The present analysis measures changes in households' income brackets when their existing wealth is hypothetically distributed over the remaining life span of their household heads. Since higher incomes tend to go hand in hand with higher wealth, the resulting increase in income leads to higher inequality. However, the higher concentration of wealth is not fully transferred to incomes, as some people with low and medium incomes also have significant net worth. The combined analysis shows above all that while the elderly (65+) tend to have below-average incomes, they more often have greater net worth. Taken together, this leads to an improvement in their prosperity relative to younger people and to a higher share of the elderly in the upper middle class and among the relatively rich. Although this is a hypothetical view and still subject to uncertainties in the assessment of assets, the analysis makes clear that, when estimating the effects of age, it is important to take existing wealth into account. If this is included, older people are once more shown to be less vulnerable to income risks. The differences revealed by this combined view of households’ resource endowments should be given due consideration when assessing poverty risks.
How is Prosperity Distributed in Germany? A Combined Study of Income and Wealth
Distributional analyses often focus on either income or wealth. However, a comprehensive picture of the material well-being of a nation’s households can only be obtained by considering both variables together.
- Mariano Calderón / Judith Niehues / Maximilian Stockhausen ·
- IW-Trends No. 3 ·
- 24 August 2020