The middle class in Germany is falling apart. This is the result of a new study by the Organization for Economic Co-operation and Development (OECD) and the Bertelsmann Foundation. Fewer and fewer people are able to move into the higher income brackets.
The middle class has shrunk considerably in the past 25 years. This does not apply to any comparable industrialized country as much as Germany. Even in the US there has not been such a sharp decline in the middle class. On the other hand, the lower income bracket has grown significantly. Even the economic boom of the 2010s was not able to mitigate the poverty risk.
In other OECD countries, the middle class has grown
As late as 1995, the middle class accounted for 70 percent of the total population. In 2018, this percentage was only 64%. Of the 26 OECD members, only Sweden, Finland and Luxembourg came under even greater pressure on the middle class. By contrast, in the former Eastern bloc countries such as Poland, the middle class has grown. According to the OECD study, Austria, Belgium and the United Kingdom may also experience growth.
Study commentators disagree on how to assess this result. One side weighs him down and sees no problem in the results. They give many different explanations and indicate that the economy in Germany developed differently during the very long period of the investigation. In addition, the middle class is actually a diverse group. The other side sees the results of the study as a growing social polarization and a mirror image of diminishing equal opportunities in Germany.
who belong to the middle class
Scientists define this concept based on the level of income: part of the middle class is anyone who can spend between 75 and 200 percent of the median disposable income. In euros, this corresponds to around 1,500 to 4,000 euros for singles and 3,000 to 8,000 euros for couples with two children. The researchers then divided the middle class into three groups: “lower middle class” (75 to 100 percent), “middle middle class” (150 to 200 percent) and “upper middle class” (150 to 200 percent).
Those above this definition are “high income” and those below are “poor on income” (less than 50 percent) or “at risk of poverty” (50 to 75 percent).
The fact that the middle class has shrunk is mainly due to the lower middle class. A lot of people have slipped into the lower income bracket here. However, the group of the highest earners (i.e. above 8,000 EUR) also grew. These changes did not come out of nowhere, but are the result of a trend that started decades ago. The years 1995-2005 in particular were dark years for the middle class. At that time, society was characterized by massive unemployment and a loss of real wages. This added to it and led to a crash that entailed many dangers and threats.
The sick man of Europe
Under the two federal chancellors Helmut Kohl and Gerhard Schröder, the German economy was sometimes referred to as “the sick man of Europe”. In this phase, the German unemployment rate within the European Economic Union (EMU) was higher than the average. In 2005, Germany’s underemployment rate was over 11 percent, two percentage points higher than the EMU average and even higher than Greece, Spain and Portugal.
It was only in the following years that the economy in Germany revived again. However, the middle class did not shake off those years. Even the recovery and boom in the labor market in 2010 and beyond did not improve the situation. The middle class has not grown. Shrinkage is a much bigger problem than many realize. It could take revenge in the years to come.
Income polarization will increase. This is mainly due to the declining equality of opportunity. This is a very bad development when you consider the social market economy’s main promise of “prosperity for all”. The income would then no longer be determined by its own decisions, but rather by origin. This is what the social market economy was originally meant to prevent.
Income determines social participation
There are already signs that it is primarily young people who suffer from the shrinking middle class. In the 1980s and 1990s, 71 percent of those between the ages of 30 and 39 (the baby boomer generation) fell into the middle class, but today only 61 percent of that age group (Millennials) succeed. But social mobility is also low in other groups and has decreased significantly. Three out of four people who experienced poverty four years ago still live in poverty, or at least are at risk of poverty. The distribution of income and wealth is about fairness, but also about economic opportunities and, above all, about social participation.
If the middle class shrinks and more and more groups of people move into areas of poverty or have to live with the risk of poverty, it is a big problem for society. A problem that may worsen in the future.
consequences of the pandemic
The impact of the corona pandemic cannot be assessed at present. Even so, there are signs that the problem is likely to get worse. Numerous studies show that children and adolescents from low-income families in particular have suffered particularly in terms of education, health and opportunities, and continue to suffer from these deficits. In the labor market, people with precarious jobs and the self-employed are particularly at risk. The pandemic and the coming economic transformation (digitization) may be accelerators of an ever shrinking middle class.
Social polarization should be discussed more in public. Good education remains the most important guarantee of promotion. Lifelong learning cannot remain an empty phrase. Many families often cannot afford, either financially or temporarily, to be absent for an extended period by the earner for further training. Politics must work. Only in this way can we do justice to the social contract of the social market economy. The gap cannot widen.
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