The Challenge

Inequality in advanced countries, such as Germany, has reached levels of 100 years ago.

 

There is growing evidence that wealth and income inequality has risen dramatically in nearly all advanced economies over the past four decades. In the US, the share of total income earned by the top 1% of households was less than 10% in the late 1970s but exceeded 20% as of the end of 2014 (Piketty et al., 2017). Britain’s richest ten percent of households’ income share rose from less than 6% in the late 1970s to nearly 14% in the mid-2010s (Alvaredo et al, 2018). Even in Germany a country considered to be more equal, there is increasing evidence that inequality has risen substantially. Berlin economist Charlotte Bartels has estimated that the share of total income of the top 10% of households has risen from less than 30% in the late 1960s to more than 40% today (Bartels, 2019). Germany has thus reached a level of income inequality comparable to the level of 100 years ago. This can also be observed in the evolution of the Gini-coefficient, a measure of overall inequality across the population, which has risen from 0.25 in 1991 to 0.3 in 2016 (Spannagel and Molitor, 2019). Even though Germany has benefitted from ten years of prolonged economic growth with real incomes rising for a majority of the population, income inequality has not decreased since the start of the latest economic growth period in 2009 (Grabka et al., 2019).

Wealth inequality is more difficult to measure since a significant share of wealth of the richest households is held in tax havens, and important assets (bonds) are often measured at their face value. Recent research that is attempting to overcome these difficulties has found that wealth inequality has surged over the last four decades. In the US, the top 0.1% of households, have seen their share of total wealth increase from 7% in 1978 to 22% in 2012. Today’s wealth concentration is thereby almost as high as in 1929, the year when the stock market crash on Wall Street put an abrupt end to the Roaring Twenties and marked the beginning of the Great Depression (Saez and Zucman, 2016). Germany seems to be no exception. After a reduction of wealth concentration between World War I and the 1950s, wealth inequality has been increasing since the 1990s (Albers et al., 2020). Today, Germany’s wealth concentration seems to be staggeringly high, with the top 1% of wealthiest households owning 24% of total net national wealth. With 61 thousand Euros, Germany’s median household net wealth is among the lowest in the European Union, just about the same level as those of Poland and Greece (IMF, 2019).

After decades of rising inequality the gap between the rich and the poor has apparently reached highly critical levels for many societies. According to the Forsa poll commissioned by the Forum New Economy about 80% of Germans agreed that inequality has reached levels such that it seriously endangers social cohesion. Only a third said that they think that the very rich generally merit their wealth. Both results seem to reflect a deep crisis of credibility in the economic and political system as it works.

Read Part 2: Reducing Inequality: What went wrong?

Read Part 3: Reducing Inequality: New Economy in Progress

Read our study on the state of Inequality in Germany: Inequality of What?

Read our study on the state of Inequality in Germany: Literature Review

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