New study from DIW sheds light on low-wage sector developments and persistent income inequality
- From Xhulia Likaj
- Reading duration 2 min
In a recent annual study conducted by the German Institute for Economic Research (DIW Berlin), it was revealed that Germany's low-wage sector has reached an all-time low, yet the country continues to grapple with persistent income inequality.
The report, based on data from the Socio-Economic Panel (SOEP), highlights a substantial real increase in gross hourly wages and household net incomes since 1995. Over this period, gross hourly wages surged by an average of 16.5 per cent in inflation-adjusted terms. Notably, the lowest wage decile experienced a sharp rise since 2013, resulting in a significant contraction of the low-wage sector, with a threshold of 13 Euros per hour in 2021.
The author of the study explains that the share of employees in the low-wage sector has fallen to the lowest level in the last 25 years; some of the contributing factors include the introduction and gradual increases in the minimum wage, as well as a shift in union wage policies focusing more on minimum payments for lower-wage groups.
While household net incomes saw an overall increase of about one-third until 2020, the study notes a concerning trend of rising income inequality. Higher incomes have disproportionately increased, causing a long-term uptrend in income disparity. High disparities persist among different income deciles. While the lowest wage decile has seen the smallest increase at around six per cent since 1995, the top four deciles experienced a substantial 20 per cent surge. Recent years, however, have shown a decrease in wage inequality, reminiscent of levels seen in the early 2000s.
Despite these improvements, approximately one in six people in Germany still grapple with low incomes. The author recommends policy interventions for better and faster labor market integration of immigrants and targeted qualification of young adults without vocational training. At the same time, the introduction of child basic income could be a useful tool for addressing the persistently high child poverty rate.