Income inequality

Germany’s Deep Wealth Divide

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Germany is experiencing a widening wealth gap.
  • Why it matters

    Why it matters

    Wealth and income inequality tends to cause social tension and figures showing a bigger-than-average wealth gap in Germany could stir controversy.

  • Facts

    Facts

    • Germans in the top 10 percent wealth bracket own almost eight times more than the median — that compares with a euro zone average of just five times.
    • The richest 10 percent still own more than 60 percent of total net assets in Germany, while the poorest 50 percent own just 2.5 percent.
    • The study said Germans were very conservative in their investments, with only 10 percent of households owning shares, down one percentage point from 2010.
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    Audio

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Germany has greater wealth inequality than other European countries, according to a study released by the German central bank, the Bundesbank, on Monday.

People with assets of at least €486,000, or $547,000, after subtracting debt belong to the richest 10 percent of households, the Bundesbank said. That’s almost eight times as much as the median net asset total for households of just over €60,000, according to 2014 data.

That’s a significantly higher wealth gap than the euro zone average for 2010, when the assets of the top 10 percent of households were just 5 times greater than the median.

Net assets are calculated by adding the value of financial and physical assets such as real estate or vehicles and subtracting debt.

“Wealth remains relatively unequally distributed compared with other countries in the euro zone,” the Bundesbank said in the study, which was based on a survey of some 5,000 households.

“One should stop desperately trying to unsettle a society that isn’t unsettled. That could also help boost confidence regarding the integration of refugees.”

Miachel Hüther, IW Directror

However, the figures showed there hasn’t been a significant widening of the wealth gap since 2010 when the previous study was conducted. The richest 10 percent still own more than 60 percent of total net assets, while the lower half of households own just 2.5 percent.

Intriguingly, the median wealth of a German household at €60,400 is less than half that of an Italian household at €138,000. That’s mainly because of a higher proportion of home ownership in Italy.

Germany’s net median wealth has increased relatively strongly since 2010, by €9,000 or 17 percent, the Bundesbank said. Average net wealth increased by just under €20,000 or 10 percent to €214,500 between 2010 and 2014. Median household assets are significantly less than average because the assets are relatively strongly concentrated.

The study said Germans were very conservative in their investments, with only 10 percent of households owning shares, down one percentage point from 2010.

Meanwhile, there’s a debate raging between Germany’s leading economic research institutes about whether income inequality is growing in Germany, and what impact that may be having.

The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, said the income gap was widening and damaging economic growth. He based his conclusions on a study by the Organisation for Economic Co-operation and Development released last year.

However, the Cologne Institute for Economic Research, funded by private sector business associations and companies, has criticized the methodology used by the OECD and decided to apply different methods of statistical analysis.

That led the IW to a different interpretation, namely that increasing wage inequality only hurts growth in poor countries and in countries with very strong inequality. For industrial nations like Germany with moderate inequality, widening wage gaps tended to boost economic growth, the IW said.

IW Director Michael Hüther said that despite the increase in inequality, people’s economic worries had hardly ever been smaller than they are now.

“One should stop desperately trying to unsettle a society that isn’t unsettled,” Mr. Hüther said. “That could also help boost confidence regarding the integration of refugees.”

He was referring to public concerns that the influx of more than 1 million refugees to Germany since early 2015 could place an excessive burden on the country.

The heads of two other think tanks also attacked the OECD’s study on Monday. Christoph Schmidt, director of the RWI institute, and Clemens Fuest, who is soon to become head of the Munich-based Ifo institute, wrote a joint guest editorial for Handelsblatt questioning the OECD’s conclusions.

“The study pretends that inequality and growth in emerging markets interact in exactly the same way as in highly developed welfare states,” they wrote.

But the OECD got backing from the trade union-funded Hans Böckler Foundation, which referred to a study by the International Monetary Fund that came to similar conclusions as the OECD.

Mr. Schmidt and Mr. Fuest said the OECD and IMF studies contradicted each other in some areas. The IMF argues that runaway top-level incomes are the main problem, while the OECD points to the impoverishment of lower-income groups and the resulting decline in education opportunities.

However, despite the disagreements, the economists concur on what policies are needed. They all call for higher investment in education and are opposed to more income redistribution.

The author of the OECD study, Federico Cingano, said his paper had gone through the OECD’s usual rigorous checks and that the “results today are as relevant as when they were first published.”

 

Norbert Häring is Handelsblatt’s economics editor. Jan Mallien covers monetary policy. To contact the authors: haering@handelsblatt.com and mallien@handelsblatt.com

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