published in: Journal of Human Resources, 2004, 39 (3), 649-674
We quantify the value of changes in life circumstances in Germany following reunification. To
this end, we develop and implement a fixed-effect estimator for ordinal life satisfaction in the
German Socio-Economic Panel. We find strong negative effects on life satisfaction from
being recently fired, losing a spouse through either death or separation and time spent in
hospital, whilst we find strong positive effects from income and marriage. Using a new causal
decomposition technique, we find that East Germans experienced a continued improvement
in life satisfaction after 1990 to which increased household incomes contributed around 12%.
Most of the increase is explained by improved average circumstances, such as public
services. For West Germans, we find virtually no change in satisfaction between 1991 and
1999.
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