Age, Life-satisfaction, and Relative Income – Insights from the UK and Germany

We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on lifesatisfaction are positive and significant for those under 45, consistent with Hirschman’s (1973) ‘tunnel effect’, and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income’s signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.

Industrial Structure, Trade and Regional Economics : Market Segmentation

We consider a general equilibrium model a la Bhaskar (Review of Economic Studies 2002): there are complementarities across sectors, each of which comprise (many) heterogenous monopolistically competitive firms. Bhaskar's model is extended in two directions: production requires capital, and labour markets are segmented. Labour market segmentation models the difficulties of labour migrating across international barriers (in a trade context) or from a poor region to a richer one (in a regional context), whilst the assumption of a single capital market means that capital flows freely between countries or regions. The model is solved analytically and a closed form solution is provided. Adding labour market segmentation to Bhaskar's two-tier industrial structure allows us to study, inter alia, the impact of competition regulations on wages and - financial flows both in the regional and international context, and the output, welfare and financial implications of relaxing immigration laws. The analytical approach adopted allows us, not only to sign the effect of policies, but also to quantify their effects. Introducing capital as a factor of production improves the realism of the model and refi nes its empirically testable implications.