IDEAS home Printed from https://ideas.repec.org/p/ecj/ac2003/186.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://repec.org/res2003/ShieldsM.pdf
    File Function: full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-659, May.
    2. Theodossiou, I., 1998. "The effects of low-pay and unemployment on psychological well-being: A logistic regression approach," Journal of Health Economics, Elsevier, vol. 17(1), pages 85-104, January.
    3. Korpi, Tomas, 1997. "Is utility related to employment status? Employment, unemployment, labor market policies and subjective well-being among Swedish youth," Labour Economics, Elsevier, vol. 4(2), pages 125-147, June.
    4. repec:bla:scotjp:v:49:y:2002:i:4:p:445-66 is not listed on IDEAS
    5. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-1831, November.
    6. Jennifer Hunt, 2000. "Why Do People Still Live in East Germany?," NBER Working Papers 7564, National Bureau of Economic Research, Inc.
    7. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    8. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    9. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
    10. Frey, Bruno S & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," Economic Journal, Royal Economic Society, vol. 110(466), pages 918-938, October.
    11. Gerdtham, Ulf-G & Johannesson, Magnus, 2001. "The relationship between happiness, health, and socio-economic factors: results based on Swedish microdata," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 30(6), pages 553-557.
    12. Daniel S. Hamermesh, 2001. "The Changing Distribution of Job Satisfaction," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 1-30.
    13. repec:bla:econom:v:68:y:2001:i:270:p:221-41 is not listed on IDEAS
    14. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    15. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    16. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    17. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
    18. Sendhil Mullainathan & Marianne Bertrand, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, vol. 91(2), pages 67-72, May.
    19. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, vol. 21(3), pages 281-304, June.
    20. Andrew Clark & Yannis Georgellis & Peter Sanfey, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-241, May.
    21. Liliana Winkelmann & Rainer Winkelmann, 1998. "Why Are the Unemployed So Unhappy?Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
    22. repec:bla:econom:v:68:y:2001:i:271:p:335-57 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Shields, Michael A. & Wheatley Price, Stephen, 2001. "Exploring the Economic and Social Determinants of Psychological and Psychosocial Health," IZA Discussion Papers 396, Institute of Labor Economics (IZA).
    3. Antje Mertens & Miriam Beblo, 2016. "Self-Reported Satisfaction and the Economic Crisis of 2007–2010: Or How People in the UK and Germany Perceive a Severe Cyclical Downturn," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 125(2), pages 537-565, January.
    4. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    5. Roberta Distante, 2013. "Subjective Well-Being, Income and Relative Concerns in the UK," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 113(1), pages 81-105, August.
    6. Peiro, Amado, 2006. "Happiness, satisfaction and socio-economic conditions: Some international evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(2), pages 348-365, April.
    7. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2006. "Income and happiness: Evidence, explanations and economic implications," PSE Working Papers halshs-00590436, HAL.
    8. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 94-122, February.
    9. Alois Stutzer & Bruno S. Frey, 2004. "Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 124(2), pages 191-231.
    10. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
    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.
    12. Alois Stutzer & Rafael Lalive, 2004. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 696-719, June.
    13. Ada Ferrer-i-Carbonell, 2013. "Happiness economics," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(1), pages 35-60, March.
    14. Ada Ferrer-i-Carbonell, 2002. "Income and Well-being," Tinbergen Institute Discussion Papers 02-019/3, Tinbergen Institute.
    15. Olivia S. Jin & Phanindra V. Wunnava, 2023. "“Feeling richer and happier? The effect of self-perceived economic welfare on life satisfaction: longitudinal evidence from a transition economy”," SN Business & Economics, Springer, vol. 3(3), pages 1-19, March.
    16. Böhnke, Petra & Kohler, Ulrich, 2008. "Well-being and inequality," Discussion Papers, Research Unit: Inequality and Social Integration SP I 2008-201, WZB Berlin Social Science Center.
    17. 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).
    18. Yuta J. Masuda & Jason R. Williams & Heather Tallis, 2021. "Does Life Satisfaction Vary with Time and Income? Investigating the Relationship Among Free Time, Income, and Life Satisfaction," Journal of Happiness Studies, Springer, vol. 22(5), pages 2051-2073, June.
    19. David G. Blanchflower & Andrew J. Oswald, 2004. "Money, Sex and Happiness: An Empirical Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 393-415, October.
    20. Michael A. Shields & Stephen Wheatley Price, 2005. "Exploring the economic and social determinants of psychological well‐being and perceived social support in England," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 168(3), pages 513-537, July.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecj:ac2003:186. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/resssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.