It is visible that both incomes did not always develop uniformly. While the net income increased from the mid of the 90s until the early beginnings of the new century, this was not the case for the market income, at least not for all income classes (also called deciles, because income is distributed into ten classes). While the top two deciles of the market income distribution increased without exception since 1990, the bottom half of the income distribution declined from 1995 until 2005. Furthermore, it can be stated that although both net income inequality as well as market income inequality have increased significantly from 1991 to 2010, this has not happened analogy but in different periods. Net income inequality stayed fairly stable until the new century and then strongly increased, while market income inequality already started to rise in the beginning of the 90s and stagnated thereafter before it increased again in 2000.
Both reached their peak in 2005 with the highest inequality, for net income as well as market income, in nearly twenty years. However, with the introduction of the Hartz reforms, there was a profound turnaround in the labor market and thus a strong employment growth, which led to a decline in income inequality, because additional household income was attained. However, it has to be said that this employment growth was mainly at the lower part of the income distribution and is attended by a new problem, namely the growing low pay sector.
But I will deal in particular with this problematic in section 3.2 in this study.In summary, it can be stated that the inequality of the net income can be explained by the changes in the income distribution in the lower and upper ranges. However, the changes in market income concentration are predominantly dominated by low incomes.They conclude that the general growth in income inequality is mainly due to the steady growth of the ninth decile, that is, the higher share of income distribution.
(Schmid,Stein 2013, p.18)Despite the many small differences, here is the big picture to consider. This can be easily implemented by considering the Gini coefficient. It becomes clear that from 1991 to 2010, overall income inequality increased by 14.3 percent.
(average of net income inequality and market income inequality)3.2. Explanatory Factors In this section I will speak about possible factors that changes the distribution of the market equivalised income. Schmid and Stein (2013) distinguishes between three different trends that are crucial: changing labor productivity, increasing capital income shares and a changing employment structure. Since all three topics will be discussed in more detail later, I would just like to provide a brief overview here.
3.2.1. Changing Labor Productivity The literature Schmid and Stein (2013) mention that the number of hours worked has fallen in the last 20 years, but that the workforce has increased. Thus labor income is earned by a larger workforce, which lowers the average labor income, but at the same time raises wages and this irreversibly leads to rising market inequality.In addition, Germany has undergone an enormous demographic change in the last twenty years.
Our society is aging, not only because of higher life expectancy but also because of the declining birth rates. This inevitably leads to the fact that the workforce is getting older and older.