Berlin Germany is an unequal country. The rich keep getting richer. The gap between rich and poor is widening. There have been headlines like this for years, and the left-wing political camp in particular has long considered the alleged increase in inequality to be a danger. However, the debate has one blemish: due to a lack of data, it is often only possible to estimate how unfair things are in the country.
That is now changing. A new study by the Munich Ifo Institute, the Institute for Labor Market and Vocational Research, the Heilbronn University of Applied Sciences and the Universities of Boston and Zurich makes it possible for the first time to analyze inequality across the entire income distribution by combining tax and social security data. From mini-jobbers to employees to Dax bosses – everyone is included in the expertise, including the super-rich, whose incomes are often non-transparent, explains Ifo researcher Andreas Peichl.
In essence, the analysis confirms what other studies have previously discovered: the inequality of gross income in Germany has increased significantly since the beginning of the new millennium up to the financial crisis of 2008. “Even after the financial crisis, the gap widened further, albeit much less,” says Peichl.
However, the Ifo study not only underpins previous assumptions. It also brings many new details to light that have not previously existed in Germany.
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The increased wage inequality is not due to a spread in the incomes of employees, but is due to other types of income. The study also enables a comparison of the development of wage differences between women and men to coincide with Equal Pay Day this Monday.
Here are the core results of the large inequality study:
- Lower income with loss of income: The bottom 50 percent of the income distribution suffered real income losses between 2011 and 2016. A salaried man who is exactly in the middle of the income distribution earned 44,979 euros in 2001, in 2016 it was 44,865 euros. The bottom ten and 25 percent had to accept significantly higher real income losses of up to 20 percent.
- Top earners with high income gains: In contrast, the top 25 percent of the income distribution increased their earnings significantly. The top one percent was able to increase their income by around 30 percent and the top 0.01 percent by almost 50 percent (both men, see chart).
- Rich landlords and self-employed: The higher inequality does not result from a greater income spread of wage income, but above all from higher incomes of the self-employed, tradespeople and landlords. While the average income of all employees increased by five percent between 2001 and 2016, the average income of entrepreneurs rose by 25 percent, and even by around 45 percent at peak times. Landlords at the top recorded equally high increases in income.
- Once rich, always rich: Anyone who is among the 0.1 percent of the top earners in Germany has a probability of around 68 percent to remain in this income league in the future. In 2001, the probability was even lower at 57 percent.
- Women are catching up: The wages of women and men are slowly converging. The gap has narrowed from 39.1 percent in 2001 to 37.5 percent in 2016. If one takes into account additional income from rentals, from self-employment or from holdings in companies, the gap becomes larger: it grows from 39.6 to 40.6 percent in the same period.
- Top earners are catching up in particular: In the top earners in particular, women have been able to reduce the lead over men to “only” three times as much. The reason: there are now significantly more women in executive floors shows: The probability that a woman will end up in a top position with a very high salary is still relatively low.
The new study is based on data from the Taxpayer Panel (TPP) and social security data from the Institute for Labor Market and Occupational Research (IAB), which the researchers combined. Although the study has extremely good data, it also has a flaw: the data only goes back to 2016, there are simply no more recent ones.
“The data situation in Germany is just catastrophic,” says Ifo researcher Peichl. In many other countries, researchers would have access to new data. “Many political measures are carried out blindly in this country because they cannot be evaluated at all. Or political decisions are made on a basis of data that is completely shaky because it is outdated,” says Peichl.
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For inequality, this means that new developments such as the minimum wage introduced in 2015 or the sharp rise in real estate prices are hardly or not at all taken into account in the study.
However, Peichl has a guess as to how inequality has developed over the past five years. The minimum wage is likely to have dampened the income spread. “However, inequality is likely to have increased further due to the sharp increase in corporate profits and in particular real estate prices.”
More: Income Calculator – How Rich Are You?