The Evolution of Income Inequality in Germany and Switzerland since the Turn of the Millennium

This paper presents and compares trends in income inequality in Switzerland and Germany from 2000 to 2009 using harmonized data from the Socio-Economic Panel (SOEP) and the Swiss Household Panel (SHP). Whereas in Germany inequality has increased substantially during this period, in Switzerland inequality in market incomes has increased onlymarginally and inequality in disposable incomes has decreased slightly. Economic and demographic indicators suggest that labor market participation - but not economic growth, globalization, or sectoral change - are potential explanations. The decomposition of inequality reveals the effects of Germany's slightly older population and smaller household sizes, as well as the impact of educational expansion and government redistribution.