Max Friedrich Steinhardt

Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels

In contrast to previous results combining all ages, we find positive effects of comparison income on happiness for the under 45s and negative effects for those over 45. In the UK, these coefficients are several times the magnitude of own income effects. In West Germany, they cancel out to give no effect of comparison income on life satisfaction in the whole sample when controlling for fixed effects, time-in-panel, and age-groupings. Pooled OLS estimation gives the usual negative comparison effect in the whole sample for both West Germany and the UK. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.Jel codesD10, I31, J10

Migration, friendship ties, and cultural assimilation

Using novel information from the German Socio-Economic Panel for the period 1996-2011, we document that migrants with a German friend are more similar to natives than those without a local companion along several important dimensions, including engagement in social activities, concerns about the economy, interest in politics and broad policy issues like the environment, crime and xenophobia. When looking at the determinants of friendship acquisition, we find that the acquisition of a new job is the cause (rather than the product) of social network variations. Other factors driving the acquisition of a native friend include the number of years the migrant has spent in the country, the birth of a child, residential mobility and additional education in the host country.

So Far So Good: Age, Happiness, and Relative Income

In a simple 2-period model of relative income under uncertainty, higher comparison income for the younger cohort can signal higher or lower expected lifetime relative income, and hence either increase or decrease well-being. With data from the German Socio-Economic Panel and the British Household Panel Survey, we first confirm the standard negative effects of comparison income on life satisfaction with all age groups, and many controls. However when we split the West German sample by age we find a positive significant effect of comparison income in the under 45s, and the usual negative effect only in the over 45 group. With the same split in UK and East German data, comparison income loses significance, which is consistent with the model prediction for the younger group. Our results provide first evidence that the standard aggregation with only a quadratic control for age can obscure major differences in the effects of relative income.