A New Framework of Measuring Inequality: Variable Equivalence Scales and Group-Specific Well-Being Limits – Sensitivity Findings for German Personal Income Distribution 1995-2009

Abstract

The discussion paper examines sensitivity influences on the German personal income distribution in a time-series perspective and in a methodically broad manner. The author spins on the following 'adjusting screws' of distributional analyses: different kinds of equivalence scales, different demarcations of income areas (in the sense of social classes), different inequality indicators, and different income operationalizations. Furthermore, the new approach related to measuring income inequality, which is presented in the paper and which incorporates variable equivalence scales, is applied to socio-demographic stratification in Germany to exemplarily demonstrate the power of this new approach. All in all, the analyses of the paper point to the necessity of a rigorous methodological foundation of distributional studies, especially concerning the selection of a set of (preferably variable) equivalence scales, the choice of the inequality indicator, and – not least – of the income variable. This paper refers to data from the German Socio-Economic Panel (1995-2009) in contrast to FaMa discussion paper 6/2010 which partly was similar to this paper but methodologically less elaborated; the last-mentioned paper was related to the German Income and Consumption Surveys ('Einkommens- und Verbrauchsstichproben') 1993-2003.