Higher income earners benefit, especially after the pandemic

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DIW on Income Distribution
Higher income earners benefit, especially after the pandemic

For a short time, high incomes in Germany grow more slowly than low incomes. The German Institute for Economic Research is now indicating a trend reversal. Accordingly, income inequality increases again. This is partly due to the post-pandemic economic recovery.

According to a study, the trend of reducing income inequality in Germany that began in 2020 has stalled. As in 2022, higher incomes are likely to increase in the current year, according to a model calculation recently published by the German Institute for Economic Research (DIW). ).

The Berlin researchers concluded that “generally, labor income inequality may have increased slightly in the context of the economic recovery after the pandemic and will increase somewhat this year.” This is likely to increase the impact of the energy crisis, which primarily affects poor households.

According to the information, total nominal wages and salaries have increased since 2010, especially among the bottom 40 percent: here, total labor income grew by about 40 percent from 2010 to 2020, while middle-income groups recorded an increase of 25 percent. cent and the highest earner at 19 per cent.

This year, on the other hand, the bottom 40 percent are likely to post an increase of 2.55 percent, while the top 10 will increase by 2.81 percent. The picture was indeed similar in 2022: at the lowest income distribution, the increase of 5.96 percent was lower than that of the highest at 6.85 percent. Last year’s high inflation “led to a real decline in low incomes, while those with higher incomes are likely to have benefited from small increases in real income.”

When it comes to the distribution of wealth, things are even worse

The Gini coefficient, which measures inequality and makes it comparable, has fallen from 0.39 to 0.37 for income over the past decade. For the current year, DIW researchers now expect an increase of 0.01. The Gini coefficient ranges from 0 to 1: the higher the value, the greater the inequality. It gets even more uneven when it comes to wealth. According to the Deutsche Bundesbank, the Gini coefficient there in 2021 was 0.71. With a value of 1, one person will have all the wealth, while the rest will have nothing. It remains to be seen how the value has changed over the course of the energy crisis.

The DIW uses a variety of existing data as a basis for estimating and projecting the distribution of employment income, from the evolution of GDP to the proportion of people in short-time work to the socioeconomic group—a representative survey of the private sector. families in Germany. The new forecasting model therefore allows data to be made about the current level of inequality in the monthly gross income of dependent employees. Computationally relevant data are usually only available with a delay of more than two years, which is why previous studies mostly head into the past.

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