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The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality

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Author Info
Martin Biewen

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Abstract

Based on data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in East and West Germany in the years following reunification. Special emphasis is given to the separation of permanent and transitory components, the persistence of transitory shocks and their implications for the persistence of poverty and inequality. The results suggest that in West Germany, between 52 and 69 per cent of cross-sectional income inequality was permanent, and that poor individuals stayed in poverty for two years on average. In East Germany, the share of the permanent component in overall income inequality rose continuously from 20 per cent in 1990 to 72 per cent in 1998, reaching a level near the one that prevailed in West Germany during the same period. The rising importance of time-invariant components in East German incomes was also reflected in expected poverty durations which slightly increased from 1.47 years in 1990 to 1.67 years in 1998. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2005.

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Article provided by Blackwell Publishing in its journal German Economic Review.

Volume (Year): 6 (2005)
Issue (Month): 4 (November)
Pages: 445-469
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Handle: RePEc:bla:germec:v:6:y:2005:i:4:p:445-469

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  1. Bourguignon, F. & Morrisson, C. & Atkinson, A.B., 1991. "Empirical Studies of Earnings Mobility," DELTA Working Papers 91-14, DELTA (Ecole normale supérieure).
  2. M. Burda & C. Schmidt, . "Getting Behind The East-West Wage Differential: Theory and Evidence," Sonderforschungsbereich 373 1997-77, Humboldt Universitaet Berlin.
  3. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January. [Downloadable!] (restricted)
  4. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April. [Downloadable!] (restricted)
  5. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September. [Downloadable!] (restricted)
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  6. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  7. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier. [Downloadable!] (restricted)
  8. Francesco Devicienti, 2001. "Estimating Poverty Persistence in Britain," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B2-3, International Conferences on Panel Data. [Downloadable!]
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  9. Ann Huff Stevens, 1995. "Climbing Out of Poverty, Falling Back In: Measuring the Persistence of Poverty over Multiple Spells," NBER Working Papers 5390, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May. [Downloadable!] (restricted)
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  1. Bruckmeier, Kerstin & Schwengler, Barbara, 2009. "The impact of federal social policies on spatial income inequalities in Germany : empirical evidence from social security data," IAB Discussion Paper 200901, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  2. Martin Biewen, 2003. "Who Are the Chronic Poor?: Evidence on the Extent and the Composition of Chronic Poverty in Germany," Discussion Papers of DIW Berlin 350, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Myck, Michal & Ochmann, Richard & Qari, Salmai, 2008. "Dynamics of Earnings and Hourly Wages in Germany," IZA Discussion Papers 3751, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Cervini, María & Ramos, Xavi, 2008. "Long Term Earnings Inequality, Earnings Instability and Temporary Employment in Spain: 1993–2000," IZA Discussion Papers 3538, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Pischke, Jörn-Steffen, 2003. "The Impact of Length of the School Year on Student Performance and Earnings: Evidence from the German Short School Years," CEPR Discussion Papers 4074, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Thomas Raferzeder & Rudolf Winter-Ebmer, 2007. "Who is on the rise in Austria: Wage mobility and mobility risk," Journal of Economic Inequality, Springer, vol. 5(1), pages 39-51, April. [Downloadable!] (restricted)
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  7. Nicola Fuchs-Schündeln & Dirk Krueger & Mathias Sommer, 2009. "Inequality Trends for Germany in the Last Two Decades: A Tale of Two Countries," NBER Working Papers 15059, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Heshmati, Almas, 2004. "Data Issues and Databases Used in Analysis of Growth, Poverty and Economic Inequality," IZA Discussion Papers 1263, Institute for the Study of Labor (IZA). [Downloadable!]
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