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Maximilian Stockhausen IW-Report No. 63 26. November 2022 IW Distribution Report 2022: Influence of structural changes on income distribution

Academization, immigration and demographic change are defining issues of our time and influence the distribution of income. This year's report therefore focuses on the question of which long-term structural changes in the net income distribution are associated with a higher average level of education, increased net immigration and a higher share of older fellow citizens in the total population.

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Influence of structural changes on income distribution
Maximilian Stockhausen IW-Report No. 63 26. November 2022

IW Distribution Report 2022: Influence of structural changes on income distribution

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German Economic Institute (IW) German Economic Institute (IW)

Academization, immigration and demographic change are defining issues of our time and influence the distribution of income. This year's report therefore focuses on the question of which long-term structural changes in the net income distribution are associated with a higher average level of education, increased net immigration and a higher share of older fellow citizens in the total population.

By decomposing income inequality of a year into differences between and within specific groups, it can be shown that a particularly large structural effect comes from the increased level of education. Average income differences between different educational groups can explain nearly 12 percent of total net income inequality in 2019. In 1995, the figure was 9 percent. Nonetheless, much of the income inequality continues to be explained by differences within each group. In contrast, average income differences explained by immigrant background are smaller and fluctuate over time. Most recently, they explained about 3 percent of overall net income inequality, compared with less than 2 percent in 1995. Despite an increased share of the population over age 65, there is no clear change in the explanatory power of age-related income inequality: slightly less than 3 percent of overall net income inequality in 2019 was due to average income differences between age groups. In earlier years, the same share was between 3 percent and 4 percent. Given these results, and in combination with changes in net income inequality within each age group, the increase in the share of the population aged 65 and older could have a rather dampening effect on net income inequality in the future under certain assumptions, as the inequality distribution within this group is smaller than in younger age groups. In contrast, further progress in academization and a renewed increase in net immigration could lead to a structural increase in net income inequality in the future. At present, however, the only certainty is that the last year before the outbreak of the Corona pandemic still showed a continuation of the positive growth trend of previous years, and that at an almost unchanged level of inequality.

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Influence of structural changes on income distribution
Maximilian Stockhausen IW-Report No. 63 26. November 2022

IW Distribution Report 2022: Influence of structural changes on income distribution

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German Economic Institute (IW) German Economic Institute (IW)

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