One of the most prominent political and economic events of recent decades was the falling of the Berlin Wall on November 9, 1989, which was quickly followed by the reunification of the formerly separate entities of East and West Germany. It is well acknowledged that the falling of the wall was widely unanticipated in Germany (Stefan Bach and Harold Trabold, 2000), and thus it provides some useful exogenous variation with which we can more firmly establish causality in empirical analyses. In this paper, we aim to contribute to the growing economics literature on the determinants of life satisfaction (or happiness) by investigating how life satisfaction in East Germany changed over the decade following reunification. 1 We are particularly interested in identifying the contribution that the substantial increase in real household income in East Germany in the post-reunification years (i.e., around 60 percent between 1990 and 2001) made to reported levels of life satisfaction.In order to achieve this aim, we apply a new conditional fixed-effect ordinal estimator to our measure of life satisfaction using data from the German Socio-Economic Panel (GSOEP). The estimates from this new model are then decomposed, using a new causal technique, in order to identify the factors that drove average changes in life satisfaction in East Germany following reunification. Our methodology exploits the fact that the GSOEP is an evolving panel, allowing us to make a distinction among changes in variables affecting everyone, changes in the aggregate unobserved fixed individual characteristics of the panel due to new entrants (who are also mostly younger cohorts), and panel attrition.In Section I, we briefly review the literature and describe our data. In Section II, we present the fixed-effect methodology and the causal decomposition approach that we adopt. Section III presents the results. Finally, Section IV concludes.

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This article examines the impact of unemployment for men and women on life satisfaction for Germany 1991-2006 using the German Socio-Economic Panel. We find that for women in east and west Germany, company closures in the year of entry into unemployment produce strongly negative effects on life satisfaction over and above an overall effect of unemployment, providing "prima facie" evidence of reduced outside work options, large investments in firm-specific human capital or a family constraint. The large compensating variation in terms of income indicates enormous non-pecuniary negative effects for women of exogenous entry unemployment due to company closures. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

a b s t r a c tWe study adaptation to income and to status using individual panel data on the happiness of 7812 people living in Germany from 1984 to 2000. Specifically, we estimate a "happiness equation" defined over several lags of income and status and compare the long-run effects. We can (cannot) reject the hypothesis of no adaptation to income (status) during the four years following an income (status) change. In the short-run (current year) a one standard deviation increase in status and 52 percent of one standard deviation in income are associated with similar increases in happiness. However 65 percent of the current year's impact of income on happiness is lost over the following four years whereas the impact of status remains intact, if anything growing over time. We also present different estimates of adaptation across sub-groups. For example, we find that those on the right (left) of the political spectrum adapt to status (income) but not to income (status). We can reject equal relative adaptation (to income versus status) for these two sub-groups.

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