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Vortrag
Income and Wealth Inequality after the Financial Crisis: The Case of Germany

Markus M. Grabka, Christian Westermeier


Economics of Inequality : Annual Meeting of the Austrian Economic Association 2014
Wien, Österreich, 30.05.2014 - 31.05.2014


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Abstract:
The topic of rising income inequality does not only gain in relevance since the two prominent reports by the OECD ("Growing unequal" and "Divided we stand") but rather since the financial crisis. So far there is only scarce empirical evidence about the consequences of the financial crisis on income inequality (e.g. Jenkins et al. 2013) and more important about wealth inequality given that a financial crisis in fact should have an impact on financial assets and net worth of private households. This paper makes use of micro-data from the German Socio Economic Panel (SOEP) which is a representative longitudinal survey of private households in Germany. This survey provides consistent yearly information about incomes since 1984 and for wealth in the survey years 2002, 2007 and 2012. Thus we are able to identify any potential effects of the financial crisis on incomes (e.g. earnings, market income, post-government income) and wealth components (e.g. property, business assets, financial assets, net worth) in Germany. Selected results are: Inequality of disposable incomes in Germany has decreased slightly since its peak in 2005. However, this trend did not continue in 2011. The most important reasons for this were the inequality in market incomes, including capital incomes, which had increased again. Besides this finding, the poverty risk rate (based on data from the federal statistical office) reached record highs in 2012. Income mobility over time is equally important in terms of social policy, i.e., the upward or downward movement of individual groups of people in the income hierarchy. Here, the most recent analyses confirm the trend of significantly decreasing income mobility since German reunification. For example, the odds of exiting the risk of poverty within a period of four years has dropped by ten percentage points to 46 percent in recent years. Inequality of net worth remains stable over our 10-years observation period with a Gini-coefficient of 0.78 which is the highest compared to other European countries. Mean net worth slightly increased for total population but there is also shrinkage of net worth for bottom percentiles, i.e. the share of adults holding negative net worth has increased significantly. Looking at the wealth portfolio one can find a significant increase of adults holding consumer credits, thus one could either argue this may an effect of the financial crisis, alternatively this may a reaction of private households to the low interest rates. Another finding is, that private pensions gain in relevance in Germany, which can be attributed to the general shift from public pensions as a means of old age provision towards private pensions. Analyses in terms of social positions indicate that there are only slight changes between social groups with one exemption: the unemployed significantly loose wealth over the last 10 years.

Abstract

The topic of rising income inequality does not only gain in relevance since the two prominent reports by the OECD ("Growing unequal" and "Divided we stand") but rather since the financial crisis. So far there is only scarce empirical evidence about the consequences of the financial crisis on income inequality (e.g. Jenkins et al. 2013) and more important about wealth inequality given that a financial crisis in fact should have an impact on financial assets and net worth of private households. This paper makes use of micro-data from the German Socio Economic Panel (SOEP) which is a representative longitudinal survey of private households in Germany. This survey provides consistent yearly information about incomes since 1984 and for wealth in the survey years 2002, 2007 and 2012. Thus we are able to identify any potential effects of the financial crisis on incomes (e.g. earnings, market income, post-government income) and wealth components (e.g. property, business assets, financial assets, net worth) in Germany. Selected results are: Inequality of disposable incomes in Germany has decreased slightly since its peak in 2005. However, this trend did not continue in 2011. The most important reasons for this were the inequality in market incomes, including capital incomes, which had increased again. Besides this finding, the poverty risk rate (based on data from the federal statistical office) reached record highs in 2012. Income mobility over time is equally important in terms of social policy, i.e., the upward or downward movement of individual groups of people in the income hierarchy. Here, the most recent analyses confirm the trend of significantly decreasing income mobility since German reunification. For example, the odds of exiting the risk of poverty within a period of four years has dropped by ten percentage points to 46 percent in recent years. Inequality of net worth remains stable over our 10-years observation period with a Gini-coefficient of 0.78 which is the highest compared to other European countries. Mean net worth slightly increased for total population but there is also shrinkage of net worth for bottom percentiles, i.e. the share of adults holding negative net worth has increased significantly. Looking at the wealth portfolio one can find a significant increase of adults holding consumer credits, thus one could either argue this may an effect of the financial crisis, alternatively this may a reaction of private households to the low interest rates. Another finding is, that private pensions gain in relevance in Germany, which can be attributed to the general shift from public pensions as a means of old age provision towards private pensions. Analyses in terms of social positions indicate that there are only slight changes between social groups with one exemption: the unemployed significantly loose wealth over the last 10 years.

Markus M. Grabka

Direktorium SOEP und kommissarische Bereichsleitung in der Infrastruktureinrichtung Sozio-oekonomisches Panel



JEL-Classification: D31;I31;I32
Keywords: Income inequality, wealth inequality, wealth portfolio, financial crisis, SOEP
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