Intra- and Intergenerational Labor Market Inequality and Mobility

Abstract

Some degree of income concentration is necessary in well-functioning market economies as it financially incentivizes individuals to work harder or take the risks of entrepreneurship. But if in- equality becomes too high, it is not only morally concerning and poses a risk to social cohesion and democratic cooperation, but carries real economic consequences. It can lead to economic instability, hinder economic growth, and jeopardize labor market functionality if the belief in up- ward mobility through work is lost. In recent decades, empirical evidence has shown a steep rise in income inequality for many industrialized countries including Germany (e.g., Chancel and Piketty 2021), elevating this topic to be among the major issues of our time.

The goal of this dissertation is to contribute to a more comprehensive understanding of labor market inequality and mobility in Germany. In particular, it is guided by the following research questions: Using different measurement approaches, how has labor market inequality and mobility evolved within generations? How has it evolved across generations? And how do current trends in inequality and mobility compare to historical trends?

Chapters 1 and 2 measure earnings growth and inequality predominantly within the same generation, a common and important way to measure labor market inequality. However, another important puzzle piece in understanding the secular evolution of inequality and its drivers is to compare work and living standards across generations. Individuals often assess their own eco- nomic progress by comparing their earnings to their parents (e.g., Goldthorpe 1987; Hochschild 2016). While the vast majority of these studies focus on relative intergenerational mobility (e.g., Chetty et al. 2014; Bratberg et al. 2017), measuring how children’s outcomes depend on parental income ranks, research has shown that people tend to think in absolute rather than in relative terms (Amiel and Cowell 1999; Ravallion et al. 2018). Therefore, Chapter 3 uses a relatively novel measure to assess intergenerational mobility: absolute income mobility. It measures the fraction of children who earn weakly more than their parents did. Chapter 4 provides a comprehensive picture of the evolution of earnings growth, inequality, and absolute mobility since 1882. This broad scope enables the historical contextualization of the other chapters’ findings.