The Sensitivity of Distributional Measures to the Income Reference Period

Abstract

The Income Reference Period (IRP), the measurement period of income, differs across micro-economic databases of household or individual incomes; typically it is a year, a quarter (of a year) or a month. The length of the IRP affects the shape of the income distribution and derived distributional indices, such as the Gini index. Using employment histories of German residents, this study explores the sensitivity of distributional measures to the IRP. Estimates from annual, quarterly, and monthly distributions are provided for the period from 1991-2006. Our results show that a uniform measurement period of income is a requirement for the validity of distributional analyses.