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FINANCE

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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MONEY

Energy crisis: Which everyday German products are increasing the most in price?

Inflation in Germany reached 10.4 percent in October – the highest level in 70 years. The Federal Statistical Office has now announced which prices have risen particularly sharply.

Energy crisis: Which everyday German products are increasing the most in price?

Energy prices

Energy prices in Germany have risen significantly as a result of the Russian invasion of Ukraine and the squeeze on cheap energy supplies and high energy prices are the biggest driver of inflation.

Despite the relief measures taken by the federal government over the past year, energy prices in October were 43 percent higher than in the same month last year.

READ ALSO: KEY POINTS: Germany’s inflation relief measures to support people in cost of living crisis

According to the German Federal Statistical Office, household energy in particular has become significantly more expensive.

Prices for natural gas, for example, have more than doubled since last October – increasing by 109.8 percent.

The cost of heating with other energy sources has also risen sharply – the price of firewood, wood pellets or other solid fuels has increased by 108.1 percent since October 2021, while the price of heating oil has increased by 83 percent. Electricity prices have also increased by 26 percent.

A man fills up his car at a gas station in Duisburg. Photo: picture alliance/dpa | Christoph Reichwein

Prices for gasoline and diesel have also risen by more than 22 percent since last year. In October, an average 40-litre tank of Super E10 cost €76 – €10 more than a year ago and €26 more than in 2020. 

Groceries

According to the Federal Statistical Office’s report, private households are now paying on average 20.3 percent more for groceries than in October 2021.

The biggest price hike has been for edible fats and oils – such as butter and cooking oil – which have increased by 49.7 percent since last October.

A girl spreads butter on a slice of bread. Photo: picture alliance/dpa | Patrick Pleul

Dairy products and eggs are 28.9 percent more expensive than a year ago, while vegetables and cereal products are 23.1 and 19.8 percent more expensive respectively.

The statisticians attribute the price increases to supply bottlenecks and problems in the upstream stages of the production chain as the main reasons for these cost hikes. 

READ ALSO: Fact check: Is Germany heading into a recession next year?

Prices for meat have also risen by 19.3 percent within the last year, as the cost of energy, fertilizer and feed has risen sharply, while labour shortages and minimum wage increases have made personnel costs more expensive.

Vocabulary 

Price increases – (die) Preiserhöhungen

Wood pellets – (die) Holzpellets

Heating oil – (das) Heizöl

Dairy products – (die) Molkereiprodukte

Cereal products – (die) Getreideprodukte

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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