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Social Indicators Research

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01.05.2012

Income Comparisons Among Neighbours and Satisfaction in East and West Germany

verfasst von: Gundi Knies

Erschienen in: Social Indicators Research | Ausgabe 3/2012

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Abstract

A series of studies have suggested that changes in others’ income may be perceived differently in post-transition and capitalist societies. This paper draws on the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics in very tightly drawn neighbourhoods to investigate whether reactions to changes in their neighbours’ income divide the German nation. We find that the neighbourhood income effect for West Germany is negative (which is in line with the ‘relative income’ hypothesis) and slightly more marked in neighbourhoods that may be assumed to be places where social interactions between neighbours take place. In contrast, the coefficients on neighbourhood income in East Germany are positive (which is consistent with the ‘signalling’ hypothesis), but statistically not significant. This suggests not only that there is a divide between East and West Germany, but also that neighbours may not be a relevant comparison group in societies that have comparatively low levels of neighbouring.

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There is broad consensus in the research community that life satisfaction is a satisfactory proxy for personal utility.

Talking about one’s income is one of the big taboo issues in German society. The Gehaltsreport 2009, for example, suggests that people who earn more than average are unwilling to share information on their earnings fearing their colleagues’ envy. Conversely, those who earn less than the assumed average are too embarrassed about their income. The Gehaltsreport is a survey undertaken on behalf of Manager Magazine Germany and looks into how well-paid professionals in Germany are. http://www.spiegel.de/unispiegel/jobundberuf/0,1518,652626,00.html (German only).

This is measured on a cardinal scale. Ferrer-i-Carbonell and Frijters (2004) show that the difference is negligible.

In support of this conjecture, our data show that people who live in neighbourhoods that have improved from t to t + 1 are not as often very worried about their economic situation as their counterparts in neighbourhoods where incomes stagnated or dropped.

For further information see Wagner et al. (2007).

Households are statistically defined on the basis of the last names of the people living in the same building. Note that this is a different conceptualisation of household from that in SOEP, where cohabiting people regardless of their family name are considered as one household.

The analysis presented here was also undertaken using the neighbourhood indicator measured at the scale of market-cells. Market-cells comprise of adjacent street-sections and are home to an average of 400 households. The results did not change.

Hirshman and Rothschild (1973) use a powerful metaphor for a situation in which individuals will appreciate others’ advancements. That is, cars being stuck in a traffic jam for hours (i.e. a situation when there is no movement at all) when suddenly a car further ahead in the queue starts moving again.

Neighbourhood income is defined as the sum of all market incomes, income maintenance transfers and social security payments, other regular monetary transfers, and income of non-profit organisations, assumed asset income flows, refunds from health insurers, sick payments, and income from living in owner-occupied housing, less taxes on income and assets, national insurance contributions and other regular payments. The household income measure does not include income of non-profit organisations, sick payments and refunds from health insurers.

I also undertook the analysis for the whole population (see “Appendix 3”). This shows that there is no association between neighbourhood income and life satisfaction in either country. Analysis of non-movers suggests that the psychological response to changes in neighbourhood income is different if induced through moving. The coefficient on neighbourhood income for movers is negative in the East and positive in the West, see “Appendix 4”.

At least in West Germany; the effects for East Germany are statistically not significant. There is greater persistence in marital status in East Germany, making it difficult to predict the association with the required level of precision.

The effect in East Germany is not predicted with great precision, hence, it cannot be ruled out that the effect is negative. In all likelihood, however, the coefficient is positive; it is in the majority of the fitted models. A formal approximate t test of the null hypothesis that the neighbourhood income effects in East and West Germany are different yields that they are not; t(12413) = 1.60, p > 0.01.

Note that Luttmer (2005)’s comparison effect was not robust to controlling for unobserved neighbourhood heterogeneity.

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Titel: Income Comparisons Among Neighbours and Satisfaction in East and West Germany
verfasst von: Gundi Knies
Publikationsdatum: 01.05.2012
Verlag: Springer Netherlands
Erschienen in: Social Indicators Research / Ausgabe 3/2012
Print ISSN: 0303-8300
Elektronische ISSN: 1573-0921
DOI: https://doi.org/10.1007/s11205-011-9818-5

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