1. Keeping up with the Schmidts Gundi Knies DIW Berlin and University of Bristol Do better off neighbours cause unhappiness?

2. March 29, 2007G. Knies/ SOEP & CMPO Structure of the talk 1.Problem Formulation 2.Methdology 3.Data 4.Empirical Results 5.Discussion

3. March 29, 2007G. Knies/ SOEP & CMPO 1.Problem Formulation (1) - Neighbourhood Research - Empirical studies: comparison with better-off neighbours increases propensity to riot (Gurr 1970, Canache 1996) 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 Theory of relative Deprivation

4. March 29, 2007G. Knies/ SOEP & CMPO 1.Problem Formulation (2) - Happiness Research - Impact of Satisfaction with the Community and Neighbourhood on Life Satisfaction: Neighbours as a Reference Group: Michalos 1986: Multiple Discrepancy Theory Luttmer 2005: relative consumption Sirgy & Cornwell 2002; Shields & Wooden 2003

5. March 29, 2007G. Knies/ SOEP & CMPO 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: LS i = α + β´X i + γZ i + ε i x i = per capita household income z i = per capita neighbourhood income LS i = β 1 log x 1i + γ 1 log z 1i + ε i

6. March 29, 2007G. Knies/ SOEP & CMPO 2. Methodology (2) Playing Devils Advocate: - lower life satisfaction = feeling deprived? - interaction with the NB - neighbourhood infrastructure effects - unobs. heterogeneity controlled

7. March 29, 2007G. Knies/ SOEP & CMPO 3. Data German Socio-Economic Panel Neighbourhood Indicators 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 Impact of NB on... Life-Satisfaction Zip-code areas: 9-63,000 inhabitants Ø 9,000 inhabitants (SOEP: 17,000)

8. March 29, 2007G. Knies/ SOEP & CMPO 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

9. March 29, 2007G. Knies/ SOEP & CMPO 4. Empirical Results (1) Mean Life Satisfaction by Classes of Household and Neighbourhood Income 1999

10. March 29, 2007G. Knies/ SOEP & CMPO 4. Multivariate Prediction of Life-Satisfaction Control Variables b-Coefficients ALL pc Neighbourhood Income (log) 0.21* per capita Household Income (log) 0.47** Number of Observations 12,251 R² 0.1 Notes: Model controls for marital status, number of children in the household, disability status basic characteristics, employment status and type of community. Source: SOEP 1999 and neighbourhood indicators on the zip-code level. Authors calculations. NBY>HHYHHY>NBY 0.36*~ 0 0.53**0.39** 6,5965,671 0.1

11. March 29, 2007G. Knies/ SOEP & CMPO 4. Measurement of Relative Deprivation Compared to others I did not achieved what I deserve All HHY> NBY NBY> HHY totally agree 7.45.49.3 agree slightly 24.420.628.0 disagree slightly 43.246.140.4 totally disagree 25.027.922.3 Total 100 Ordered Probit Results NBY 0.05 HHY 0.38** N 12,145 Pseudo R² 0. 04

12. March 29, 2007G. Knies/ SOEP & CMPO 4. Interactions 1999 Control Variables Happiness Model Young Kids DogWorkSocials Neighbourhood y (log) 0.24*0.080.230.2 young kid * NBY -0.31 dog owner * NBY 0.37 work * NBY -0.24 socials * NBY 0.07 Household y (log) 0.46** 0.47** 0.43**0.47** Number of Obs. 12,43810,8687,173 12,224 R² 0.1 0.060.1

13. March 29, 2007G. Knies/ SOEP & CMPO 4. Neighbourhood Infrastructure Reduction of β neighbourhood income to 0.04 Not statistically significant: β >0: kindergarten, primary school, city β <0: banks, shops, doctors, public transport, youth club, club for elderly Statistically significant effects: β <0: parks, sports ground, gym, bars

14. March 29, 2007G. Knies/ SOEP & CMPO 4. Unobserved Heterogeneity Fixed Effects Models ^NBY^HHY NR² All 0.42 0.33**8,4910.03 Stayers 0.39 0.41**6,9660.03 Movers 0.37 0.112,5920.04 Source: SOEP 21. Authors calculation.

15. March 29, 2007G. Knies/ SOEP & CMPO 5. Discussion If anything, people in Germany are happier the more income their neighbours have! Is the neighbourhood scale inappropriate? Are not all neighbours relevant? Is the theory wrong?

16. March 29, 2007G. Knies/ SOEP & CMPO Definitions: Income Measures Income componentsFederal Statistical Office GSOEP (CNEF) market incomes++ income maintenance transfers/ soc. sec.++ other regular monetary transfers++ taxes on income and assets-- NI contributions, other regular payments-- assumed income from living in owner- occupied housing ++ asset income flows+ (assumed) + sick payments+ (assumed) / income of non-profit organisations+/ refunds from health insurers+ (assumed) /

17. March 29, 2007G. Knies/ SOEP & CMPO Definitions Income Measures: Σ (SOEP HHY* HH Pop-Weight)= SOEP National Y Σ (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 = Σ NB HHY/ NB population