No Rise in Income Inequality ?

We analyze the distribution and concentration of market incomes in Germany in the period 1992 to 2001 on the basis of an integrated data set of individual tax returns and the German Socio-Economic Panel. The unique feature of this integrated data set is that it encompasses the whole spectrum of the population, from the very poor to the very rich. We find a modest increase in overall inequality of market incomes in Germany in the period 1992 to 2001, most of which occurred in east Germany during the first few years of the transition period. However, this relative stability of overall inequality disguises significant changes that occurred at the very top of the income distribution. The increase of income inequality can be mainly attributed to a substantial increase of market incomes of the German economic elite, which we define as the richest 0.001% persons in the population. In that group, the income share received in form of wage income substantially increased.