Income and Wealth

Income and Wealth

From the middle of the 1990s inequality in Germany seemed to be increasing inexorably. Recently, however, the income gap has closed again somewhat.

Companies are constantly on the look out for qualified employees and pay them good wages. The low skilled, on the other hand, must compete with workers from low-wage countries and with computers capable of performing ever more tasks. As a result of these trends, in the last two decades the income gap in Germany - as in all industrial nations - has widened. Unlike most other countries, however, Germany has recently managed to slow down this the income drift, and even reverse it to some degree. Economic growth and an unprecedented reduction in unemployment have improved the economic circumstances of millions.

In Germany, moreover, the state plays a more active role in income distribution than in many other countries, narrowing the gap between the extremes. However confusing the effects of redistribution may be in detail, the result is clear: As people’s market income increases, they receive less from the state while their tax burden steadily grows. Conversely, the less they earn, the more payments they receive from the state.

The bottom line, however, is still a considerable concentration of financial resources: The upper 10 per cent receive 30 per cent of total income. Wealth is even less equitably distributed, with the richest 10 per cent of the population accounting for 60 per cent of the total. This upper class is not quite as remote from the rest as these numbers suggest, though. With a large portion of their assets tied up in companies, many of the well-off are investing their money in jobs.

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As a result, when all incomes rise, but those of the rich rise by more than those of the poor, poverty increases, even though the poor have more than they had before. Poverty is also relative for another reason: somebody who is regarded as poor in one country might be considered wealthy in another.

Although the level of prosperity is higher in Germany than in most other European countries, the proportion of poor people is below the European average. The reason for this lies in state subsidies. With social assistance, a safety net for the elderly and a minimum unemployment benefit even for the long-term employed, Germany has effective instruments against material poverty.

However, upward mobility can only be achieved if those affected find a job. In Germany this is particularly difficult for single parents and immigrants. If more people are to be able to get by without public assistance, two things must happen. Firstly, it must be made easier to combine employment with bringing up a family. Secondly, joining the workforce must become a more attractive option. Low earners who continue to receive the lowest level of unemployment benefit as an income supplement should be allowed to retain more of the extra money they earn.

Daraus folgt: Wenn alle Einkommen steigen, die der Reichen jedoch stärker als die der Armen, dann nimmt die Armut zu, obwohl die Armen mehr haben als zuvor. Armut ist auch in anderer Hinsicht relativ: Jemand, der in einem Land als arm gilt, zählt in einem anderen Land womöglich zu den Wohlhabenden. Obwohl das Wohlstandsniveau in Deutschland höher liegt als in den meisten anderen Staaten Europas, liegt der Anteil der Armen unter dem europäischen Durchschnitt. Der Grund findet sich in den staatlichen Transferleistungen: Mit der Sozialhilfe, der Grundsicherung im Alter und dem Arbeitslosengeld II hat Deutschland wirksame Instrumente, um materielle Armut zu vermeiden.

Der soziale Aufstieg kann jedoch nur gelingen, wenn die Betroffenen einen Job finden. Dies fällt in Deutschland vor allem Alleinerziehenden und Migranten schwer. Damit mehr Menschen ohne staatliche Hilfe auskommen, muss sich zum einen die Vereinbarkeit von Beruf und Familie verbessern, und zum anderen muss die Aufnahme einer Beschäftigung lohnender werden. Geringverdiener, die ergänzend Arbeitslosengeld II beziehen, sollten deshalb mehr von ihrem Hinzuverdienst behalten dürfen.

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As in many other industrialised nations there is a trend in Germany towards greater income inequality. However, state intervention in income distribution is so extensive that there can be no talk of German society drifting apart.

In contrast to market-driven gross incomes, the spread of net incomes has remained almost constant in recent decades. On the one hand, the state pays out welfare benefits such as child benefit, pensions, unemployment benefit and social assistance. On the other, it collects tax and social insurance contributions – the higher the income, the more the taxman takes. Thus the top ten percent of earners shoulder more than half the burden of income tax. The bottom 20% pay virtually no income tax but draw the bulk of state subsidies.

However, increasing redistribution has an undesirable side-effect. Those with a will to work are hardly going to exert themselves if the state then robs them of their just wage. Only when hard work and superior knowledge are rewarded is there an incentive to invest in one’s own and one’s children’s education. In the end, even those with low incomes benefit when the will to work is sustained. In a growing economy the lot of the lowest earners improves even when their relative share shrinks. However, stifle motivation and the whole increase in prosperity is smaller. Those with low incomes then receive less than before although their share increases.

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In Germany wealth is highly concentrated: as a rule, the more educated people are, the more they can save. Compared with their European neighbours, Germans have very little put away for a rainy day.

According to the European Central Bank, Germans’ total wealth amounts to some 8 billion euros, approximately three times the country’s annual economic output. This wealth consists of real estate, shares, cars, works of art and, of course, money slumbering in bank accounts and under pillows. After accounting for debt, the average German citizen has assets of 95,700 euros at their disposal. A rather different conclusion is reached by lining up everyone in Germany according to the value of their possessions and then identifying the person in the middle; this so-called median value divides the population into two halves, those with more and those with less to their names. In Germany, this median citizen has 25,200 euros at their disposal - only just over a quarter of the average.

Compared with the other Eurozone states the difference between the median and the average in Germany is striking, and indicates that the wealth in this country is distributed relatively unequally. By contrast, wealth in France, Italy and Spain is more evenly spread across the population. Moreover, the wealth of the median French person is more than twice that of the median German. The main reason why Germans fare so badly in this comparison is the low level of property ownership. More than half of personal assets in the Eurozone consist of real estate, a category in which the Germans have little to offer.

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