Inequality and Income Dynamics in Germany

Moritz Drechsel-Grau, Andreas Peichl, Johannes Schmieder, Kai Schmid, Hannes Walz and Stefanie Wolter

No 29818, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a comprehensive analysis of income inequality and income dynamics for Germany over the last two decades. Combining personal income tax and social security data allows us – for the first time – to offer a complete picture of the distribution of annual earnings in Germany. We find that cross-sectional inequality rose until 2009 for men and women. After the Great Recession inequality continued to rise at a slower rate for men and fell slightly for women due to compression at the lower tail. We further document substantial gender differences in average earnings and inequality over the life-cycle. While for men earnings rise and inequality falls as they grow older, many women reduce working hours when starting a family such that average earnings fall and inequality increases. Men’s earnings changes are on average smaller than women’s but are substantially more affected by the business cycle. During the Great Recession, men’s earnings losses become magnified and gains are attenuated. Apart from recession years, earnings changes are significantly right-skewed reflecting the good overall state of the German labor market and increasing labor supply. In the second part of the paper, we study the distribution of total income including incomes of self-employed, business owners, and landlords. We find that total inequality increased significantly more than earnings inequality. Regarding income dynamics, entrepreneurs’ income changes are more dispersed, less skewed, less leptokurtic and less dependent on average past income than workers’ income changes. Finally, we find that top income earners have become less likely to fall out of the top 1 and 0.1 percent.

JEL-codes: E2 J16 J2 J3 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-lma and nep-mac
Note: IFM LS PE
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Published as Moritz Drechsel‐Grau & Andreas Peichl & Kai D. Schmid & Johannes F. Schmieder & Hannes Walz & Stefanie Wolter, 2022. "Inequality and income dynamics in Germany," Quantitative Economics, Econometric Society, vol. 13(4), pages 1593-1635, November.

Downloads: (external link)
http://www.nber.org/papers/w29818.pdf (application/pdf)

Related works:
Journal Article: Inequality and income dynamics in Germany (2022)
Working Paper: Inequality and Income Dynamics in Germany (2022)
Working Paper: Inequality and Income Dynamics in Germany (2022)
Working Paper: Inequality and Income Dynamics in Germany (2022)
Working Paper: Inequality and Income Dynamics in Germany (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29818

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29818

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().