Does Size Matter? The Impact of Changes in Household Structure on Income Distribution in Germany

40 Pages Posted: 22 Feb 2010

See all articles by Andreas Peichl

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Nico Pestel

IZA Institute of Labor Economics

Hilmar Schneider

IZA Institute of Labor Economics; DIW Berlin, German Institute for Economic Research

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Abstract

In Germany, two observations can be made over the past 20 years: First, income inequality has been constantly increasing while, second, the average household size has been declining dramatically. The analysis of income distribution relies on equivalence-weighted incomes which take into account household size. Therefore, there is an obvious link between these two developments. The aim of the paper is to quantify how the trend towards smaller households has influenced the change in income distribution. In order to do so, we are using a decomposition of changes in inequality measures over time allowing for a separation between wage and demographic effects respectively. We propose similar decompositions for the change in poverty and richness as well and compare them with results that were obtained by a re-weighting procedure. Our results show that the income gap would also have increased without the demographic trend. But its level would be lower than it actually is. In addition, the demographic effect turns out to be larger for incomes before tax and benefits.

Keywords: income distribution, demography, household size, decomposition, Germany

JEL Classification: D31, D63, J11

Suggested Citation

Peichl, Andreas and Pestel, Nico and Schneider, Hilmar, Does Size Matter? The Impact of Changes in Household Structure on Income Distribution in Germany. IZA Discussion Paper No. 4770. Available at SSRN: https://ssrn.com/abstract=1556558

Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Nico Pestel

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Hilmar Schneider

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

DIW Berlin, German Institute for Economic Research

Mohrenstraße 58
Berlin, 10117
Germany

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