Summary of results

– The discrepancy between the income groups has changed significantly enlarged

– Change average disposable income between 1991 and 2014 …

• Upper income group: 17%

• Middle income group: 10%

• Lower income group: 3%

– The middle class is shrinking from 63% (1991) to 56% (2014)

– Inequality of available household income has in Germany has increased since 1991 according to SOEP

Income distribution and growth

– Okun (1977): conflicting goals between equality and efficiency (“big trade-off hypothesis “)

• Income redistribution leads to growth losses:

Taxes and fees ↑ → individual incentives ↓

→ Labor productivity growth ↓

• Economic Policy: Hypothesis of trickle-down economics

– income distribution and growth

• Supply side channels

• weakening human capital

• Political instability

• Increase in political corruption

Income distribution and financial crisis

– Causes of the global financial and economic crisis

• Securitisations of subprime loans (Keys et al., 2010)

• Too loose monetary policy and excessive liberalization of Financial Markets (Taylor, 2009)

• Global current account imbalances (Blanchard / Milesi Ferretti, 2009, Obstfeld / Rogoff, 2009)

– Income inequality as a structural cause of the global

Financial crisis (including Rajan, 2010, Stiglitz, 2012, Piketty, 2014)

• Over-indebtedness of households increases the risk a debt crisis (Kumhof et al., 2015)

• Credit-financed private demand boom leads to higher сurrent account deficits

Functional income distribution

With the functional income distribution one tries to assign the national income to the production factors work and capital. The best known indicator of functional income distribution is the so-called wage rate. It indicates the share of employee compensation in the total national income. However, the informative value of the wage share has declined because many households receive additional income in addition to the salary, such as interest income. Around 40 percent of all property income is now accounted for by employee households.

Personnel income distribution

Statistics on the distribution of personal income provide information on the extent to which different persons or groups of people – employees, the self-employed, pensioners, civil servants, farmers, etc. – participate in the national income. In this case, all income types of a person are added together, e.g. Wages, interest and rental income.