economics

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