Sources of German Income Inequality Across Time and Space

Abstract

Income inequality rose in Germany since the 1970s. To quantify the impact of different socio-economic trends on inequality, the author constructs counterfactual distributions of net household income with rich German data from the Microcensus in 1976 and 2011. The procedure allows to study the effect of marital sorting in education and includes indirect effects such as the influence of education on employment. When comparing the income distribution in West Germany for 1976 and 2011, the author finds that the prevalence of singlehood accounts to a large extent for the observed increase in inequality. The inequality increase is also associated with a change of employment among males and single females. When comparing West and East Germany in 2011, the author finds that the stronger labour market attachment of East German married females combined with the high East German unemployment produces even more income inequality than the West German employment structure. Moreover, the smaller household size boosts inequality in East Germany, whereas education works against it. In both comparisons, the author finds no significant impact of positive assortative mating in education or ageing.