Research

From standard portfolio-choice theory, it is well-understood that background risk, overwhelmingly due to wage risk, is one of the central determinants of individuals' portfolio composition: higher background risk reduces risky investments. However, if background risk is negatively correlated with financial market risk, higher background risk implies a more risky investment. We quantify the influence of wage risk on German investors' financial portfolio shares and find that an increase of the residual variance of wages by one standard deviation implies a reduction of the financial portfolio share by 3 percentage points. We do not find that the correlation of wage risk with financial market risk has a significant impact on portfolio choice and provide evidence that this may be due to a lack of salience. Furthermore, our subgroup analysis reveals heterogeneity in responses, with higher-educated and risk-averse individuals showing a stronger reaction to wage risk while responses to correlation mildly vary by risk attitude.

This paper investigates how the number of brackets and the choice of upper cut- offs in grouped data affect the metric approximation of income and wealth. The literature currently lacks a definition of what should be considered too few brackets or too-low cut-offs. Using German survey data, we show that more than six (eight) brackets and an upper cut-off at the 95th (97th) percentile are sufficient to provide an adequate approximation of the income (wealth) distribution. 

The Research Handbook on Intergenerational Inequality is motivated by a core question in social science: to what extent does one’s family background and childhood experience predict success in life? Bringing together experts in their respective fields from across the globe, this innovative Research Handbook provides a comprehensive multidisciplinary account of the rich research on intergenerational inequality, focusing on its origins in sociology and economics.

The omission of pension wealth potentially distorts the international comparison of wealth distributions. Private pension wealth is often included in households’ wealth portfolios, while public pension claims are not. Augmented wealth, the sum of net worth and pension wealth, resolves this limitation by including the present value of social security pension wealth. This article provides a detailed analysis of augmented wealth in Australia between 2002 and 2018, capturing the establishment of the compulsory private pension scheme, Superannuation, which was introduced in 1992. Augmented wealth is slightly less equally distributed in Australia than in Germany or Switzerland but more equal than in the United States. The article also explores the relationship between Superannuation dissaving rates and the means-tested public pension scheme, Age Pension, and its distributional implications. 

Natural gas prices in Germany saw a strong increase at the end of 2021, subsequently worsening with the start of the war in Ukraine in February 2022, raising concerns about the distributional consequences. Our study shows that low-income households are affected the most by the natural gas price increase. Low-income households pay at the median 11.70 percent of their equivalent income on gas bills, compared to 6.21 percent in 2020. Contrarily, high-income households pay at the median 2.41 percent, compared to 1.52 in 2020. Natural gas expenditures are higher for tenants in detached houses and in houses with no double glassing or thermal insulation. Our policy analysis builds on an exploration of new energy expenditure data in 2020 provided by the German Socio-Economic Panel, and shows that a well-targeted subsidy scheme can be more effective for reducing inequality and less costly than a subsidy for all households. Additionally, the introduction of a minimum energy-efficiency standard for buildings can help reduce inequality in the medium-term.

Household investment behavior influences financial wealth inequality, yet the roles of return heterogeneity and risky asset participation remain unclear. This study examines their distributional effects using individual asset data from the Dutch CentERpanel Survey and cross-country portfolio information from the Household Finance and Consumption Survey. Applying the Global Capital Asset Pricing Model, I find that returns do not systematically correlate with financial wealth in the Netherlands. Counterfactual simulations indicate that inequality remains stable under the Dutch status quo. However, rising returns or increased return heterogeneity amplify inequality, particularly if participation gaps persist. Broadening financial market participation mitigates these effects and reduces long-term uncertainty in wealth inequality trends.

The Routine-Biased Technological Change hypothesis (RBTC) by Autor et al. (2003) suggests that automation processes have substituted workers operating middle-skilled routine tasks. As a result, the relative demand for complementary workers operating non-routine tasks has increased. These changes in the labor force composition imply job polarization, characterized by a growing proportion of both high- and low-skilled at the expense of middle-skilled jobs. An aspect of high socio-economic and political relevance is the distributional implications of job polarization. In this study, we use a novel dataset covering 35 countries to investigate the phenomenon of job de-routinization, job polarization, and their potential ramifications on earnings distributions. We find strong empirical evidence of job polarization in most countries, but no systematic link between job polarization and the distribution of earnings. We show that this missing link stems from the fact that occupational classes are not very strongly stratified along the earning distribution. 

The recent energy crisis exposed the heightened vulnerability of low-income households to rising heating costs, particularly those in energy inefficient buildings. Using data from the German Socio-Economic Panel (SOEP), this study examines the distributional impact of heating costs across income deciles and evaluates the effectiveness of policy interventions. We find that low-income tenants are the most vulnerable segment of the population, with elevated risks of energy poverty. While carbon pricing with landlord-tenant cost splitting shields low-income households from carbon costs, it fails to offset overall energy price increases. In contrast, a "Worst-First" retrofit strategy, prioritizing upgrades in the least efficient buildings, substantially reduces heating costs and mitigates energy poverty. Our findings highlight the need for targeted retrofit policies to ensure both equitable decarbonization and economic relief for vulnerable households. 

To shed light on the differential impact of firm shutdowns across the distribution of workers, we adopt the wage determination framework of Bonhomme, Lamadon, and Manresa (2019) to uncover workers’ unobserved types. Worker types relate to workers’ position in the wage distribution: all else equal, a higher type implies higher wages. We use the universe of social security records of Italy’s Veneto region, one of the leading Italian regional economies, from 1975 to 2001. Based on this rich matched employer-employee data, we measure wage losses after firm shutdowns for different worker types using an event-study framework. Aggregate wage losses directly after a shutdown are 4.5% of the daily wage, which almost halves after six years. This aggregate trajectory masks stark heterogeneity: top-type workers face initial losses of 12.4%, which remain persistent even after six years. Conversely, initial losses for bottom-type workers are 2.6%, which become statistically insignificant after six years. We identify losses in firm tenure as the main source of wage reductions following the shutdown of a worker’s firm. Finally, we show that the AKM model (Abowd, Kramarz, and Margolis, 1999), the current workhorse model of wage determination, does not capture this heterogeneity and can lead to misleading conclusions regarding the sources of wage losses. 

Intergenerational wealth transmission in Germany remained stable between 1988-2017 with an intergenerational rank-rank correlation (IRRC) of 0.265 are also found to be stable across gender and birth cohorts in the offspring generation. Higher parental education is associated with higher economic mobility. Decomposing the IRRCs provides evidence that the transmission of wealth plays a role beyond income and education. In international comparison, the level of intergenerational wealth transmission in Germany is in the midfield. 

Stark wealth inequality in many countries has sparked intense public and academic debates about the underlying causes. While economic factors driving this inequality have been widely studied, the nexus between a changing demography and wealth inequality trends remains underexplored. Using data from the German Socio-Economic Panel (SOEP) and decomposition methods, we analyze the impact of demographic shifts likely associated with wealth, such as increased immigration, changing partnership status, educational expansion, and rising female labor market participation, on changes in wealth inequality between 1988 and 2017, focusing on families with children in West Germany. Our findings reveal that while overall wealth inequality remained stable, significant demographic shifts within the overall population, particularly within households with children, contributed to contrasting inequality trends. Increased immigration and changing partnership patterns were associated with rising inequality; however, these effects were offset entirely by the inequality-reducing impact of educational expansion and rising female labor market participation. The study highlights the importance of these demographic changes for understanding trends in wealth inequality, and suggests that future wealth inequality trends may depend on the continued expansion of education and female employment, as well as evolving immigration and partnership dynamics

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