Wage disparity drives up inequality in Germany

A report on Thursday showed that while the gap between rich and poor has somewhat stabilized in Germany since the economic crisis, the rich and highly educated continue to gain more while the poor struggle, creating some of the biggest wealth gaps among developed countries.

Wage disparity drives up inequality in Germany
A man begs on the street in Hamburg. Photo: DPA.

From the beginning of the economic crisis in 2008 to 2011, the incomes of the ultra-rich grew while the wages of the bottom 10 percent of earners stagnated, according to a report by the Organisation for Economic Cooperation and Development (OECD) released on Thursday.

The top 10 percent of earners made on average 6.6 times as much as the bottom 10 percent, widening the gap between rich and poor further since the 1980s when the same ratio stood at 5:1 and in the 1990s when the ratio was 6:1.
The authors pointed out that Germany's wealth inequality was “more pronounced than in many other OECD countries”. The top 10 percent of wealth owners controlled nearly 60 percent of net household wealth, well above the OECD average of 50 percent.
By comparison, the lower 60 percent of the population owned just 6 percent of all household wealth.
Germany had one of the greatest disparities in terms of wealth and education, second only to the United States. Lower-educated people earned 60 percent less than people with post-secondary education and people with tertiary degrees earned 120 percent more.
Germany also had the biggest gap across OECD countries between temporary and regular workers, with temporary employees earning on average 56 percent of what people on long-term contracts earn annually.
The report noted, though, that workers did have a greater chance of entering standard work when on a temporary contract.

Throughout the OECD countries, the gap between the rich and poor in most of the world's advanced economies is at record levels and there were glaring differences between men and women.

In most of the 34 countries in the OECD, the income gap is at its highest level in three decades, with the richest 10 percent of the population earning 9.6 times the income of the poorest 10 percent.
In the 1980s this ratio stood at 7 to 1, the OECD said in a report.
The wealth gap is even larger, with the top 1 percent owning 18 percent and the 40 percent only 3 percent of household wealth in 2012.
“We have reached a tipping point. Inequality in OECD countries is at its highest since records began,” said OECD Secretary-General Angel Gurria.
As high inequality harms growth prospects, there are economic as well as social arguments for governments to try to address the issue, he said.
“By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth,” said Gurria.
The study found that the rise in inequality between 1985 and 2005 in 19 OECD countries knocked an estimated 4.7 percentage points off cumulative growth between 1990 and 2010. 
An increase in part-time and temporary work contracts as well as self-employment was seen as an important driver of increased inequality, with half of all jobs created in OECD countries between 1995 and 2013 falling into these categories.
The report also found that as inequality rose, there were significant falls in educational attainment and skills among families in lower income groups, thus implying large amounts of wasted potential and lower social mobility.
As wages for women are 15 percent less than for men, ensuring gender equality in employment is one way to reduce inequality.
Redistributive taxes and transfers is another effective option, said the OECD as it noted that existing mechanisms have been weakened in many countries. 
“To address this, policies need to ensure that wealthier individuals, but also multinational firms, pay their share of the tax burden,” said the OECD, which has been playing a key role in an international effort to crack down on tax avoidance.
It also encouraged countries to broaden access to better jobs and and encourage greater investment in education and skills throughout working life.
The report found inequality to be highest in Chile, Mexico, Turkey, the United States and Israel among OECD countries.
It was lowest in Denmark, Slovenia, Slovak Republic and Norway.

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