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

  • Frijters, Paul


    (University of Queensland)

  • Haisken-DeNew, John P.


    (Melbourne Institute of Applied Economic and Social Research)

  • Shields, Michael A.


    (Monash University)

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 causal 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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 419.

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Length: 38 pages
Date of creation: Jan 2002
Date of revision:
Publication status: published in: Journal of Human Resources, 2004, 39 (3), 649-674
Handle: RePEc:iza:izadps:dp419
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  18. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June.
  19. 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.
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