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Reconsidering the analysis of longitudinal happiness data - with an application to the effect of unemployment

Author

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  • Gregori Baetschmann
  • Kevin E. Staub
  • Rainer Winkelmann

Abstract

The paper reconsiders existing estimators for the panel data fixed effects ordered logit model, including one that has not been used in econometric studies before, and studies the small sample properties of these estimators in a series of Monte Carlo simulations. There are two main findings. First, we show that some of the estimators used in the literature are inconsistent. Second, the new estimator seems to be more immune to small sample bias than other consistent estimators and is easy to implement. The empirical relevance is illustrated in an application to the effect of unemployment on happiness. Choosing the right estimator avoids a bias of up to 30 percent in key parameters.

Suggested Citation

  • Gregori Baetschmann & Kevin E. Staub & Rainer Winkelmann, 2011. "Reconsidering the analysis of longitudinal happiness data - with an application to the effect of unemployment," ECON - Working Papers 004, Department of Economics - University of Zurich, revised Jun 2011.
  • Handle: RePEc:zur:econwp:004
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    File URL: http://www.econ.uzh.ch/static/wp/econwp004.pdf
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    References listed on IDEAS

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    1. Andrew M. Jones & Stefanie Schurer, 2011. "How does heterogeneity shape the socioeconomic gradient in health satisfaction?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(4), pages 549-579, June.
    2. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-659, May.
    3. Anna Cristina D'Addio & Tor Eriksson & Paul Frijters, 2007. "An analysis of the determinants of job satisfaction when individuals' baseline satisfaction levels may differ," Applied Economics, Taylor & Francis Journals, vol. 39(19), pages 2413-2423.
    4. AlisonL. Booth & JanC. vanOurs, 2008. "Job Satisfaction and Family Happiness: The Part-Time Work Puzzle," Economic Journal, Royal Economic Society, vol. 118(526), pages 77-99, February.
    5. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, vol. 94(3), pages 730-740, June.
    6. Das, Marcel & van Soest, Arthur, 1999. "A panel data model for subjective information on household income growth," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 409-426, December.
    7. repec:dgr:kubcen:200769 is not listed on IDEAS
    8. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, July.
    9. Frijters, Paul & Haisken-DeNew, John P. & Shields, Michael A., 2005. "The causal effect of income on health: Evidence from German reunification," Journal of Health Economics, Elsevier, vol. 24(5), pages 997-1017, September.
    10. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Investigating the Patterns and Determinants of Life Satisfaction in Germany Following Reunification," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
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    Citations

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    Cited by:

    1. David Bell & Steffen Otterbach & Alfonso Sousa-Poza, 2012. "Work Hours Constraints and Health," Annals of Economics and Statistics, GENES, issue 105-106, pages 35-54.
    2. Robert Rudolf & Sung-Jin Kang, 2015. "Lags and Leads in Life Satisfaction in Korea: When Gender Matters," Feminist Economics, Taylor & Francis Journals, vol. 21(1), pages 136-163, January.
    3. Katherine Grace Carman, 2013. "Inheritances, Intergenerational Transfers, and the Accumulation of Health," American Economic Review, American Economic Association, vol. 103(3), pages 451-455, May.

    More about this item

    Keywords

    Ordered response; panel data; correlated heterogeneity; incidental parameters;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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