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

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.

The Evolution of Inequality of Opportunity in Germany: A Machine Learning Approach

“…Past studies report a rise in net income inequality in Germany in the 1990s until 2005/2006 and a subsequent stagnation characterized by small ups and downs (e.g. Biewen and Juhasz, 2012;Biewen et al, 2017;Jessen, 2019;Peichl et al, 2012). These studies identify changes in employment driven by part-time and marginal part-time work, and changes in the tax system as the major driver of this development, as well as the rising dispersion of labor market incomes due to skill-biased technological change (see Dustmann et al, 2009).…”

“…Another possible reason for this, is that several elements that explained the income inequality increase before 2005 became less strong over time. For instance, the rise in wage inequality became less steep, employment opportunities increased, and the middle and upper part of the distribution benefited from the employment boom after 2006 (Biewen et al, 2017).…”

The Distribution of Well-Being among Europeans

“…Income distribution widened considerably during the first half of the 2000s, driven by developments in the labour market and changes in the tax system (Biewen andJuhasz 2012, Bach, Corneo andSteiner 2013). Since 2005 inequality has remained stable, even during the Great Recession, largely as a result of the expansion of employment opportunities Schupp 2012, Biewen, Ungerer andLöffler 2017). In France, income inequality begun to rise at the end of the 1990s: Frémeaux and Piketty (2014) suggest that it was partly due to the lack of progressivity of the overall tax system, a feature that was reinforced during the 2000s.…”

Die Verteilung der Steuer- und Abgabenlast

“…Die vorliegende Studie ergänzt eine Reihe von Studien über die Steuer-und Abgabenlast in Deutschland (Bach et al, 2016;RWI, 2011RWI, , 2015RWI, , 2017RWI und FiFo Köln, 2007 Abgaben-und Transfersystems (z. B. Biewen und Juhasz, 2012;Bach et al, 2009;Biewen et al, 2019;Jessen, 2019) oder berechnet die Progressivität des Umverteilungssystems mithilfe von Kennzahlen (z. B. Bach et al, 2016;Schaefer und Peichl, 2008).…”