Inequality in Germany: Myths, Facts, and Policy Implications

In this paper we try to provide an overview of a series of simple descriptive facts on recent trends in economic inequality in Germany. We believe that it is important to be precise in the way in which we define the inequality measure and the sample we use, to avoid generating vague messages that fail to properly inform policy makers and the public. Using mostly administrative data from the IAB and panel survey data from SOEP, we show that some of the conventional wisdom on recent trends on income inequality in Germany does not seem to find strong support in the data. In particular, we find that current low levels of unemployment are likely to imply higher levels of measured inequality among the employed, but are likely to diminish inequality among the working-age population as a whole. Our paper also discusses the importance to carefully distinguish between inequality at the individual and household levels, and separate the role of the welfare state. Finally, while admitting data limitations we briefly analyse recent trends in wealth inequality in Germany, and discuss the possible role of recent macroeconomic policies on wealth inequality.