Germany's Middle Class: The Broken Promise of the Social Market Economy

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Walkers on the Elbe in Hamburg: in the backlight you can't see the differences

Photo: Christian Charisius / dpa

The numbers are sobering: the middle class has shrunk more in Germany over the past 25 years than in any other comparable industrial country in the world. The share of the middle class in the total population was still 70 percent in 1995, today it is only 64 percent. Even in the United States, where the economic decline of the white middle class is seen as one of the reasons for the rise of right-wing populists like Donald Trump, the decline in the middle class was much less pronounced. This is the result of a joint study by the industrialized countries organization OECD and the German Bertelsmann Foundation.

Among the 26 OECD members, there are only three significantly smaller countries where the middle-income group has come under even more pressure: Sweden, Finland and Luxembourg. Industrialized countries that are more comparable to Germany, such as France and Italy, performed better. Particularly noteworthy: the middle class has not only grown in states of the former Eastern Bloc such as Poland, but also in Austria, Belgium and Great Britain.

So is Germany in danger of losing its economic and social center?

The answer of the study authors to this question is different.

On the one hand, this has to do with the fact that the economy in Germany has developed very differently over the very long study period.

And it has to do with the fact that

actually a very diverse group.

The researchers define it according to the level of income of the citizens: First of all, part of the middle class is someone who can spend between 75 and 200 percent of the median disposable income.

Converted into euro values, this corresponds to around 1500 to 4000 euros for singles and 3000 to 8000 euros for couples with two children.

The scientists have divided this group into three subgroups: the "lower middle class" (75 to 100 percent), the "middle middle" (100 to 150 percent of median income) and the "upper middle" (150 to 200 percent). Those who earn more money belong to the "high incomes". Those who have less available are "low-income" (less than 50 percent) or "at risk of poverty" (50 to 75 percent).

The good news is that the shrinking of the middle class reported by the researchers took place a long time ago, in the years from 1995 to 2005 (another study recently came to this conclusion).

That was the "black decade" of the German middle class, characterized by mass unemployment and real wage losses.

At that time the chancellors were still called Helmut Kohl (CDU) and Gerhard Schröder (SPD) and Germany's economy was sometimes referred to as the "sick man of Europe".

So it's all a gray past?

The bad news is that the middle class has never recovered from these losses either.

Even after the upswing that began in 2010 and despite the job boom, their share has not grown again.

The lift (almost) only goes down

In addition to the size of the middle class, it is important how high the chances of citizens are to move up from one group to the next higher - and the risk of decline.

Scientists speak of "social mobility" or a "social lift" in this context.

In the case of Germany, there is a significant problem with this elevator: it is increasingly taking citizens down - and very few up.

The real disposable income of households in Germany rose by an average of 17 percent between 1995 and 2018.

However, these profits are distributed extremely unevenly: The top ten percent of the income distribution have 28 percent more money at their disposal.

The incomes of low-wage earners, on the other hand, have risen by just seven percent in more than two decades.

"The institutions of the social market economy are less and less able to actually keep promises of social advancement," states the Bertelsmann Foundation. The risk of economic decline is particularly high for the »lower middle«: between 2014 and 2017, 22 percent of this group slipped and were poor or at risk of poverty. At the same time, the chances of moving up from poverty to the middle class have deteriorated drastically in recent years, from 40 to 30 percentage points. "Those who drop out of the middle class have a much harder time getting up again," says Valentina Consiglio, labor market expert at the Bertelsmann Foundation.

A further complicating factor is that low-income workers are often hit harder than high-earners by economic crises.

This pattern was confirmed in the Corona recession: In the lower income groups, a particularly large number of layoffs and short-time work were affected, and the economic recovery began much later for them.

The burden of the younger ones

The study also paints a picture of a social gap that is opening up between the generations: the proportion of 18 to 29-year-olds who have made it into the middle class has fallen by ten percentage points in the past few decades. Among the so-called baby boomers who were born between 1955 and 1965, 71 percent made the leap to the middle class after starting their working life. In the case of millennials (born 1983 to 1996), however, this only applies to 61 percent.

There are also strong differences depending on the level of education: Those who do not have a high school diploma or completed training previously made it into the middle class in 61 percent of cases.

Today this value is only 40 percent.

The risk of relegation in the lower income groups could even increase in the future due to technological advances.

It is estimated that around 17 percent of middle-class employees in Germany are exposed to the risk that robots, machines or algorithms could take over their work.

In the lower income group, however, this risk is even higher at 22 percent.

Now what to do

The pressure on the (lower) middle class will therefore possibly increase. The study authors therefore propose a number of measures. Because it increasingly takes two good salaries to belong to the middle class as a couple or family, wages and job opportunities for women must be improved. In addition, a training guarantee for young people under 25 should be introduced.

Above all, however, the framework conditions for lifelong learning in Germany must be improved. One problem so far is that many families have often not been able to afford either financially or in terms of time for an earner to be absent from further training for a longer period of time. Other countries have gone further: In Austria, for example, employees can take two to twelve months of educational leave and receive unemployment benefits during that time. However, it is also important to further expand the "extremely fragmented training landscape in Germany," according to Bertelsmann expert Valentina Consiglio.

In the coalition agreement of the traffic light parties, the labor market researcher discovered some promising approaches.

For example, the SPD, the Greens and the FDP mention a training guarantee that is intended to give all young people access to training.

The planned extensive investments in digitization and infrastructure also have the potential "to become a job engine for the middle class," says Consiglio.

Others, on the other hand, are critical.

This includes raising the income limit for tax-free mini-jobs from 450 to 520 euros.

This is a "subsidy for less productive employment".

Especially for many women, mini-jobs are in truth a fatal trap because mini-jobbers hardly have any in-company training or promotion opportunities.