IDEAS home Printed from https://ideas.repec.org/a/bpj/germec/v6y2005i4p445-469.html
   My bibliography  Save this article

The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality

Author

Listed:
  • Biewen Martin

    (University of Mannheim, IZA,Bonn, Germany)

Abstract

Based on data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in East and West Germany in the years following reunification. Special emphasis is given to the separation of permanent and transitory components, the persistence of transitory shocks and their implications for the persistence of poverty and inequality. The results suggest that in West Germany, between 52 and 69 per cent of cross-sectional income inequality was permanent, and that poor individuals stayed in poverty for two years on average. In East Germany, the share of the permanent component in overall income inequality rose continuously from 20 per cent in 1990 to 72 per cent in 1998, reaching a level near the one that prevailed in West Germany during the same period. The rising importance of time-invariant components in East German incomes was also reflected in expected poverty durations which slightly increased from 1.47 years in 1990 to 1.67 years in 1998.

Suggested Citation

  • Biewen Martin, 2005. "The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality," German Economic Review, De Gruyter, vol. 6(4), pages 445-469, December.
    • Handle: RePEc:bpj:germec:v:6:y:2005:i:4:p:445-469
    DOI: 10.1111/j.1468-0475.2005.00141.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-0475.2005.00141.x
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1111/j.1468-0475.2005.00141.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin Biewen, 2001. "Measuring the Effects of Socio-Economic Variables on the Income Distribution: An Application to the East German Transition Process," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 185-190, February.
    2. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
    3. Francesco Devicienti, 2011. "Estimating poverty persistence in Britain," Empirical Economics, Springer, vol. 40(3), pages 657-686, May.
    4. Martin Biewen, 2002. "The covariance structure of east and west German incomes and its implications for the persistence of inequality and poverty," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B2-2, International Conferences on Panel Data.
    5. Ann Huff Stevens, 1999. "Climbing out of Poverty, Falling Back in: Measuring the Persistence of Poverty Over Multiple Spells," Journal of Human Resources, University of Wisconsin Press, vol. 34(3), pages 557-588.
    6. Ramos, Xavier, 2001. "The dynamics of individual male earnings in Great Britain: 1991-1999," ISER Working Paper Series 2001-15, Institute for Social and Economic Research.
    7. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May.
    8. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
    9. Grabka, Markus M. & Schwarze, Johannes & Wagner, Gert G., 1999. "How Unification and Immigration Affected the German Income Distribution," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43(4–6), pages 867-878.
    10. Martin Biewen, 2005. "The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 445-469, November.
    11. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 241-269, August.
    12. Martin Biewen, 2000. "INCOME INEQUALITY IN GERMANY DURING THE 1980s AND 1990s," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 1-19, March.
    13. Burda, M. & Schmidt, C., 1997. "Getting Behind The East-West Wage Differential: Theory and Evidence," SFB 373 Discussion Papers 1997,77, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    14. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    15. Cappellari, Lorenzo, 2000. "The dynamics and inequality of Italian male earnings: permanent changes or transitory fluctuations?," ISER Working Paper Series 2000-41, Institute for Social and Economic Research.
    16. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    17. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-375, April.
    18. Dickens, Richard, 2000. "The Evolution of Individual Male Earnings in Great Britain: 1975-95," Economic Journal, Royal Economic Society, vol. 110(460), pages 27-49, January.
    19. Fouarge, Didier & Muffels, Ruud, 2000. "Persistent poverty in the Netherlands, Germany and the UK," MPRA Paper 13297, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Devicienti, 2011. "Estimating poverty persistence in Britain," Empirical Economics, Springer, vol. 40(3), pages 657-686, May.
    2. Jenkins, Stephen P., 2011. "Has the Instability of Personal Incomes been Increasing?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 218, pages 33-43, October.
    3. Michal Myck & Richard Ochmann & Salmai Qari, 2008. "Dynamics of Earnings and Hourly Wages in Germany," SOEPpapers on Multidisciplinary Panel Data Research 139, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. P. Jenkins, Stephen, 2009. "Spaghetti unravelled: a model-based description of differences in income-age trajectories," ISER Working Paper Series 2009-30, Institute for Social and Economic Research.
    5. María Cervini-Plá & Xavier Ramos, 2012. "Long-Term Earnings Inequality, Earnings Instability and Temporary Employment in Spain: 1993–2000," British Journal of Industrial Relations, London School of Economics, vol. 50(4), pages 714-736, December.
    6. Santos, Antonio Loureiro & Souza, André Portela, 2007. "Earnings Inequality in Brazil: Is it Permanent or Transitory?," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 27(2), November.
    7. SOLOGON Denisa & VAN KERM Philippe, 2014. "Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009," LISER Working Paper Series 2014-03, Luxembourg Institute of Socio-Economic Research (LISER).
    8. Arabage, Amanda Cappellazzo & Souza, André Portela Fernandes de, 2015. "Labor earnings dynamics in post-stabilization Brazil," Textos para discussão 390, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    9. Cappellari, Lorenzo & Jenkins, Stephen P., 2014. "Earnings and labour market volatility in Britain, with a transatlantic comparison," Labour Economics, Elsevier, vol. 30(C), pages 201-211.
    10. Giesecke, Matthias & Bönke, Timm & Lüthen, Holger, 2011. "The Dynamics of Earnings in Germany: Evidence from Social Security Records," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48692, Verein für Socialpolitik / German Economic Association.
    11. Magnac, Thierry & Pistolesi, Nicolas & Roux, Sébastien, 2013. "Post schooling human capital investments and the life cycle variance of earnings," IDEI Working Papers 765, Institut d'Économie Industrielle (IDEI), Toulouse.
    12. Cappellari, Lorenzo & Jenkins, Stephen P., 2013. "Earnings and Labour Market Volatility in Britain," IZA Discussion Papers 7491, Institute of Labor Economics (IZA).
    13. Denisa Maria Sologon & Cathal O'Donoghue, 2009. "Earnings Dynamics and Inequality in EU, 1994-2001," SOEPpapers on Multidisciplinary Panel Data Research 184, DIW Berlin, The German Socio-Economic Panel (SOEP).
    14. Denisa Maria Sologon & O'Donoghue, Cathal, 2011. "Shaping earnings instability: labour market policy and institutional factors," MERIT Working Papers 2011-077, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    15. Kezdi, Gabor & Hahn, Jinyong & Solon, Gary, 2002. "Jackknife minimum distance estimation," Economics Letters, Elsevier, vol. 76(1), pages 35-45, June.
    16. Cappellari, Lorenzo, 2000. "The dynamics and inequality of Italian male earnings: permanent changes or transitory fluctuations?," ISER Working Paper Series 2000-41, Institute for Social and Economic Research.
    17. Robert Moffitt & Peter Gottschalk, 2008. "Trends in the Transitory Variance of Male Earnings in the U.S., 1970-2004," Boston College Working Papers in Economics 697, Boston College Department of Economics.
    18. Sisi Zhang, 2010. "Recent Trends in Household Income Dynamics for the United States, Germany and Great Britain," Economics Bulletin, AccessEcon, vol. 30(2), pages 1154-1172.
    19. R. Alessie & A.S. Kalwij, 2003. "Permanent and Transitory Wage Inequality of British Men, 1975-2001: Year, Age and Cohort Effects," Working Papers 03-04, Utrecht School of Economics.
    20. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Earnings Dynamics and Inequality among Men across 14 EU Countries, 1994-2001: Evidence from ECHP," IZA Discussion Papers 4012, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Covariance structure; poverty; inequality; mobility;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:germec:v:6:y:2005:i:4:p:445-469. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.