Why Did Income Inequality in Germany Not Increase Further After 2005?

Martin Biewen, Martin Ungerer, Max Löffler

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

While income inequality in Germany considerably increased in the years before 2005, this trend stopped after 2005. We address the question of what factors were responsible for the break in the inequality trend after 2005. Our analysis suggests that income inequality in Germany did not continue to rise after 2005 for the following reasons. First, we observe that the general rise in wage inequality that explained a lot of the inequality increase before 2005, became less steep (but did not stop) after 2005. Second, despite further increases in wage inequality after 2005, inequality in annual labour incomes did not increase further after 2005 because increased within‐year employment opportunities compensated otherwise rising inequality in annual labour incomes. Third, income inequality did not fall in a more marked way after 2005 because also the middle and the upper part of the distribution benefited from the employment boom after 2006. Finally, we provide evidence that the effect of a wide range of other factors that are often suspected to have influenced the distribution such as capital incomes, household structures, population ageing, changes in the tax and transfer system and the financial crisis of 2008 did not significantly alter the distribution after 2005.
Original languageEnglish
Pages (from-to)471–504
Number of pages34
JournalGerman Economic Review
Volume20
Issue number4
DOIs
Publication statusPublished - Nov 2019

JEL classifications

  • c14 - Semiparametric and Nonparametric Methods: General
  • d31 - Personal Income, Wealth, and Their Distributions
  • i30 - Welfare and Poverty: General

Keywords

  • income inequality
  • poverty
  • Income inequality

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