IW Distribution Report 2024: Current trends and challenges for distribution policy

Income analyses based on household survey data indicate that the effects of the high inflation rates have not been fully compensated for when looking at disposable income either. While there were noticeable increases in real net equivalent incomes in the 2010s, they have fallen slightly in recent years. According to the EU-SILC, real median income fell by 4.4 percent between 2020 and 2022, while in the Mikrozensus it fell by 3.6 percent between 2021 and 2023. Although the state has cushioned the financial burden on households through increased transfer payments and extensive relief packages, the effects of the crisis are also reflected in households' perceptions. While more than half of respondents in a survey in summer 2020 stated that they were getting along very well or well with their household income, only just under 38 percent of respondents in comparable surveys in 2023 and 2024 said the same.

While the low-income rate (at-risk-of-poverty rate) showed a slight upward trend in the period before the pandemic, after survey changes around 2020, the relative risk of income poverty tended to be stable if not slightly declining. The opposite was true for material deprivation indicators: while material deprivation declined noticeably in the 2010s, there was a marked increase after the pandemic, albeit still at a low level. A further breakdown of the development of the low-income rate indicates that the increase in the risk of poverty in the 2010s is largely related to the increase in (refugee) migration in recent years, as refugees – especially in the first few years in the destination country – are exposed to an increased risk of poverty. Furthermore, the unemployed, single parents and families with three or more children have a significantly higher risk of poverty. To a lesser extent, singles and children also have an above-average risk of poverty.

While the measured risk of poverty among children is higher than in the group of the elderly, with regard to subjective assessments the extent of poverty among pensioners is estimated to be significantly higher. Those who express a preference for the BSW or the AfD perceive poverty risks much more strongly than supporters of the other parties. The difference in the perception of old-age poverty risks is particularly pronounced: while over 60 percent of AfD and BSW supporters believe that at least one in three pensioners in Germany is at risk of poverty, this figure is less than 46 percent among supporters of other parties. The lowest proportion is among supporters of the FDP at just under 37 percent.

A look at the respondents' preferences for redistribution reveals that the perception of high poverty rates is not necessarily linked to a stronger desire for social redistribution. In fact, there are clear differences between the supporters of the BSW (Bündnis Sarah Wagenknecht) and the AfD: while the majority of BSW supporters would like to see an expansion of redistribution policy, among AfD supporters a very pessimistic view of the extent of poverty couples with a widespread rejection of the expansion of (flat rate) state redistribution policy.

The breaks in time series during the pandemic also make it difficult to interpret the development of income distribution. While relative income inequality largely moved sideways between 2005 and 2019, due to
methodological restrictions, the data situation is less clear from 2020 onwards. However, results based on the EU-SILC and the Mikrozensus indicate that the structure of nominal income distribution has not shifted substantially, even in the wake of the coronavirus and the energy price crisis.

Due to multi-year survey modes, the available wealth surveys were less affected by breaks in time series. Based on the available data sets with information on the wealth situation of private households, it can be seen that wealth inequality has not increased in recent years, but rather that the corresponding indicators show a slight downward trend following the financial and economic crisis. Germany is characterized by a high level of welfare state protection, (slightly) below-average income inequality compared to the rest of Europe and above-average wealth inequality – a pattern that makes it particularly similar to the Scandinavian countries.