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Income inequality in Germany on the rise: study

October 7, 2019

A study found a widening income gap between the poorest and the rich. Researchers found a slight decline in income inequality in eastern Germany compared to the west, but the large gap between the two regions persists.

Man holds money out from wallet
Image: Imago/allOver-MEV

The gap between the rich and the poor in Germany is growing, according to a study published on Monday by The Institute of Economic and Social Research (WSI), an independent academic arm of the Hans Böckler Foundation.

The findings come in contrast to the greater economic prosperity that Germany has enjoyed for the past 10 years, experts said.

WSI based its findings on data from its wide-ranging longitudinal study of German households from 1991 to 2016, focusing specifically in the 2005-2016 time frame.

The report evaluated German income inequality through the use of the Gini index, a statistical method that is also employed by the World Bank to measure inequality across the world's nations.

Read more: Can a wealth tax bridge Germany's divide between rich and poor?

Rich and very poor: Wide gap

WSI's expert Dorothee Spannagel noted that "more and more income is concentrated among the very rich," mainly due to higher income groups benefiting from increased capital and corporate income.

Additionally, tax policies of the past two decades have had an impact on income disparity. Rich households have benefited from reductions of the top tax rate or the reform of inheritance tax, while poorer households faced additional hurdles from higher indirect taxes, WSI said.

Read more: German income inequality a cause for concern as east-west divide deepens

Behind the scenes of the super-wealthy

In particular, researchers saw an increase of almost 30% in the poverty gap.

The poverty gap is the ratio by which the mean income of the poor falls below the poverty line. Typically, the poverty line is found at 50% of the median household income in the country, but WSI defined the poverty line as 60% in their study.

According to the study, the median income in Germany in 2016 sat at €20,881 ($22,900) per year, or €1,740 ($1,909) per month, after taxes were deducted. From that figure, the poor were defined in the study as individuals making €1,000 or less per month. Meanwhile, the rich were considered individuals making more than €3,500 per month or above.

East-West divide

WSI's report acknowledged that income inequality is now growing at a slower rate than it did between 2000 and 2005. "Inequality is currently growing much more slowly," Spannagel said, adding that those with permanent and steady jobs in the middle class were not greatly affected.

But the greatest polarization is found in the larger low-wage segment of the population, those making below €1,000 per month.

The study also observed the persistent and wide gap in income inequality between eastern and western Germany, but it noted that while wage disparity had a slight uptick in the west from 2015 to 2016, the opposite was true for eastern Germany.

To reverse the trend, WSI called for stronger collective bargaining, higher taxes on top incomes and increasing the country's minimum wage.

jcg/dr (EPD, dpa)

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