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Irene Becker and Richard Hauser "Bringing Income Distribution in From The Cold" was the title Anthony B. Atkinson gave his Presidential Address to the Royal Economic Society in 1996. This provocative formulation was intended to draw attention to the way in which the subject of income distribution long has been marginalised in the field of economics (Atkinson 1997). In recent years, however, scientific interest in matters of personal income distribution has been growing. One reason for this recent concern stems from the political sphere: The factors of reinforced competition between countries due to the globalisation of markets and European integration, high unemployment rates and demographic changes necessitate reforms of labour markets, tax systems and social security systems. These reforms will affect both allocation and distribution, so that reliable information on both areas is needed to devise balanced political programs. Another reason for the burgeoning literature on personal income distribution is the improved availability of data on individual income, which are a major prerequisite for detailed analyses of distribution topics. Last but not least, the development of powerful computers, advanced statistics, econometric packages and extended micro-simulation models enables researchers both to work with huge individual data sets to describe and explain the personal distribution of income and to simulate the effects of political (social and economic) programs. The volume at hand is based on some of the research advances in this field during the last decade.

Inhaltsverzeichnis

Frontmatter

Introduction

Abstract
“Bringing Income Distribution in From The Cold” was the title Anthony B. Atkinson gave his Presidential Address to the Royal Economic Society in 1996. This provocative formulation was intended to draw attention to the way in which the subject of income distribution long has been marginalised in the field of economics (Atkinson 1997). In recent years, however, scientific interest in matters of personal income distribution has been growing. One reason for this recent concern sterns from the political sphere: The factors of reinforced competition between countries due to the globalisation of markets and European integration, high unemployment rates and demographic changes necessitate reforms of labour markets, tax systems and social security systems. These reforms will affect both allocation and distribution, so that reliable information on both areas is needed to devise balanced political programs. Another reason for the burgeoning literature on personal income distribution is the improved availability of data on individual income, wh ich are a major prerequisite for detailed analyses of distribution topics. Last but not least, the development of powerful computers, advanced statistics, econometric packages and extended micro-simulation models enables researchers both to work with huge individual data sets to describe and explain the personal distribution of income and to simulate the effects of political (social and economic) programs. Tbe volume at hand is based on some of the research advances in this field during the last decade.
Irene Becker, Richard Hauser

The Development of Wages in Germany in the 1990s — Descriptions and Explanations

Abstract
Empirical research on the development of the German earnings distribution so far has yielded various generalizable facts. First, during the 1970s and 1980s the West German earnings distribution remained fairly stable, although a modest increase in earnings inequality occurred in the late 1980s.3 This relative stability of the distribution of earnings is one the main differences between labour markets in Germany and those in the United States and some other European countries in the 1980s and 1990s.4 Second, the relative stability of the West German earnings distribution did not result from compensating changes in the composition of the labour force on the one hand, and changes in the returns to human capital on the other.5 Third, there is little evidence that earnings inequality in West Germany has increased in the 1990s, but this has not been investigated in much detail as yet. In particular, it is not clear whether changes in earnings are related to changes in the composition of employment (increase of part-time and minor employment), or to changes in wage inequality. Fourth, earnings and wage inequality in East Germany increased substantially after unification, where the adjustment of East German wages to West German levels was rapid at the beginning of the transition period, but seems to have come to a halt by the mid-1990s.6
Viktor Steiner, Thomas Hölzle

Labor Income Mobility — Germany, the USA and Great Britain Compared

Abstract
Labor markets in Germany are generally considered to be less flexible than those in the USA and Great Britain. When labor income mobility in these economies is analyzed with panel data some qualifications to this wide-spread notion become necessary. When measuring labor income mobility at the aggregate level, it turns out that labor income mobility is roughly the same in Great Britain as in the western states of Germany. Moreover, labor income mobility is lower in the USA than in West Germany. These results can be seen as an indication of an unexpectedly high labor market flexibility in Germany compared to Great Britain and the USA. Comparing the markets in the eastern and western states of Germany yields that labor income mobility is initially much higher in East Germany but converges to the West German level over time.
A more detailed analysis shows that escaping unemployment is harder in West Germany than in Great Britain and the USA, where the unemployed find new jobs quickly. This points to higher labor market flexibility in the Anglo-Saxon countries, in so far contradicting the above results. However, the analysis also shows that in the USA and Great Britain a much larger fraction of the formerly unemployed manage to find only low paid jobs. In both East and West Germany, there is a much more even spread of the formerly unemployed across income brackets. One reason for this phenomenon could be the different unemployment insurance institutions in these countries. In contrast to Germany, the US-American and British institutions provide a strong incentive to accept a job offer even if the qualifications required for it and the corresponding wage or salary are much below those ofthe former job.
The analysis of the determinants of income mobility shows a negative relation between future income growth and current income, thereby confirming the hypothesis of regression towards the mean. The number of years of education is an important and positive determinant of income growth in all economies. This positive influence is stronger in Great Britain and East Germany than in West Germany and the USA. The influence of female sex on future labor income growth is more negative in West Germany than in East Germany, Great Britain and the USA.
The pattern and extent of income mobility also influences the conjectures about the implications of a given extent of income inequality. Inequality represents a less serious social problem when high income mobility is observed. The analysis of gross individual labor income distributions yields that income inequality is by far the highest in the USA, followed by Great Britain. Labor income inequality in West Germany is only slightly lower than in Great Britain. Finally, it rose rapidly in East Germany since 1990, but in 1995 was still much lower than in West Germany. Combining the results on labor income mobility and labor income inequality one can conclude that permanent labor income inequality is highest in the USA, while it is roughly the same in Great Britain and the western states of Germany. It is lowest in East Germany.
Holger Fabig

The Distribution of Personal Income: Complex Yet Over-Simplified

Abstract
After years of apparent stability, the distribution of personal income in a number of countries has exhibited significant changes, as is illustrated in Figures 1 and 2 by the Gini coefficients of inequality for ten OECD countries. Since the late 1970s there has been a substantial rise in the Gini coefficient in the United States and the United Kingdom, although this may have ended in the 1990s. The pattern in other countries is mixed. Some have shown rising inequality, but others, notably those in Figure 2, demonstrate a variety of time paths which are not readily summarised.
The subject of this paper is the basic concept under consideration: the distribution among households of disposable income. I argue that this concept is, at the same time, both challengingly complex and misleadingly over-simplified. The complexity and the simplification need to be borne in mind when interpreting the evidence in Figures 1 and 2. This paper considers (1) the intricacy of the phenomenon to be explained and the limited contribution to such an explanation of what appears in most economics textbooks as the “Theory of Distribution”, and (2) how it is over-simplified as a measure of the welfare of households, or as the input into an assessment of the justice or injustice of a particular distribution. In each case, the paper puts forward four reasons, on the one hand, why the observed distribution of personal income is more complex than typically assumed, and four reasons, on the other hand, why the observed distribution is too crude to capture concerns of economic welfare. The points are far from novel, but they are often lost from sight in current discussions about rising income inequality.
Anthony B. Atkinson

Changes in the Distribution of Pre-Government and Post-Government Income in Germany 1973 – 1993

Abstract
During the two decades from 1973 to 1993, Germany underwent far-reaching economic and political changes. 1973 was the last year of full employment, with an unemployment rate of just 1.2%, while in 1993 unemployment in the western part of Germany had risen to 8.2%. In 1989 the Berlin wall was tom down and in mid-1990 the Federal Republic of Germany and the German Democratic Republic founded a monetary union. In Oetober 1990, with German reunifieation, the West German legal system, including the regulations for the labor market as well as the entire tax and transfer system, was implemented in East Germany3, and federalism was introduced in the former German Democratic Republic through the formation of several new Länder. West Germany paid high transfers to East Germany amounting to up to 5% of West German GDP per year4; these transfers will continue for many years to come.
Irene Becker, Richard Hauser

The Distribution of Income of Self-employed, Entrepreneurs and Professions as Revealed from Micro Income Tax Statistics in Germany

Abstract
As simple as they may be, results describing the world are heavily dependent on the quality of the underlying data. One of the crucial variables in micro-analyses of well-being and human resources is income. This variable becomes even more crucial when the subject of analysis is the situation of the self-employed.
This paper focuses on the distribution of income based on very sound data: the German Income Tax Statistics (Einkommensteuerstatistik) 1992. Tbis was the first actual opportunity to use such asound micro-database to analyse the selfemployed in particular: a 100,000 micro-data sampie of the German Income Tax Statistics for the entire population. New is the comparison between income from dependent and self-employed work with an emphasis on entrepreneurs and professions; also new is the in-depth decomposition of inequality by the employment status (employee, entrepreneur, profession) and by single professions based on a generalised entropy decomposition approach.
One overall striking result is that the occupational status as an employee, entrepreneur or a professional and its relationship to the share of inequality is hardly the most important factor wh ich explains the overall income distribution and inequality pieture of reunified Germany; rather, it is within-group inequality which has the primary influence.
Joachim Merz

Trends in the UK Income Distribution

Abstract
This paper reviews trends over the last three decades in the personal distribution of income in the UK. The first section of the paper documents the trends from a number of different perspectives (inequality, poverty and real income growth). Later sections explore the causes of the large increase in income inequality in the UK between the late 1970s and the beginning of the 1990s and the halt in the increase over the subsequent five years.
Stephen P. Jenkins

Income Distribution and Income Mobility - Recent Trends in Sweden

Abstract
Sweden is often viewed as a country with long-term widening gaps in the distribution of equivalent disposable income. In the first part of this paper we present recent data on income distribution trends that show only a small increase in the 1990s, in spite of economic crises and persistent high unemployment. In our examination, we eliminate various peculiarities in the Swedish data that often are disregarded in international comparisons. In the second part we present arecent study on mobility of equivalent disposable income. The proportion of people moving from the group with a low economic standard to the medium-income group appears to have remained at a relatively high level even during the financial crisis of the 1990s. Total mobility has decreased somewhat during the 1990s compared with earlier years. This is probably explained by the fact that incomes are measured more accurately since the tax reform in 1990-1991. The second part of the paper is based in part on the Govemment Income Distribution Report presented in the Budget Bill 1998.
Ingemar Eriksson, Thomas Pettersson

Public Transfers, Income Distribution, and Poverty in Germany and in the United States

Abstract
In most industrialized countries one major task of the welfare system is to combat poverty. This includes a policy targeted at those who are in need permanently, as well as at those who face the risk of more or less severe income losses which might arise from specific life situations such as unemployment. In most cases this is accomplished by the payment of direct transfers or subsidies to the respective household and its members. This common baseline of perception about the general structure of a welfare system exists regardless of the fact that public transfers in Germany reach much more citizens than in the United States. This is true even for those families with income weil above a poverty line, for example well-earning households with children. It is common sense in both countries that the welfare system should not level income inequality caused by different individual behavior. Its purpose is rather to protect individuals from falling into poverty.
Joachim R. Frick, Felix Büchel, Peter Krause

Changing Income Inequality in OECD Countries: Updated Results from the Luxembourg Income Study (LIS)

Abstract
The purpose of this study is to update the results first presented in 1995 in the OECD Monograph, “Income Distribution in OECD Countries: Evidence from the Luxembourg Income Study” by Atkinson, Rainwater, and Smeeding (1995). Though only five years have passed since the publication of this volume, we are now able to compare the level of disposable income inequality across 20 nations, including Germany, in three separate periods using US. Moreover, we are now able to use several sets of national data to assess the changes in inequality that have taken place in recent years. The brief results are that the ranking of nations by the level of inequality at a point in time are more or less the same regardless of the year of comparison from roughly 1980-1997. But large changes in the distribution of income have taken place within many nations, with most finding a higher level of inequality in the mid-to-late 1990s than in the 1980s, and with Western Germany being no exception. Inequality, however, has not risen in Denmark or in Canada over this period, while its rise has slowed in several nations. This suggests that rising economic inequality is not inevitable. Strategies for improving these estimates are also discussed.
Timothy M. Smeeding, Andrzej Grodner

Old Age Pension Systems and Income Distribution Among the Elderly: Germany and the United States Compared

Abstract
Across most industrialized countries, the process of aging populations has led to an intensive discussion about the old age social security systems. The discussion focuses on the question of whether the old age pension system should be organized on a pay-as-you-go basis in the future, and if so, to what extent. Economic theory states that capital funded and privately organized systems provide a more efficient way of organizing old age security (see, e.g., Kotlikoff 1996). Efficiency, however, is not the objective of our paper. Our question rather is: How do different old age security systems affect the income distribution and the risk of poverty among the elderly?
Johannes Schwarze, Joachim R. Frick
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