The drivers of happiness inequality: Suggestions for promoting social cohesion

The goal of this paper is to identify and quantify the contribution of a set of covariates in affecting levels and over time changes of happiness inequality. We make use of a recent methodology that allows decomposing the overall change in happiness inequality into composition and coefficient effects of each covariate. We focus on the increase in happiness inequality observed in Germany between 1991 and 2007 in the German Socio-Economic Panel (GSOEP) database, deriving the following findings. First, trends in happiness inequality are mainly driven by composition effects, while coefficient effects are negligible. Second, among composition effects, education has an inequality-reducing impact, while changes in labour market conditions and demographic composition contribute to explain the rise in happiness inequality. Third, the increase in income inequality cannot be considered as a driver of the increase in happiness inequality. A clear cut policy implication of our paper is that policies enhancing education and labour market performance are crucial to reduce happiness inequality and the potential social tensions arising from it.