From Working Life to Retirement: Changing Educational Inequalities in Income Trajectories in Germany

Jessica Ordemann

No 1243, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

Abstract: Previous literature has mainly focused on either income trajectories of higher education graduates in working life or in retirement. This paper advances this literature by investigating the inequalities of income trajectories at the transition into retirement and compare the trajectories to other educational graduates for the case of Germany. While cumulative advantage theory suggests that education-based income inequalities widen throughout working life, the institutional design of the German pension system fundamentally alters these trajectories. Using data from 1,741 (11,740 observations) baby boomers from the German Socio-Economic Panel Study (SOEP) I combine descriptive income trajectories with fixed effects regression and replacement rate analysis. I find a stratified pattern by educational degree in pre- and post-retirement income. However, income inequality by education degree is more pronounced during work life than in retirement: At the transition into retirement income differences are compressed relative to pre-retirement disparities. This compression operates through heterogeneous replacement rates. Higher educated individuals have lower replacement rates than the rest of the educational groups. Germany’s contribution-capped statutory pension system therefore constitutes a structurally induced erosion of the income advantage that higher education generates over a working lifetime.

Pages: 22 p.
Date: 2026
New Economics Papers: this item is included in nep-age, nep-eur and nep-inv
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