Development in Income Inequality: Data, Facts and Perceptions

Tasks

The redistribution of wealth and income has been under discussion in Germany for some time. The basic tenor of the debate seems to be that income and wealth inequality is growing steadily. The empirical evidence behind this assertion, however, has not received enough scrutiny. Interactions between the reduction of unemployment among low-skilled workers and gross wage distribution, for example, are not taken into account and the changing composition of labour force potential is also ignored. Too little attention is paid to differences in the dynamic of net and gross variables (in income distribution, for instance), which is significant in Germany; while the role played by public goods, as well as the size and composition of households is also neglected. Based on the seemingly dramatic increase in economic inequality, there are calls for radical economic measures such as, for example, interventions in primary income distribution or changes to tax policy. The introduction of the minimum wage on 1 January 2015 and calls for a swift increase in the wage to 10 euros are examples of such measures. There is a danger that the Agenda 2010 reforms will be scaled back even further.

The aim of the study is to present the latest available data on income inequality in Germany over time. This data will not only apply to employees, but will cover the entire working population (all persons fit for work). The project will analyse the role of the changing composition of the working population and employment, as well as drawing international comparisons.

Methods

Descriptive analysis of changes in income inequality (gross/net) among employees and/or all persons fit for work and interpretation of the results.

Data and other Sources

Using data from the Socio-Economic Panel and wage and employment data from the Institute for Employment Research, this project analyses the structure and dynamic of income and wealth inequality in Germany since Agenda 2010.

Results

Even a superficial consideration of the data available suggests that the assertion that the German average earner’s real gross wages are falling steadily must be qualified, as the average earner’s socioeconomic characteristics have changed over time. The assertion that the Hartz reforms were unfair because they increased inequality also merits closer consideration. Thanks to higher levels of employment and higher participation in the labour market, the reforms have made the distribution of wages among households more even. Ultimately, the frequent assumption that the redistribution system through taxes, transfers and public goods is no longer working turns out to be false. Redistribution in Germany is very high and extremely effective by international comparison.

Downloads

• Stata codes as downloads

Publications