Income and wealth inequality after the financial crisis: the case of Germany

The topic of rising income inequality does not only gain in relevance since the two prominent reports by the OECD (Growing unequal? Income Distribution and Poverty in OECD Countries, Paris 2008 ; Divided we stand—Why inequality keeps rising, Paris 2011 ) but rather since the financial crisis. So far there is only scarce empirical evidence–besides a rather broad literature dealing with the US–about the consequences of the financial crisis on income inequality in Europe (e.g. Jenkins et al. in The Great Recession and the distribution of household income, Oxford University Press, Oxford 2013 ) and more important about wealth inequality (Lundberg and Waldenström in Paper presented at the 4. SEEK conference, Mannheim 2014 ). In this paper we focus on the short-term distributional effects in Germany, as this country was one of the OECD countries which had been hit hardest—as measured by a decline in GDP—by the Great Recession in 2008/2009. The underlying data source comes from the German Socio Economic Panel which is a representative longitudinal survey of private households in Germany. This survey provides consistent yearly information about incomes since 1984 and for wealth in at least three survey years. Thus, we are able to identify any potential effects of the financial crisis on incomes (e.g. earnings, market income, post-government income) and wealth components (e.g. property, business assets, financial assets, net worth) and their respective inequality in Germany. Our main finding is that we do not find any significant distributional changes during the Great Recession. However, the Great Recession temporary froze the income structure while afterwards income mobility tries to make up leeway. Findings of a factor decomposition showed as expected that the relative contribution of capital income to overall inequality lost in relevance during the Great recession. Several factors attenuated the impact of the Great Recession and will be discussed in detail. Copyright Springer Science+Business Media New York 2015