Is Germany’s minimum wage really helping to reduce salary gap between rich and poor?

New figures released by the Federal Statistics Office (destatis) show that the hourly wage gap has been coming down for several years. But experts say that the picture isn’t completely rosy.

Is Germany's minimum wage really helping to reduce salary gap between rich and poor?
Photo: DPA

It is a problem that has caused anger across the western world. Top earners are receiving ever more money for their work while low-income wages are stagnating.

Statistics released this week by Destatis show that the trend in Germany is heading in the opposite direction – at least for hourly wages.

Whereas in 2014 someone classified as a top earner was taking home 3.48 times the hourly wage of a low earner, that difference dropped to 3.27 in 2018.

READ ALSO: Minimum wage to rise in 2019 but poverty persists

Put another way, the average hourly wage of a low income earner (someone in the bottom 10 percent of the wage scale) rose from €8.34 per hour to €9.71 between 2014 and 2018. At the same time, the wage of a top earner (someone in the top 10 percent) increased from €29.03 to €31.76 per hour. 

“One reason for this development is the introduction of the statutory minimum wage on January 1, 2015,” Destatis states. In 2018, the minimum wage was €8.84 and it currently stands at €9.35.

The reduction of the wage gap was particularly pronounced in eastern Germany, where the percentage of people considered low income earners dropped from 34.5 percent to 29.1 percent.

At the same time there are still roughly twice as many high earners in former West Germany as there are in the east.

Smaller change than expected

Experts have cautioned though that good news from the statistics office doesn't necessarily mean that poorer people now have more money in their pocket.

Daniel Eckert, finance editor at Die Welt, reports that companies have reduced employees’ working hours since the minimum wage was introduced, meaning that although the gap in hourly wage has narrowed, the difference in monthly income between rich and poor has not changed.

Eckert also argues that the stagnation of wages in the top sector is not necessarily a good sign, as increases here are a signal that Germany’s companies well-paying sectors such as IT are enjoying international success.

READ ALSO: How the minimum wage has 'increased productivity' in Germany

Meanwhile, the German Economic Institute (DIW) in Berlin has estimated that 2.4 million workers still take home pay under the minimum wage due to the fact that they are pressured into working unpaid overtime.

The DIW therefore says that a new law is necessary to supplement the statutory minimum wage – one that requires companies to declare the hours worked by their employees.

“If the implementation of such a law were to help convert unpaid overtime into paid overtime, non-compliance with the minimum wage would probably also decline,” the DIW states.

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Where in Germany do people have the highest disposable income?

An economic study has shown huge regional differences in income throughout Germany. So which parts of the country have the most to spend each month, and which are feeling the squeeze?

Where in Germany do people have the highest disposable income?

A study by the Economic and Social Sciences Institute (WSI) of the Hans-Böckler foundation reveals stark regional differences in disposable income in Germany. In some cases, households had as much as double the spending money of those in other parts of the country. 

Here’s where people have the most – and least – disposable income each month.

What is disposable income?

The WSI calculated disposable income as the sum of income from wealth and employment, minus social contributions, income taxes, property taxes and other direct benefits or taxes.

What’s left is the income which private households can either spend on consumer goods or save.

The study, which was based on the most recent available national accounts data for 2019, looked at the disposable income of all of the 401 counties, districts and cities across Germany.

Which regions have the highest and lowest disposable incomes?

The study found that the regions with the highest disposable incomes were in the southern states.

Heilbronn in Baden-Württemberg had the highest disposable income of all 401 German counties and independent cities – with an average per capita disposable income of €42,275. The district of Starnberg in Bayern followed in second place with €38,509.

READ ALSO: REVEALED: How much do employees really earn across Germany’s states?

By comparison, per capita incomes in the cities of Gelsenkirchen and Duisburg in North Rhine-Westphalia were less than half as high, at €17,015 and €17,741 respectively. These regions had the lowest disposable income in the country. 

The study also found that, more than thirty years since German reunification, the eastern regions continue to lag behind those in the west in terms of wages.

According to the WSI, the Potsdam-Mittelmark district is the only district in the former east where the disposable per capita income of €24,127 exceeds the national average of €23,706.

Do regional price differences balance things out?

The study also showed that regionally different price levels contribute to a certain levelling out of disposable incomes, as regions with high incomes also tend to have higher rents and other living costs.

“People then have more money in their wallets, but they cannot afford more to the same extent,” WSI scientist Toralf Pusch explained.

READ ALSO: EXPLAINED: When will Germany raise the minimum wage?

Therefore, incomes in the eastern states, adjusted for purchasing power, are generally somewhat higher than the per capita amounts would suggest.

That could explain why, even after price adjustment, the cities of Gelsenkirchen and Duisburg in western Germany continue to be at the very bottom of the list.

Saxon-Anhalt’s Halle an der Saale, on the other hand, which has an average disposable income of only €18,527, benefits from the lower prices in the east.