Keeping up with the Schmidts

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Keeping up with the Schmidts
Do better off neighbours cause unhappiness?

• Gundi Knies
• DIW Berlin and University of Bristol

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Structure of the talk

• Problem Formulation
• Methdology
• Data
• Empirical Results
• Discussion

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Problem Formulation (1)- Neighbourhood Research -
Theory of relative Deprivation
a persons sense of contentment depends not on
objective conditions, but on the subjective
perceptions and comparisons of self to others
Lopez Turley 2002, S. 672-673

• Empirical studies
• comparison with better-off neighbours
  increases propensity to riot
• 
  (Gurr
  1970, Canache 1996)

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Problem Formulation (2)- Happiness Research -
Impact of Satisfaction with the Community and
Neighbourhood on Life Satisfaction
Sirgy Cornwell 2002 Shields Wooden 2003
Neighbours as a Reference Group
Michalos 1986 Multiple Discrepancy
Theory Luttmer 2005 relative consumption
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2. Methodology (1)

• Individuals living in neighbourhoods where
  they are worse off than their average neighbour
  are unhappier

Given ones own income How is happiness
affected by ones neighbours income?
Micro-economic happiness modell LSi a ßXi
?Zi ei
xi per capita household income zi per capita
neighbourhood income LSi ß1 log x1i ?1 log
z1i ei


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2. Methodology (2)
Playing Devils Advocate - lower life
satisfaction feeling deprived? - interaction
with the NB - neighbourhood infrastructure
effects - unobs. heterogeneity controlled


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3. Data
Neighbourhood Indicators

• German Socio-Economic Panel

Characteristics of individuals and households
(all years) NB Infrastructure
(94,99,04) IDs address,
hhid, persid
Ø disposable pc income (Infas) ID PLZ 93, 98
PLZ
Zip-code areas 9-63,000 inhabitants Ø 9,000
inhabitants (SOEP 17,000)
Impact of NB on... Life-Satisfaction
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4. Empirical Results Structure

• I. Household Income, Neighbourhood Income and
  Average Happiness in 1999
• (very similar results in 1994)
• II. Multivariate Prediction 1999
• (very similar results in 1994)
• III. Further Hypotheses/ Robustness tests
• - Measure of Relative Deprivation
• - Effects of Neighbourhood Infrastructure
• - Interaction with NB
• - Unobserved Heterogeneity

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4. Empirical Results (1)Mean Life Satisfaction
by Classes of Household and Neighbourhood Income
1999
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4. Multivariate Prediction of Life-Satisfaction
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4. Measurement of Relative Deprivation
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4. Interactions 1999
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4. Neighbourhood Infrastructure

• Reduction of ß neighbourhood income to 0.04

Statistically significant effects ß lt0 parks,
sports ground, gym, bars
Not statistically significant ß gt0
kindergarten, primary school, city ß lt0 banks,
shops, doctors, public transport,
youth club, club for elderly
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4. Unobserved Heterogeneity
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5. Discussion

• If anything, people in Germany are happier the
  more income their neighbours have!

Is the theory wrong?
Are not all neighbours relevant?
Is the neighbourhood scale inappropriate?
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Definitions Income Measures
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Definitions

• Income Measures
• S (SOEP HHY HH Pop-Weight) SOEP National Y
• S (PLZ total HHY) Infas National Y
• ? Infas National Y SOEP National Y
• Assumptions
• distribution of NB Y unaltered through three
  additional income components
• Per capita incomes
• HHY/HH size S NB HHY/ NB population