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

Michael A. Shields (), Paul Frijters () and John P. Haisken-DeNew

No 186, Royal Economic Society Annual Conference 2003 from Royal Economic Society

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.

Keywords: life satisfaction; German reunification; random and fixed-effects panel models; causal decomposition (search for similar items in EconPapers)
JEL-codes: Z1 C23 C25 I31 (search for similar items in EconPapers)
Date: 2003-06-04
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Related works:
Working Paper: The Value of Reunification in Germany: An Analysis of Changes in Life Satisfaction (2002)
Working Paper: The Value of Reunification in Germany: An Analysis of Changes in Life Satisfaction (2001)
Working Paper: The value of reunification in Germany; An analysis of changes in life satisfaction? (2004)
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