the set of values when each of the stochastic elements in E
e,t+ 1
f − E
e,t
f can range in
its 95 percent confidence interval. As a final exercise we use the causal model to decompose the differences between
East and West. We use the following decomposition: 9
{ ,
, }
E GS x
f GS
x f
x x
E f
E f
, ,
, ,
, ,
e w
w e
e e
w e
e w
e 1999
1999 1999
1999 1999
1999
- =
- +
- β
r r
t which decomposes the difference between East and West Germans into the difference
due to observed individual characteristics and the difference due to unobserved individual characteristics. Having already estimated
µ, we can calculate E
w ,1999
f −
E
e , 1999
f by the same methodology as before.
If E
e , 1999
f − E
w , 1999
f is small, then the factors that explain the difference between
East and West Germans are included in our model. This would mean that the difference is not then attributable to different unobserved individual characteristics of
East Germans. However, if we find that this term is large, there is something fixed about the characteristics of the East Germans that make them less or more
satisfied.
V. Empirical Results
A. Random-Effects Results
We begin by discussing the parameter estimates from the Ordered Probit models with random effects for East Table 1 and West Table 2 Germans. Following convention,
given the nonlinear nature of the model, we also provide marginal effects ME esti- mated at the mean values of the explanatory variables and setting
ν
i
and ε
it
= 0 to ease quantitative interpretation see Equation 1. The ME’s are calculated as the change in
the probability of reported high life satisfaction either 9 or 10 relative to values 8 and below. Since the time-invariant variables also appear in the fixed-effects models, we
defer a discussion of most of their levels to the next section.
For both East and West Germans we find a significant U-shaped relationship between age and life satisfaction. The minimum life satisfaction occurs between the
ages of 42 and 44 for all four groups. For East German males and West German females being an immigrant is associated with a significant decline in reported satis-
faction, with the ME being particularly large for East German male immigrants ME = −0.268.
In agreement with previous studies, having a physical disability is universally asso- ciated with a decline in life satisfaction, with the magnitude of this effect also being
greater for East than West Germans. Years of schooling are found to be positively related to life satisfaction for West German men and women, but no significant cor-
relation is found for East Germans.
Household income is found to be positively and significantly related to life satis- faction for all groups, but the gain in satisfaction from increased income is greater in
the East than the West. Turning to our reunification-related variables, we find significantly higher life sat-
isfaction for individuals who, following reunification, moved from the East to the The Journal of Human Resources
660
Frijters, Haisken-DeNew, and Shields 661
Table 1 The Determinants of Life Satisfaction for East German Males and Females
1991–99: Ordered Probit Models with Random effects
Males Females
Covariates β
t -stat
ME β
t -stat
ME Age
−0.094 −7.99
−0.034 −0.103
−9.32 −0.037
Age squared100 0.108
7.92 0.001
0.121 9.26
0.001 Foreigner-born
−0.736 −1.99
−0.268 −0.062
−0.12 −0.023
Married 0.124
2.70 0.045
0.087 2.20
0.031 Separated in last year
−0.143 −1.65
−0.052 −0.491
−6.15 −0.177
Divorced in last year 0.106
0.58 0.039
−0.214 −1.64
−0.077 Spouse died in last year
−0.795 −3.79
−0.290 −0.451
−2.55 −0.163
Death of other family −0.089
−0.73 −0.033
−0.177 −1.17
−0.064 member in last year
Disabled −0.152
−2.44 −0.056
−0.139 −2.65
−0.050 Ln1+number of days in
−0.007 −4.72
−0.003 −0.008
−4.89 −0.003
hospital in last year Number of children
0.064 3.33
0.023 0.042
2.09 0.015
Had a baby in last year −0.005
−0.07 −0.002
0.120 1.33
0.043 Invalid in household
−0.270 −3.20
−0.098 −0.484
−6.02 −0.175
Years of schooling 0.017
1.57 0.006
−0.006 −0.53
−0.002 Employed full-time only
0.636 17.86
0.232 0.567
17.42 0.205
for females Employed part-time
— —
— 0.489
11.63 0.177
Maternity leave —
— —
0.369 4.66
0.133 Nonparticipant
0.424 8.46
0.154 0.302
6.60 0.109
Fired in last year −0.115
−2.61 −0.042
−0.098 −1.98
−0.035 Log household income
0.209 8.18
0.076 0.195
8.01 0.070
post tax Moved home within
−0.076 −1.12
−0.028 −0.058
−0.94 −0.021
East Germany in last year Moved to West Germany
0.441 5.05
0.161 0.397
4.94 0.143
following reunification Live on the border of East
0.045 0.79
0.017 0.256
4.65 0.092
and West Germany Member of the Communist
−0.068 −1.13
−0.025 0.023
0.45 0.009
Party before reunification Year controls Base = 1991
YES YES
YES YES
YES YES
Years in panel −0.036
−2.08 −0.013
−0.050 −2.80
−0.018 Standard deviation of the
0.919 45.80
— 0.873
45.76 —
random effect Log likelihood
— —
13,489 14,459
Sample observations 12,817
13,500
Notes: Constant threshold parameters were also estimated. ME refers to the change in the probability of hav- ing high satisfaction 9 or 10 as opposed to 8 or lower. — means not included in the model.
The Journal of Human Resources 662
Table 2 The Determinants of Life Satisfaction for West German Males and Females
1985–99: Ordered Probit Models with Random effects
Male Female
Covariates β
t -stat
ME β
t -stat
ME Age
−0.047 −12.65
−0.005 −0.038 −10.33
−0.004 Age squared100
0.056 12.99
0.010 0.044
10.31 0.008
Foreigner-born −0.017
−0.68 −0.002
−0.103 −3.75
−0.010 Married
0.169 10.29
0.018 0.197
12.62 0.019
Separated in last year −0.352
−8.72 −0.044
−0.242 −6.63
−0.026 Divorced in last year
−0.107 −1.70
−0.012 −0.012
−0.21 −0.001
Spouse died in last year −0.884
−8.77 −0.123
−0.925 −12.67 −0.122
Death of other family −0.080
−1.37 −0.009
0.015 0.24
0.001 member in last year
Disabled −0.168
−8.62 −0.022
−0.247 −11.33 −0.026
Ln1+number of days in −0.007
−16.29 −0.001
−0.006 −14.32 −0.001
hospital in last year Number of children
−0.026 −4.25
−0.003 −0.046
−7.20 −0.004
Had a baby in last year 0.095
3.86 0.010
0.177 6.60
0.015 Invalid in household
−0.321 −10.67
−0.039 −0.384 −13.18
−0.044 Years of schooling
0.015 3.51
0.002 0.025
4.97 0.002
Employed full-time only 0.678
37.16 0.086
0.382 18.07
0.033 for females
Employed part-time —
— —
0.343 14.59
0.026 Maternity leave
— —
— 0.469
14.64 0.029
Nonparticipant 0.547
24.17 0.040
0.381 17.51
0.032 Fired in last year
−0.178 −6.12
−0.021 −0.084
−2.20 −0.008
Log household income 0.127
12.31 0.013
0.133 15.28
0.012 post tax
Moved home within West −0.037
−1.26 −0.004
−0.067 −2.52
−0.007 Germany in last year
Moved to East Germany −0.203
−1.60 −0.024
−0.263 −2.52
−0.029 following reunification
Live on the border of East −0.013
−0.42 −0.001
0.006 0.18
0.001 and West Germany
Year controls Base = YES
YES YES
YES YES
YES 1985
Years in panel −0.029
−9.49 −0.003
−0.029 −9.47
−0.003 Standard deviation of the
0.891 96.54
— 0.886
95.28 random effect
Log likelihood −93,037
−93,682 Sample observations
54,603 54,135
Notes: Constant threshold parameters were also estimated. ME refers to the change in the probability of hav- ing high satisfaction 9 or 10 as opposed to 8 or lower. — means not included in the model.
West. This effect is quantitatively large, increasing the probability of reporting high life satisfaction 9 or 10 by 0.161 for males and 0.143 for females. In sharp contrast,
moving from the West to the East is associated with a decline in life satisfaction, rel- ative to those who stayed in the West. Whether this is due to better circumstances in
West Germany, or due to the possibility that the happier moved to West Germany, needs to be determined by the fixed-effects model. Contrary to our expectations, we
have found no evidence that living on the border of East and West Germany had any differential effect on life satisfaction compared to those living away from the border.
The time profiles with 95 percent confidence intervals captured by the year dum- mies for East and West German males are shown in Figures 2 and 3.
8
For East German males we clearly see a considerable increase in latent life satisfaction between 1991
and 1999. The computed ME’s for 1999, relative to the base year 1991, are conse- quently large at 0.259 for males 0.285 for females. This is clearly suggestive of
important unobservable changes in East Germans in the post-reunification period, captured in our year variables, which led to an increased level of life satisfaction for
all East Germans.
In contrast, there is no evidence of a stable trend in life satisfaction for West Germans in either the pre or post-reunification period. As shown for males in Figure
3, life satisfaction was low between 1987 and 1989 and relatively high between 1990 and 1992.
9
However, it should be noted that the quantitative size of these time effects
8. For brevity we do not show the corresponding figures for East and West German females, but note that the time profiles are nearly identical to the respective profiles for males. These additional figures are avail-
able from the corresponding author on request. 9. It might be the case that these trends to some extent reflect a relationship between life satisfaction and the
business cycle in West Germany, which is an interesting topic for future investigation.
Frijters, Haisken-DeNew, and Shields 663
Figure 2 Year-Effects for East German Males
are small. Therefore, it appears that life satisfaction remained fairly constant in the West over the 15-year period.
B. Fixed-Effects Results
