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explain the difference in happiness between the Czech Republic and Bulgaria, we would, for
instance, need a difference in unemployment rates of about 10 percentage points or a GDP per
capita gap of about 1160 US dollar.
The present data set contains additional socio-demographic variables that extend beyond the
results derived in the existing multi-country happiness studies. Studying the effects of
settlement size reveals that those who dwell in relatively rural areas tend to be happier than
those living in larger cities. This relationship has already been noted, for example by Dale
(1980) for Scandinavian countries. One explanation of this finding is that it simply reflects
different costs of living between city and rural area. Holding nominal income constant, I
derive more satisfaction by being able to buy more goods in the lower-cost rural area.
However, it is unlikely that purchasing power differences are sufficient to explain the
disutility of big city life. First, living in a bigger city also brings benefits in terms of the
provision of goods and services. Second, if it were the case that we measure only differences
in the price level then the relative size of the effects of being in one of the respective income
quartiles and settlement sizes should never be negative. Using the estimates from Table 3, one
can show that the net contribution of settlement size and income quartile on happiness,
keeping everything else equal, is positive for the upper two quartiles only. 7
An additional explanation is that the aspiration level of people in the rural areas does not
change as quickly as that of city dwellers. This explanation is indirectly supported by the
finding that income quartiles and settlement size are positively correlated.8 For example, the
Pearson correlation coefficients for the highest income quartile with the respective categories
of community size are: -0.11 for < 5000 inhabitants, -0.02 for 5001-20000 inhabitants, 0.04
for 20001-100000 inhabitants, and 0.09 for > 100000 inhabitants. Similar relationships exist
for the other income quartiles. Thus, relatively rich people tend to live in big cities. Moreover,
Winter et al. (1999) show for Poland that persons living in urban areas were relatively less
satisfied despite better “objective” living conditions. Applying Easterlin’s (2001) theory of
adjusting aspirations to these findings, those who have relatively less income are confronted
7 It is noteworthy that interaction terms of settlement size and income quartile are not significant.
8 Note that this simple bivariate correlation does not take into account that living costs between smaller and
larger settlements differ. If all we did was proxy real income differences, however, then both variables should
not be significant. Table 3 shows that this is not the case, and, thus, the effect of community size does not simply
reflect a purchasing power correction.
In the multivariate model of Table 3, however, it should not be the income would no longer be significant if it
were only the difference in purchasing power that drove the effect of community size.