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Keeping Up With the Schmidts: An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context

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  • Gundi Knies
  • Simon Burgess
  • Carol Propper
Abstract
We test empirically whether people’s life satisfaction depends on their relative income position in the neighbourhood, drawing on a unique dataset, the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics. Relative deprivation theory suggests that individuals are happier the better their relative income position in the neighbourhood is. To test this theory we estimate micro-economic happiness models for the years 1994 and 1999 with controls for own income and for neighbourhood income at the zip-code level (roughly 9,000 people). There exist no negative and no statistically significant associations between neighbourhood income and life satisfaction, which refutes relative deprivation theory. If anything, we find positive associations between neighbourhood income and happiness in all cross-sectional models and this is robust to a number of robustness tests, including adding in more controls for neighbourhood quality, changing the outcome variable, and interacting neighbourhood income with indicators that proxy the extent to which individuals may be assumed to interact with their neighbours. We argue that the scale at which we measure neighbourhood characteristics may be too large still to identify the comparison effect sought after.

Suggested Citation

  • Gundi Knies & Simon Burgess & Carol Propper, 2007. "Keeping Up With the Schmidts: An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context," The Centre for Market and Public Organisation 07/173, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:07/173
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    Cited by:

    1. Anita Ratcliffe, 2012. "Wealth Effects or Economic Barometer: Why Do House Prices Matter for Psychological Health?," Working Papers 2012014, The University of Sheffield, Department of Economics.
    2. Knies, Gundi & Nandi, Alita & Platt, Lucinda, 2014. "Life satisfaction, ethnicity and neighbourhoods: is there an effect of neighbourhood ethnic composition on life satisfaction?," LSE Research Online Documents on Economics 55669, London School of Economics and Political Science, LSE Library.
    3. Plum, Alexander & Knies, Gundi, 2015. "Does neighbourhood unemployment affect the springboard effect of low pay?," ISER Working Paper Series 2015-20, Institute for Social and Economic Research.
    4. Jantsch, Antje & Le Blanc, Julia & Schmidt, Tobias, 2022. "Wealth and subjective well-being in Germany," Discussion Papers 11/2022, Deutsche Bundesbank.
    5. Jing Zou & Xiaojun Deng, 2021. "The complex association between migrants’ residential community choice and subjective well‐being: Evidence from urban China," Growth and Change, Wiley Blackwell, vol. 52(3), pages 1652-1679, September.
    6. Gundi Knies & Patricia C Melo & Min Zhang, 2021. "Neighbourhood deprivation, life satisfaction and earnings: Comparative analyses of neighbourhood effects at bespoke scales," Urban Studies, Urban Studies Journal Limited, vol. 58(13), pages 2640-2659, October.
    7. Dolan, Paul & Foy, Chloe & Kavetsos, Georgios & Kudrna, Laura, 2021. "Faster, higher, stronger… and happier? Relative achievement and marginal rank effects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    8. Anita Ratcliffe, 2015. "Wealth Effects, Local Area Attributes, and Economic Prospects: On the Relationship between House Prices and Mental Wellbeing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(1), pages 75-92, March.
    9. Muhammad Faress Bhuiyan, 2018. "Life Satisfaction and Economic Position Relative to Neighbors: Perceptions Versus Reality," Journal of Happiness Studies, Springer, vol. 19(7), pages 1935-1964, October.
    10. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.
    11. Eibich, Peter & Ziebarth, Nicolas, 2014. "Examining the Structure of Spatial Health Effects in Germany Using Hierarchical Bayes Models," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 49, pages 305-320.
    12. Abel Brodeur & Sarah Flèche, 2013. "Where the Streets Have a Name: Income Comparisons in the US," CEP Discussion Papers dp1196, Centre for Economic Performance, LSE.
    13. Hooijen, Inge & Cörvers, Frank, 2020. "Living preferences of STEM workers in a high-tech business park of a peripheral region," ROA Research Memorandum 007, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    14. Abel Brodeur & Sarah Flèche, 2019. "Neighbors' Income, Public Goods, and Well‐Being," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(2), pages 217-238, June.
    15. Anita Ratcliffe, 2010. "Housing wealth or economic climate: Why do house prices matter for well-being?," The Centre for Market and Public Organisation 10/234, The Centre for Market and Public Organisation, University of Bristol, UK.
    16. Gundi Knies, 2010. "Income Comparisons among Neighbours and Life Satisfaction in East and West Germany," SOEPpapers on Multidisciplinary Panel Data Research 298, DIW Berlin, The German Socio-Economic Panel (SOEP).
    17. Gundi Knies, 2012. "Income Comparisons Among Neighbours and Satisfaction in East and West Germany," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 106(3), pages 471-489, May.
    18. Joerg Dittmann & Jan Goebel, 2010. "Your House, Your Car, Your Education: The Socioeconomic Situation of the Neighborhood and its Impact on Life Satisfaction in Germany," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 96(3), pages 497-513, May.
    19. Alexander Plum & Gundi Knies, 2019. "Local unemployment changes the springboard effect of low pay: Evidence from England," PLOS ONE, Public Library of Science, vol. 14(11), pages 1-22, November.

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    More about this item

    Keywords

    Life satisfaction; Neighbourhood effects; Comparison income; Reference group;
    All these keywords.

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Z1 - Other Special Topics - - Cultural Economics

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