Taken from the official translation of the German Sustainable Development Strategy
The Gini coefficient is a statistical measure of income inequality. It has a value between 0 and 1. If everyone had exactly the same income, the coefficient would be 0. If all of the income went to a single person – the situation of maximum inequality – it would have a value of 1. The smaller the Gini coefficient, the greater the equality in income distribution.
Equivalised income is a value derived from the total income of a household and the number and age of the people living on that income. With the help of an equivalence scale, the incomes are weighted according to household size and composition, as the shared use of living space and household appliances results in savings. With the equivalised income then allocated equally to each household member, it becomes possible to compare people’s incomes independently of age or household size. A household’s equivalised disposable income is the income, including social transfers, which remains after taxes and other deductions, and is therefore the income available for spending and saving. A distinction must be made between this measure and equivalised income before social transfers, which looks at disposable income without any possible welfare payments, such as unemployment benefit or housing assistance, or market income, which is calculated before taxes, social contributions and social benefits. In none of these ways of looking at income is a differentiation made between the sources of income, i.e. whether it takes the form of wages, rental income or capital gains.
The data used to calculate equivalised income come from the annual harmonised European statistics on income and living conditions (EU-SILC).
The wealth distribution figures are taken from the Household Finance and Consumption Survey (HFCS) conducted on an irregular basis by the European Central Bank. The fact that households with high incomes and/or extensive assets are under-represented in voluntary sample surveys is compensated for methodologically. Therefore, this methodology, the values for income as well as for assets in Germany can be compared with those in Europe or the euro area. Since no Gini coefficient is calculated for market income from the EU-SILC, data from the German Socio-Economic Panel (SOEP) held by the German Institute for Economic Research are used instead.
As in previous years, the Gini coefficient for equivalised disposable income in Germany for 2019 (0.297) is close to the value for the EU as a whole (0.307) and has remained stable. There are therefore no significant differences in income distribution to be discerned between Germany and Europe as a whole. At 0.297, the Gini coefficient for equivalised disposable income remains clearly below that for equivalised income before social benefits (0.352). As expected, the 2017 Gini coefficient for market income was higher, at 0.500. Social benefits, social insurance and taxes in Germany contribute considerably to reducing inequalities in disposable income.
Measured by the relevant Gini coefficients, the distribution of wealth in Germany, at 0.739 in 2017, is considerably less equal than that of income. In this context, virtually no change can be detected over time (2010: 0.758 and 2014: 0.762). The equivalent value for the euro area in 2017 was lower than Germany’s, at 0.695. However, the impression of above-average wealth inequality is qualified by several factors not covered by the Gini coefficient. For instance, the assessment of wealth does not take future pension entitlements into account. Moreover, Germany’s higher level of protection for tenants means that people here are more likely to rent rather than own their homes compared with other European countries.