A Cross-National Comparison of Permanent Inequality in the United States and Germany

Abstract

Traditional cross-sectional measures find greater inequality in the United States than in industrialized Western European countries, but are unable to distinguish transitory from permanent inequality. With longitudinal data, we measure cross-sectional inequality during the 1980s using the Shorrocks measure of income stability to find the degree to which single-period measures exaggerate permanent inequality. Surprisingly, given the smaller social welfare system and the less restrictive labor markets in the United States, we find that both single-period inequality and the share of that inequality that persists over time are greater in the United States than in Germany.