picture: iStock

Income and Wealth

picture: iStock

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

In Germany the development of income and wealth inequality is the subject of considerable and often heated debate. In fact, although the inequality of disposable household incomes is greater today than at the beginning of the 1990s, it has not changed significantly since 2005. By international standards, it remains low.

Over the past three decades, technological progress has increasingly led companies to look for more highly qualified employees - with correspondingly higher salaries. At the same time, the low-skilled face increasing competition from workers from abroad, while new technologies are performing more and more of their tasks. Because of these and other trends, the income gap in Germany - as in all industrialized nations – began to widen in the 1990s, a trend which continued until the mid-2000s. In contrast to most other countries, however, Germany has recently been able to slow the income drift and fix it at the 2005 level. A strong economy and an unprecedented reduction in unemployment have improved the living conditions of millions of people and stabilized income levels.

Moreover, in Germany there is more state intervention in the distribution of income than in many other countries, so that inequality here is comparatively low. Though the redistributive effects are complicated in detail, the result is clear: as market income rises, welfare benefits shrink, while the tax burden continues to grow. Conversely, the less people earn, the more payments they receive from the state. The stronger shoulders thus bear a higher burden.

However, not all income differences are eliminated by state redistribution: for example, the top ten percent of earners receive slightly more than 30 percent of all income. By contrast, the richest ten percent of the population own around 60 percent of total assets, meaning that wealth is distributed more unequally than disposable income. However, the upper class is not quite as remote from the rest of society as the figures suggest: a large proportion of their assets are tied up in businesses that create jobs and provide livelihoods for many millions of people.

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Martin Beznoska

Dr. Martin Beznoska

Senior Economist for Financial Policy and Tax Policy

Tel+49 221 4981-736

Mailbeznoska@iwkoeln.de

@mbeznoska

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Judith Niehues

Dr. Judith Niehues

Leiterin der Forschungsgruppe Mikrodaten und Methodenentwicklung

Tel+49 221 4981-768

Mailniehues@iwkoeln.de

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Christoph Schröder

Christoph Schröder

Senior Researcher for Income Policy, Wages and Working Time Policy

Tel+49 221 4981-773

Mailschroeder.christoph@iwkoeln.de

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Maximilian Stockhausen

Dr. Maximilian Stockhausen

Economist for Income and Wealth Distribution

Tel+49 221 4981-862

Mailstockhausen@iwkoeln.de

@StockhausenEcon

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