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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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  • Martin Biewen

Abstract

Using data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in Germany in the eighties and nineties. 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 income inequality. The results suggest that 52 to 69 percent of income inequality in West Germany were due to permanent differences between individuals and that poor individuals stayed in poverty for two years on average. In East Germany, the contribution of the permanent component to overall income inequality increased from 20 percent in 1990 to over 70 percent in 1998 and the persistence of poverty rose accordingly. The paper also looks at the special situation of population subgroups such as lone mothers, "double income no kids" households, couples with children and pensioners.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38537.de/dp292.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 292.

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Length: 46 p.
Date of creation: 2002
Date of revision:
Handle: RePEc:diw:diwwpp:dp292

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Keywords: Covariance structure; Poverty; Inequality; Mobility;

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References

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  1. Dickens, Richard, 2000. "The Evolution of Individual Male Earnings in Great Britain: 1975-95," Economic Journal, Royal Economic Society, vol. 110(460), pages 27-49, January.
  2. Francesco Devicienti, 2001. "Estimating Poverty Persistence in Britain," LABORatorio R. Revelli Working Papers Series 1, LABORatorio R. Revelli, Centre for Employment Studies.
  3. Martin Biewen, 2002. "The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality," Discussion Papers of DIW Berlin 292, DIW Berlin, German Institute for Economic Research.
  4. repec:wop:humbsf:1997-77 is not listed on IDEAS
  5. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 241-269, 08.
  6. Fouarge, Didier & Muffels, Ruud, 2000. "Persistent poverty in the Netherlands, Germany and the UK," MPRA Paper 13297, University Library of Munich, Germany.
  7. 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.
  8. Lee A. Lillard & Robert J. Willis, 1976. "Dynamic Aspects of Earnings Mobility," NBER Working Papers 0150, National Bureau of Economic Research, Inc.
  9. repec:ese:iserwp:2000-41 is not listed on IDEAS
  10. Ann Huff Stevens, 1999. "Climbing out of Poverty, Falling Back in: Measuring the Persistence of Poverty Over Multiple Spells," Journal of Human Resources, University of Wisconsin Press, vol. 34(3), pages 557-588.
  11. Biewen, Martin, 2000. "Income Inequality in Germany during the 1980s and 1990s," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 1-19, March.
  12. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May.
  13. Martin Biewen, 2001. "Measuring the Effects of Socio-Economic Variables on the Income Distribution: An Application to the East German Transition Process," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 185-190, February.
  14. Grabka, Markus M. & Schwarze, Johannes & Wagner, Gert G., 1999. "How unification and immigration affected the German income distribution," European Economic Review, Elsevier, vol. 43(4-6), pages 867-878, April.
  15. M. Burda & C. Schmidt, 1997. "Getting Behind The East-West Wage Differential: Theory and Evidence," SFB 373 Discussion Papers 1997,77, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  16. 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.
  17. 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.
  18. 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.
  19. repec:ese:iserwp:2001-15 is not listed on IDEAS
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