Income Comparisons among Neighbors and Satisfaction in East and West Germany

Gundi Knies, University of Essex

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 very tightly drawn neighborhoods to investigate whether reactions to changes in their neighbors’ income divide the German nation. Consistent with the ‘relative income’ hypothesis we find that the neighborhood income effect for West Germany is negative and slightly more marked in neighborhoods that may be assumed to be places where social interactions between neighbors take place. In contrast, the coefficients on neighborhood 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 neighbors may not be a relevant comparison group in societies that have comparatively low levels of neighboring.