Topic and Objectives
To give an account of the development of income inequality in Germany during the financial crisis, we will update the empirical analysis of a previous publication (Fuchs-Schündeln/Krüger/Sommer: Inequality Trends for Germany in the Last Two Decades, Review of Economic Dynamics 2010) for the period from 2005 to 2013. The analysis will encompass different inequality measures (Gini, log of variances, percentile ratios).
While wage inequality among household heads has not changed much in recent years, inequality in households’ labor income has slightly increased since the beginning of the financial crisis. When considering inequality at the lower end of the income distribution, one has to take into account that a reduction of the unemployment rate leads to more income inequality when former unemployed people enter the labor market and earn lower than average wages. This effect is very obvious in the data since 2005. When taking log of variances as inequality measure, the increase in income inequality since the financial crisis has been slightly cushioned by redistribution via taxes and transfers. When taking the Gini coefficient as a measure, the increase of inequality in gross and net income goes hand in hand.
The empirical analysis was published in an expertise of the Research Advisory Council of the Federal Ministry of Finance:
„Einkommensungleichheit und soziale Mobilität“, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium der Finanzen. Februar 2017.