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A new framework of measuring inequality: Variable equivalence scales and group-specific well-being limits. Sensitivity findings for German personal income distribution 1995-2009

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  • Jürgen Faik

    (University of Lueneburg)

Abstract

The paper examines sensitivity influences on the German personal income distribution in a time-series perspective as well as in a methodically broad manner. The author discusses the following issues: (1) For the first time, (reference) income-dependent, so-called variable equivalence scales are explicitly and extensively applied in a distributional analysis of German data which causes significant increases of income inequality compared with income-independent, constant equivalence scales. (2) Concerning different demarcations of income areas the pattern of income inequality in Germany 1995-2009 is not distinctively changed in the several variants considered. (3) For three alternative inequality indicators out of the class of Generalized Entropy indicators (mean logarithmic deviation, one of Theil’s measures of entropy, and normalized coefficient of variation), the patterns of income inequality over time are nearly the same. (4) Regarding current monthly household net income versus yearly household net income of the previous year, different patterns with respect to income inequality occur during the ob-served period of time. Especially in the first decade of the 21st century the corresponding pat-terns differ from each other. In a further step the new approach related to income distribution, which incorporates variable equivalence scales, is applied to socio-demographic stratification to exemplarily demonstrate the power of this new approach. All in all, the analyses of the paper refer 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.

Suggested Citation

  • Jürgen Faik, 2011. "A new framework of measuring inequality: Variable equivalence scales and group-specific well-being limits. Sensitivity findings for German personal income distribution 1995-2009," Working Papers 219, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2011-219
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2011-219.pdf
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    References listed on IDEAS

    as
    1. Cowell, Frank & Mercader-Prats, Magda, 1999. "Equivalence scales and inequality," LSE Research Online Documents on Economics 2190, London School of Economics and Political Science, LSE Library.
    2. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    3. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, vol. 71(1), pages 319-343, January.
    4. John Creedy & Catherine Sleeman, 2004. "Adult Equivalence Scales, Inequality and Poverty in New Zealand," Treasury Working Paper Series 04/21, New Zealand Treasury.
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    6. Jürgen Faik, 2011. "A Behaviouristic Approach for Measuring Poverty: The Decomposition Approach ; Empirical Illustrations for Germany 1995-2009," SOEPpapers on Multidisciplinary Panel Data Research 383, DIW Berlin, The German Socio-Economic Panel (SOEP).
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    More about this item

    Keywords

    Personal income distribution; equivalence scales; inequality;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General

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