Heterogeneous Income Dynamics: Unemployment Consequences in Germany and the US

This paper studies income trajectories after unemployment and their stratification by levels of education in Germany and the United States. The literature recognizes that unemployment hits individuals’ incomes differently according to the society’s specific mobility regime. Accordingly, this paper investigates how the labor market, the welfare state as well as the household buffer income losses following unemployment, and how this varies across educational levels, between sexes and in comparative perspective. Empirical analyses are based on CNEF (SOEP and PSID) data and employ distributed fixed-effects models. Results show that institutions play a considerable role in reducing the consequences of unemployment. The role of each institution, however, varies across levels of education, being stronger either for the lower educated or for the higher educated individuals. These complex processes result in very similar trajectories in disposable household income across levels of education, with the exception of German men for which inequality penalizes the lower educated. For German men, while the equalizing role of the state almost perfectly counterbalances the un-equalizing role of the household, initial educational inequality in the labour market translates into inequality in final welfare as captured by disposable household income.