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Inequality: Germany's Underestimated Division


Is Germany drifting apart economically - or is the social gap narrowing? There seems to be evidence of both. The gap threatens to worsen dramatically in the next crisis.

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Photo: Christoph Hardt / imago images / Future Image

If it depends on what people say they feel, the finding seems clear: Almost 90 percent in the country say that the gap between rich and poor is increasingly becoming a problem for social cohesion.

According to a poll by pollsters from Civey, three out of four consider economic inequality to be the main reason why populists per se have had so much upswing in Europe in recent years.

Clear thing.

So it seems.

And yet for years there has been a counter-finding, mostly from conservative experts and lobbies, that all of this is not true, that inequality according to this or that measurement unit has not increased since 2005.

And in recent years many have got richer thanks to home ownership.

Or that in comparison we spend so much to support people with less incomes.

What now?

Thomas Fricke

Born in 1965, has been running the WirtschaftsWunder internet portal since 2007.

From 2002 to 2012 he was the chief economist of the »Financial Times Deutschland«.

He is co-founder of the »Forum New Economy«, in which experts have come together to develop a new economic leitmotif.

It is worth taking a closer look, indeed.

But that is only good enough to give the all-clear at first glance.

It would be important to understand better what the actual state of affairs is.

After all, the probability is high that the question will also decide who hits the nerve in the upcoming election campaign - and who will rule the country in the future.

An attempt at enlightenment.

What doesn't make things any easier is that for years there have been very few statistics on how income and wealth are distributed.

Which may have been because it was not an issue for a long time in the post-war period, or at least it did not drift apart.

That has changed in the past decades, when some became much richer in the financial markets and others had to forego wages and protection in the preached market-liberal age.

Since then, researchers have been trying to collect the data on their own - like Thomas Piketty, who is most prominent internationally;

or in Germany the experts of the Socio-Economic Panel (SOEP) in Berlin.

Which is apparently going well

Meanwhile, there is also increasing consensus among the experts about the findings, both in terms of the financial situation and what people bring home every month.

As far as current income is concerned, the fact that:

  • there has actually been a slight decrease in the gap between high and low gross wages for years - that is what companies pay their employees on average per hour;

  • According to the latest SOEP evaluations, the proportion of those who earn so little that they are counted in the low-wage sector has also fallen - from around 24 percent in 2006 to 20.7 percent most recently;

  • Even with the average income of the people in one household, there has recently been at least no further divergence;

  • the difference after taxes and duties is smaller than in the gross invoice - there actually is a certain amount of compensation.

What's behind it

Is everything okay then?

Not really.

If the wage gap has narrowed in the past five years, it seems to be less because the added value of the economy is suddenly better distributed per se.

According to current estimates, the decisive factor was that compulsion was introduced in 2015 - in the form of the minimum wage.

This could also explain the decline in the low wage rate.

In addition, the mere comparison of gross hourly wages is misleading - because not everyone can work and work the same amount.

In any case, it cannot be considered good that there is less gap between wages - and at the same time that the minimum wage is nonsense, as many Orthodox economists do.

The fact that gross hourly wages are no longer drifting apart is only half the story anyway.

If some are left with little left at the end of the month - and others a lot more, this is also due to the fact that so much more work than before in mini and other part-time jobs.

A large part of the drifting in income is because there has been so much more insecure work since the two-thousanders - less because wages have diverged per se.

Most part-time workers would like to work more.

more on the subject

  • Real estate, inheritances, assets: that's how much the super-rich could give after CoronaBy Florian Diekmann

  • New data report: Germany's poverty and how Corona is changing itBy Markus Dettmer

  • Debate about class: Bring the outrage novels! An essay by Volker Weidermann

In addition: even if one or the other has improved somewhat recently, that only compensates for part of the previous drifting apart of the nineties and noughties. In other words, there is a much larger gap between high and low earners today than before - before the agenda reforms. And: The finding is even more true if you measure the differences between household incomes as a whole. The incomes may not have drifted much more apart since 2005 - but the conditions are simply (remained) much more unequal than they were in the 1980s and 1990s.

This is a frightening finding because in the period between 2005 and 2020 the economy - apart from the recession in the financial crisis - grew almost continuously, and unemployment fell from around five to a good two million.

Actually enormous.

After everything that would have been normal, inequality should have decreased significantly.

At least according to the beliefs of those who, like Ronald Reagan once promised “trickle-down”: that when those above get richer, in the end it will also go down with those below.

There is something wrong

According to experts' diagnoses, the fact that this did not happen could have something to do with the fact that many less qualified people have come to the country in the meantime. But it also shows that something is wrong. According to SOEP evaluations, the top ten percent of households in 2018 had almost 25 percent more income than in 2000 - the bottom ten percent still had less than then; Despite all the catching up since 2015. No prosperity for everyone.

What is true of the ratios of current monthly incomes is even more true of what the people of the country have amassed in terms of wealth. Here, too, one or the other statistic seems to speak against the finding of the eternal drifting apart. The statistically measured distribution of wealth among those who have wealth at all shows that it has not become more unequal in the past ten years. But here too - and here much more: on the one hand, despite the upswing, no inequality has been reduced. Sobering.

On the other hand, if you take a closer look, it becomes clear why the statistically reported drifting apart of assets was stopped at all: because the prices for real estate have risen sharply in the past ten years, those who have houses or apartments have become significantly richer - and in the They usually belong to the upper middle class anyway. This has meant that the distribution between the middle class and the rich has not become more unequal. However, this only applies in a comparison between those who have any significant assets and houses.

In such measurements, only those who have little or no (net) wealth are statistically excluded - which is around 40 percent of all households in Germany. If you take the entire distance between above and below as a yardstick to better capture the true relationships, the drama becomes clear: The distance between the richest ten percent and the entire lower half of the population, who have saved next to nothing, has been since the end in the nineties increased on average from 50 to 100 times. A trend that is difficult to sustain socially in the long run - people obviously don't feel that wrong.

This is more than just a statistic: while those who have houses get richer for the most part without any benefits, others have to spend an increasing proportion of their income on paying rent, so they have less to spare.

With lower incomes, 40 percent of the available money is now used for this.

If that is not a socially delicate drifting apart of the circumstances.

Frightening finding

You have to bring a lot of creative interpretation with you to see from all of this that the situation in Germany is seriously easing. Of course, social budgets in Germany provide more balance than in the USA or Great Britain, for example. And of course, thanks to the upswing, inequality has decreased somewhat here and there in recent years. To interpret from this that the problem does not exist is nevertheless negligent. If so little inequality has been reduced in such a long crisis-free period as between 2010 and 2020 at the latest, something seems to be wrong with the promise that prosperity will ultimately reach everyone.

Then the finding is rather frightening. What if the next crisis comes? And is unemployment really rising? And the industry is also laying off people? And right off the bat, there is nothing that could reverse the trend as wealth drifts apart - if only because inheritance tends to reinforce it when the lower 50 percent have nothing to inherit? Experience has shown that the big boosts in the wealth gap come during troubled times. Such a democracy will find it difficult to endure in the long run.

Then it could turn out to be a drama that in the supposedly good years it was not possible to reduce the division.

And there were too many who tried to downplay the problem by saying that here and there something got a little better.

Then much more fundamental changes are needed to bring (some) wealth to those who, with their current incomes, would hardly ever manage to have anything left at the end of the month.

That's something that could be argued about in the election campaign.

Source: spiegel

All business articles on 2021-05-09

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