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

Author

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  • Shields, Michael

    (University of Melbourne)

  • Paul Frijters
  • John P Haisken-DeNew

Abstract

Recent years have seen a considerable increase in the number of economists researching the role of income, employment status and other demographic characteristics in determining individual life satisfaction or happiness. In this paper we investigate how life satisfaction is affected by a large exogenous shock, namely, reunification for East Germans. In particular, we identify the effects of the substantial increase in real household income and increased unemployment. We implement a new fixed-effect estimator for ordinal life satisfaction in the German Socio-Economic Panel and develop a decomposition approach that accounts for new entrants and panel attrition. We find that average life satisfaction in East Germany increased by around 20% in the years following reunification, leading to a clear convergence with West Germany. Importantly, increased real household incomes in East Germany accounted for around 35-40% of this increase.

Suggested Citation

  • Shields, Michael & Paul Frijters & John P Haisken-DeNew, 2003. "The Value of Reunification in Germany: An Analysis of Changes in Life Satisfaction," Royal Economic Society Annual Conference 2003 186, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:186
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    Citations

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    Cited by:

    1. 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.
    2. 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 24-33, September.
    3. Kalyuzhnova, Yelena & Kambhampati, Uma, 2008. "The determinants of individual happiness in Kazakhstan," Economic Systems, Elsevier, vol. 32(3), pages 285-299, September.
    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. Nicoletti, Cheti, 2006. "Differences in job dissatisfaction across Europe," ISER Working Paper Series 2006-42, Institute for Social and Economic Research.
    6. Stuart Kells, 2002. "The Australian Book Auction Records," Department of Economics - Working Papers Series 830, The University of Melbourne.
    7. Diaz-Serrano, Luis, 2006. "Housing Satisfaction, Homeownership and Housing Mobility: A Panel Data Analysis for Twelve EU Countries," IZA Discussion Papers 2318, Institute of Labor Economics (IZA).
    8. 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.
    9. Díaz Serrano, Luis, 2008. "Individual Aspirations and Satisfaction:Quantifying the Importance of Homeownership," Working Papers 2072/13268, Universitat Rovira i Virgili, Department of Economics.
    10. Claudia Senik, 2005. "Income distribution and well‐being: what can we learn from subjective data?," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 43-63, February.
    11. Aekapol Chongvilaivan & Kiyoshi Taniguchi & Rommel Rabanal, 2016. "Impacts of Road Access on Subjective Well-being in Timor-Leste," Asian Economic Journal, East Asian Economic Association, vol. 30(1), pages 91-114, March.
    12. Ada Ferrer-i-Carbonell, 2002. "Income and Well-being," Tinbergen Institute Discussion Papers 02-019/3, Tinbergen Institute.

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    More about this item

    Keywords

    life satisfaction; German reunification; random and fixed-effects panel models; causal decomposition;
    All these keywords.

    JEL classification:

    • Z1 - Other Special Topics - - Cultural Economics
    • 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
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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