IDEAS home Printed from https://ideas.repec.org/p/imk/studie/32-2013.html
   My bibliography  Save this paper

Explaining Rising Income Inequality in Germany, 1991-2010

Author

Listed:
  • Kai Daniel Schmid
  • Ulrike Stein

Abstract

In Germany, inequality of net equivalized income increased noticeably in the first half of the new millennium. We aim to identify the main drivers of this rise in income inequality since the early 1990s. We provide a broad overview of the circumstances under which inequality evolved, i.e. which changes in the German economy are most likely to provide an explanation for changes in income concentration. To explain the development of the distribution of net equivalized income we analyze changes in the distribution of market income as well as shifts in the effectiveness of public redistribution mechanisms. We find that cyclical and structural changes in the labor market, the increasing relevance of capital income as well as the decreasing effectiveness of the public mechanisms of income redistribution are the main explanatory factors for the development of income inequality. In addition to this, we discuss several issues that are of high relevance for the distribution of economic resources but are not directly covered in the analysis of net equivalized income. Most significantly, the design of the tax and social security contributions burden as well as the rising relevance of value-added taxes have exhibited negative redistributive effects for low income households.

Suggested Citation

  • Kai Daniel Schmid & Ulrike Stein, 2013. "Explaining Rising Income Inequality in Germany, 1991-2010," IMK Studies 32-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:studie:32-2013
    as

    Download full text from publisher

    File URL: http://www.boeckler.de/pdf/p_imk_study_32_2013.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Tom Krebs & Pravin Krishna & William Maloney, 2010. "Trade Policy, Income Risk, and Welfare," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 467-481, August.
    2. Antonczyk, Dirk & Fitzenberger, Bernd & Sommerfeld, Katrin, 2010. "Rising wage inequality, the decline of collective bargaining, and the gender wage gap," Labour Economics, Elsevier, vol. 17(5), pages 835-847, October.
    3. Martin Biewen & Andos Juhasz, 2011. "Can Employment Changes Explain Rising Income Inequality in Germany?," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 131(2), pages 349-357.
    4. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 967-1015.
    5. Michael C. Burda & Michael Kvasnicka, 2006. "Zeitarbeit in Deutschland: Trends und Perspektiven," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 195-225, May.
    6. Adler, Martin & Schmid, Kai Daniel, 2013. "Factor Shares and Income Inequality. Empiral Evidence from Germany 2002 – 2008," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 133(2), pages 121-132.
    7. Becker, Sascha O. & Ekholm, Karolina & Muendler, Marc-Andreas, 2013. "Offshoring and the onshore composition of tasks and skills," Journal of International Economics, Elsevier, vol. 90(1), pages 91-106.
    8. Riphahn, Regina T. & Schnitzlein, Daniel D., 2016. "Wage mobility in East and West Germany," Labour Economics, Elsevier, vol. 39(C), pages 11-34.
    9. Markus M. Grabka & Jan Goebel & Jürgen Schupp, 2012. "Höhepunkt der Einkommensungleichheit in Deutschland überschritten?," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 79(43), pages 3-15.
    10. Ingo Geishecker & Holger Görg, 2008. "Winners and losers: a micro-level analysis of international outsourcing and wages," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 243-270, February.
    11. Marin, Dalia, 2004. "'A Nation of Poets and Thinkers' - Less So with Eastern Enlargement? Austria and Germany," Discussion Papers in Economics 329, University of Munich, Department of Economics.
    12. Daniel Horgos, 2009. "International Outsourcing and Wage Rigidity: A Formal Approach and First Empirical Evidence," SOEPpapers on Multidisciplinary Panel Data Research 166, DIW Berlin, The German Socio-Economic Panel (SOEP).
    13. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    14. Anna Fräßdorf & Markus M. Grabka & Johannes Schwarze, 2008. "The impact of household capital income on income inequality: A factor decomposition analysis for Great Britain, Germany and the USA," Working Papers 89, ECINEQ, Society for the Study of Economic Inequality.
    15. Nicola Fuchs-Schuendeln & Dirk Krueger & Mathias Sommer, 2010. "Inequality Trends for Germany in the Last Two Decades: A Tale of Two Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 103-132, January.
    16. Martin Biewen & Andos Juhasz, 2012. "Understanding Rising Income Inequality in Germany, 1999/2000–2005/2006," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(4), pages 622-647, December.
    17. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters,in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222 National Bureau of Economic Research, Inc.
    18. Deborah Winkler, William Milberg, 2009. "WP 2009-12 Errors from the “Proportionality Assumption” in the Measurement of Offshoring: Application to German Labor Demand," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2009-12, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    19. Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 611-623, October.
    20. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    21. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
    22. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2009. "From Bottom To Top: The Entire Income Distribution In Germany, 1992-2003," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 303-330, June.
    23. Geishecker, Ingo, 2008. "The impact of international outsourcing on individual employment security: A micro-level analysis," Labour Economics, Elsevier, vol. 15(3), pages 291-314, June.
    24. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Da Ventotene boys a Chicago boys: lo spiaggiamento della sinistra
      by Alberto Bagnai in Goofynomics on 2015-12-25 22:24:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eva Schlenker & Kai Schmid, 2015. "Capital income shares and income inequality in 16 EU member countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(2), pages 241-268, May.
    2. Moritz Drechsel-Grau & Kai Daniel Schmid, 2013. "Consumption-Savings Decisions under Upward Looking Comparisons: Evidence from Germany, 2002-2011," IMK Working Paper 118-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Eva Schlenker & Kai Daniel Schmid, 2013. "Capital Income Shares and Income Inequality in the European Union," IMK Working Paper 119-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. repec:jns:jbstat:v:238:y:2018:i:1:p:3-32:n:3 is not listed on IDEAS
    5. Biewen, Martin & Ungerer, Martin & Löffler, Max, 2016. "Trends in the German income distribution: 2005/06 to 2010/11," ZEW Discussion Papers 16-088, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Tassos Giannitsis & Stavros Zografakis, 2015. "Greece: Solidarity And Adjustment In Times Of Crisis," IMK Studies 38-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Weigert, Benjamin & Klemm, Marcus, 2015. "Composition matters! Wage inequality and the demographic and educational structure of the labor force in Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112914, Verein für Socialpolitik / German Economic Association.
    8. Alexander Herzog-Stein & Fabian Lindner & Rudolf Zwiener, 2013. "Is the supply side all that counts?," IMK Report 87e-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Hermann Adam, 2014. "Die politische Ökonomie wachsender Ungleichverteilung der Einkommen," Wirtschaftsdienst, Springer;German National Library of Economics, vol. 94(2), pages 104-111, February.
    10. Späth Jochen & Schmid Kai Daniel, 2018. "The Distribution of Household Savings in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 238(1), pages 3-32, February.
    11. Welsch, Heinz & Kühling, Jan, 2015. "Income comparison, income formation, and subjective well-being: New evidence on envy versus signaling," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 21-31.
    12. Michele Battisti & Gabriel Felbermayr & Sybille Lehwald, 2016. "Inequality in Germany: Myths, Facts, and Policy Implications," ifo Working Paper Series 217, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    13. Klemm, Marcus & Weigert, Benjamin, 2014. "Does composition matter? Wage inequality and the demographic and educational structure of the labor force in Gemany," Working Papers 06/2014, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

    More about this item

    Keywords

    Income Inequality; Redistribution; SOEP;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imk:studie:32-2013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz). General contact details of provider: http://edirc.repec.org/data/imkhbde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.