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Economic Satisfaction and Income Rank in Small Neighbourhoods

  • Clark, Andrew E.

    ()

    (Paris School of Economics)

  • Kristensen, Nicolai

    ()

    (KORA - Danish Institute for Local and Regional Government Research)

  • Westergård-Nielsen, Niels C.

    ()

    (Copenhagen Business School)

We contribute to the literature on well-being and comparisons by appealing to new Danish data dividing the country up into around 9,000 small neighbourhoods. Administrative data provides us with the income of every person in each of these neighbourhoods. This income information is matched to demographic and economic satisfaction variables from eight years of Danish ECHP data. Panel regression analysis shows that, conditional on own household income, respondents report higher satisfaction levels when their neighbours are richer. However, individuals are rank-sensitive: conditional on own income and neighbourhood median income, respondents are more satisfied as their percentile neighbourhood ranking improves. A ten percentage point rise in rank (i.e. from 40th to 20th position in a 200-household cell) is worth 0.11 on a one to six scale, which is a large marginal effect in satisfaction terms.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3813.

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Length: 14 pages
Date of creation: Nov 2008
Date of revision:
Publication status: published in: Journal of the European Economic Association, 2009, 7, (2-3), 519–527
Handle: RePEc:iza:izadps:dp3813
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  1. John F. Heliwell & Haifang Huang, 2005. "How's the Job? Well-Being and Social Capital in the Workplace," NBER Working Papers 11759, National Bureau of Economic Research, Inc.
  2. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  3. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  4. Geeta Kingdon & John Knight, 2005. "Community, Comparisons and Subjective Well-being in a Divided Society," Working Papers 05095, University of Cape Town, Development Policy Research Unit.
  5. Carol Graham & Andrew Felton, 2006. "Inequality and happiness: Insights from Latin America," Journal of Economic Inequality, Springer, vol. 4(1), pages 107-122, April.
  6. Anne Bolster & Simon Burgess & Ron Johnston & Kelvyn Jones & Carol Propper & Rebecca Sarker, 2007. "Neighbourhoods, households and income dynamics: a semi-parametric investigation of neighbourhood effects," Journal of Economic Geography, Oxford University Press, vol. 7(1), pages 1-38, January.
  7. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute for the Study of Labor (IZA).
  8. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  9. Damm, Anna Piil & Schultz-Nielsen, Marie Louise, 2008. "The Construction of Neighbourhoods and its Relevance for the Measurement of Social and Ethnic Segregation : Evidence from Denmark," Working Papers 08-17, University of Aarhus, Aarhus School of Business, Department of Economics.
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