Chapter 20: Personal distribution of income

As aggregates at the macro level, incomes mediate between mass production and mass consumption; at the micro level of a household they convey chances for participation. Income distribution is a battleground of regulation.

Within the framework of socioeconomic reporting, an overall presentation of income distribution and income redistribution is neither possible nor sensible. Therefore, we selected three topics which are essential for the understanding of trend reversals and new problems of socioeconomic development. Additionally, they promise a sensible division of labour with existing approaches to reporting, especially with the designs for the Federal Government’s Third Report on Poverty and Wealth.

 

Development of income distribution at the macro or group level

The socioeconomic report approach proceeds from the assumption that the Federal Republic’s Fordist development phase was characterised by the coupling of income development to productivity and economic growth. This in turn made possible a general increase of incomes while income inequality remained the same (or slightly decreased) and mass consumption expanded.

Concerning the phenomenology of upheaval it has to be assumed that

  • the functional forms of income are developing unevenly and are distributed more unevenly (not least because the wage bargaining system is losing its validity),
  • the inequality of incomes is on the increase and income distribution is polarising, a process only partially damped by the tax and welfare state transfer system,
  • the population of working age is increasingly dependent on the tax-financed welfare state transfer system, replacing or supplementing wages.

These assumptions will be examined by way of data from income and consumption samples (EVS, 1969-2003) for society at large and for socioeconomic groups. Thereby it has to be considered that obviously the inequality of incomes is also growing within socioeconomic groups (e.g. self-employed persons).

 

Earned incomes, household incomes and livelihood security

In transition from individual gross incomes to household incomes, the redistributions within the household and through the state have to be taken into account; the latter can still be divided into redistribution through social insurance on the one hand, tax and transfer system on the other. The transformation changes the interaction between wage formation and livelihood security. Therefore, connections between unequal or polarised development of wages (low-wage sector) and inequality of household incomes (poverty risk) shall be examined.

In the Fordist phase, income policy assumed that a (male) earner’s individual income ensures a family’s material participation. The ideal-typical ‘fit’ of income system and household or family structures is currently changing on the economy and of lifestyle side. As the low-wage sector is growing, earned incomes are often not even sufficient to secure livelihood. Also, the construction of families and households are drifting apart: Family members are economizing less often within a household and are supporting each other in decreasing amounts.

It has especially to be examined how the low-wage sectors is affecting income levels and the material participation of households.

  • How do income positions of households develop according to way of life (type of household) and earner model (type of household earnings)?
  • How does the low-wage sector develop, also when taking into account the increasingly heterogeneous group of self-employed persons?
  • In which household constellations do persons with low wages live (differentiated according to households with and without children and according to earner models)?
  • When do earned incomes secure a person’s livelihood? What is the connection between the state-regulated minimum income guarantee and low wages?

The changes in income distribution put the social security system under pressure to adapt. The effects of tax-financed transfers (family and children compensations) and of basic security take centre-stage because for households with low wages they cause the biggest distribution effects; in addition, their importance as income components for households is growing:

  • How does the basic security level behave towards average incomes in times of increasing inequality of incomes?
  • What do wage replacement benefits/supplementary benefits and family compensations contribute to livelihood security?
  • How does the population develop under the influence of basic security transfers? How big are the need quotas in the low-wage sector when taking into account non–asserted needs (non-utilisation of supplementary benefits) too?
  • To what extent are basic security benefits drawn at an individual and household level in order to supplement earned incomes?

The investigation of these questions is the precondition for discussing ways of how to avoid poverty (e.g. combination wage, legal minimum wage).

 

Household income levels, consumption structures, necessary standard of living

As the low-wage sector will probably be regulated primarily through tax-financed social transfers on the care principle and with a means test, the socio-cultural minimum income as defined by the welfare state will become the central measure for the material participation of large parts of the labour force. This leads to two research questions:

  • How do consumption structures (i.e. factual participation) of households in lower income groups differ from those in middle or high income groups?
  • How can a deficient standard of living and material deprivation be operationalised?

The chapter provides and explains index figures of the relative income position which serve as economic background variables in micro analyses of other parts of the report or as variables in country comparisons. Suitable key figures in long series will be selected from the representation of income distribution at the macro level.

 

Results (German)
Irene Becker: Zum Effekt von Abgaben und Transfers auf die personelle Einkommensverteilung PDF
Anhangtabelle PDF
Glossar Kapitel 20 "Personelle Einkommensverteilung" PDF
Becker, Irene: Abschnitt 3.3 der Langfassung von Kapitel 20 "Personelle Einkommensverteilung". PDF
Becker, Irene: Abschnitt 4.3 der Langfassung von Kapitel 20 "Personelle Einkommensverteilung". PDF
Becker, Irene: Abschnitt 4.4 der Langfassung von Kapitel 20 "Personelle Einkommensverteilung". PDF

Responsibility for this chapter

Irene Becker, Johann-Wolfgang-Goethe-Universität Frankfurt