Income and Wealth inequality after the financial crisis the case of Germany

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1 Income and Wealth inequality after the financial crisis the case of Germany Dr. Markus M. Grabka & Christian Westermeier (SOEP/DIW Berlin/FU Berlin) 4th SEEK Conference - Public Finance and Income Distribution in Europe 16. May 2014, ZEW Mannheim

2 1 Motivation Rising income inequality in economic research & the public Capital in the Twenty-First Century (Piketty 2013/14) Growing unequal (OECD 2008) Divided we stand (OECD 2011) Inequality and the Great recession (2008/2009) The Great Recession and the Distribution of Household Income (Jenkins, Brandolini, Micklewright and Nolan 2013) rather modest effects in Europe up to 2010 The Asset Price Meltdown and the Wealth of the Middle Class (Wolff 2012) median net worth cut in half Income Wealth and Debt and the Great Recession (Smeeding 2012) median income drop by 10% Germany??? 2

3 1 Motivation Change in Gross domestic product in Germany ,0 5,0 4,0 3,0 2,0 change in % 1,0 0,0 1,0 2,0 0,9 0,4 1,0 0,4 3,0 4,0 5,0 6,0 5, Source: Federal Statistical Office 2014

4 2 Data Socio-economic Panel (SOEP) Large panel survey 2012: > adult respondents started in 1984 (annually) content: all relevant life domains & subjective assessments consistent time series information about income Income concept Following the recommendations by Canberra Group Annual income as of previous year including imputed rents Inflation-adjusted (2005=100) Equivalence scale: modified OECD Population: persons living in private households 4

5 5 Income levels & inequality Post-Government income

6 3 Income levels & inequality Real Post-Government income - Germany KB-u Mittelwert KB-o KB-u Median KB-o Mean 6 Source: SOEPv29, persons living in private households

7 3 Income levels & inequality Change in Post-Government income by deciles Germany (1999=100) 20,0 15,0 10,0 5,0 0,0-5,0-10,0-15, ,0 7 Source: SOEPv29, persons living in private households

10 3 Income levels & inequality Gini of Post-Government income Germany ,310 0,300 0,290 0,280 0,270 0,260 0,250 0,240 Gini Trend confirmed by the Mean-log deviation (MLD) 10 Quelle: SOEPv29, Personen in Privathaushalten

11 3 Income levels & inequality International comparison selected OECD countries 11 Quelle: OECD 2013

12 3 Income levels & inequality Poverty risk rate Germany using SOEP and Microcensus 16,0 15,0 Poverty risk rate in % 14,0 13,0 12,0 11, : 2 million unemployed 10,0 9,0 SOEP-u SOEP SOEP-o MZ Poverty risk: < 60% of median equivalized post-government income 12 Source: SOEPv29, Federal Statistical Office (Microcensus - MZ)

13 3 Income levels & inequality Gini of capital income Germany ,920 0,900 0,880 0,860 0,840 0,820 0,800 0,780 Gini-u Gini Gini-o 13 Source: SOEPv29, including income from renting and leasing

14 3 Income levels & inequality Relative contribution of labour and capital income to market income inequality (Gini coefficient) Labour income 0,945 0,940 0,935 0,930 0,925 0,920 0,915 0,910 0,905 0,900 0,895 0, eqdef Labour income kqdef Capital income 0,090 0,080 0,070 0,060 0,050 0,040 0,030 0,020 0,010 0,000 Capital income 14 Source: SOEPv29, including income from renting and leasing

15 3 Income levels and inequality Capital Test income as a share of market income (in %) Source: SOEPv29, including income from renting and leasing

16 Wealth inequality Thanks to the Hans-Böckler-foundation Research project: Vermögen in Deutschland Status quo-analysen und Perspektiven (Projekt-Nr: S ) 16

17 4 Wealth inequality Socio-economic Panel (SOEP) Individual Wealth information collected 2002, 2007 and 2012 Wealth of German population 17 years or older Limitation: undercoverage of multi-millionaires Wealth components Property (at home and abroad) Financial assets (savings, stocks, funds, private pensions, etc.) Business assets Valuables (gold, jewelry, art, etc.) Mortgages Consumer credits Not considered Without household goods and vehicles Without cash Without entitlements to private health insurance Without entitlements to public pension schemes (GRV, etc.) 17

18 4 Wealth inequality Individual net worth selected percentiles in Euro % net worth < 0 20% with net worth = No significant changes since 2002/ Source: SOEPv29, individual wealth information of adults in private households

19 4 Wealth inequality International comparison Gini-coefficient Gini 1,00 0,90 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,00 19 Source: Peter Mooslechner (2013) / * Wolff (2013)

20 4 Wealth inequality Wealth portfolio mean for each wealth component In Euro in red: significant changes between 2002/ Source: SOEPv29, individual wealth information of adults in private households

21 4 Wealth inequality Share of individuals holding consumer credits by net worth deciles (in %) 80,0 70,0 60,0 50, ,0 30,0 20,0 10,0 0,0 1. Decile Decile Net worth deciles Total population 2002: 11.7% % 21 Source: SOEPv29, individual wealth information of adults in private households

22 4 Wealth inequality Net worth by social rank 2012 in apprenticeship unemployed unskilled worker trained or skilled worker not working civil servant lower, middle level highly skilled employee pensioners civil servant upper, executive level self-employed without employees employee with extensive managerial duties self-employed with 1-9 employees self-employed with 10 or more employees 18 Significant decrease compared to % with a net worth of 0 (2012) In 1,000 Euro 22 Quelle: SOEPv29, individuelle Vermögen der Erwachsenen in Privathaushalten

23 23 Undercoverage of top wealth individuals

24 5 Undercoverage of top-wealth individuals Net worth millionaires in Germany in Tsd Source: World Wealth Report , Merryl Lynch, Capgemini

25 5 Undercoverage of top-wealth individuals Net worth millionaires in Germany % in Tsd Source: World Wealth Report , Merryl Lynch, Capgemini

26 6 Summary Income Inequality Strong increase until 2005 Since then stagnation, poverty still increasing Relevance of capital income decreased Wealth inequality Remains at high level Increasing share of individuals with consumer credits (negative net worth) Limitations Very rich not covered by SOEP Causes Increasing public debt (economic stimulus plans) Short-time work / working time accounts Quick restart of exports Further research Only modest effects in the short term Long term effects? (increasing taxes, low interest rates, ) 26

27 Thank you for your attention. DIW Berlin Deutsches Institut für Wirtschaftsforschung e.v. Mohrenstraße 58, Berlin Editor Dr. Markus M. Grabka

28 A Aggregate gross financial assets Gross financial assets of privates households Financial crisis (10/2007-1/2009) Decrease by -210 billion Euro (-4.7%) 4500 in billion Euro Source: German Bundesbank

29 A Wealth taxes Wealth related taxes as a percent of GDP, Source: Schratzenstaller (2011: 30)

30 A National income Labour compensation, business and capital income (1991=100) Labour compensation Business and capital income 30 Source: Federal Statistical Office

31 A Income inequality Inequality of annual labour income Gini- and MLD-coefficient 0,540 0,520 0,500 0,480 0,460 0,440 0,420 0,400 0,380 0,360 0,340 0, MLD Gini 31 Source: SOEPv28, persons in private households

32 A Wealth portfolio Share of persons holding a wealth component 2012 (in %) 60,0 50,0 40,0 30,0 20,0 10,0 * + + * 0,0 * = signifikante Veränderung gegenüber = in 2002 nicht eigenständig erhoben 32 Source: SOEPv29, individuelle Vermögen der Erwachsenen in Privathaushalten

33 7 Wealth portfolio Share of persons holding a wealth component by region 2012 (in %) 60,0 50,0 40,0 * * West Ost 30,0 20,0 * * 10,0 0,0 * = signifikante Veränderung gegenüber Source: SOEPv29, individuelle Vermögen der Erwachsenen in Privathaushalten

34 A Wealth inequality Net worth (US-Dollar) millionaires 2011 Zahl der Millionäre ,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 Millionäre pro Einwohner Millionäre in Tsd. pro Einwohner 34 Source: World Wealth Report , Merryl Lynch, Capgemini

35 A Wealth inequaliyt Net worth (US-Dollar) millionaires 2011 Zahl der Millionäre ,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 Millionäre pro Einwohner Millionäre in Tsd. pro Einwohner 35 Source: World Wealth Report , Merryl Lynch, Capgemini

36 A Income levels and inequality Share of working-poor in Germany Anteil in % ,5 Mio. seit Niedriglohnbeschäftigte 2nd highest share of working poor in Europe after Lithuania (IAB 2013) 36 Source: IAQ 2014 based on SOEPv29

37 A Net worth in East and West Germany Individual net worth selected percentiles In Euro West Ost Soruce: SOEPv29, individual wealth information, persons in private households

38 A Wealth inequality Abgleich mit der sektoralen Vermögensbilanz DESTATIS SOEP Erfassungsgrad in % Vermögensbilanz (in Mrd. Euro) Aktiva ,1 74,1 65,4 Nutztiere und Nutzpflanzungen 3 5 / Ausrüstungen Bauten + Bauland ,2 93,6 82,1 Bauten Wohnbauten Nichtwohnbauten Bauland Immaterielle Anlagegüter Geldvermögen ,4 37,7 32,9 Bargeld, Einlagen, Wertpapiere ,8 30,8 31,3 Ansprüche gegenüber Versicherungen, aus Pensionsrückstellungen sowie sonstige Forderungen ,3 93,6 68,2 Kredite und sonstige Verbindlichkeiten ,5 75,1 73,2 Wohnungsbaukredite ,5 91,7 Konsumentenkredite ,8 82,7 Gewerbliche Kredite und sonstige Verbindlichkeiten Reinvermögen ,3 73,9 64,2 Gebrauchsvermögen privater Haushalte Reinvermögen einschließlich Gebrauchsvermögen Quelle: Statistisches Bundesamt (2013) Angaben zum Jahresende, SOEPv29, Angaben vorwiegend ersten Halbjahr 38 Private Haushalte und Private Organisationen ohne Erwerbszweck / SOEP nur private Haushalte

39 A Wealth inequality Test Quelle: Möbert, Peter und Lechner (2014) 39

40 3 Income levels and inequality Labour compensation (nominal in billion Euro) Test Source: Federal Statistical Office 2014

41 A Income levels and inequality Thomas Test Piketty r > g (returns > growth) Piketty behauptet, dass das liberale Aufstiegsversprechen eine Illusion ist, weil die oberen Zehntausend längst Gipfel erklommen haben, die anderen unerreichbar bleiben; dass es sich beim meritokratischen Prinzip ( Leistung lohnt sich ) um eine Leerformel handelt, weil sich die Leistungslosigkeit der Erbengeneration mehr lohnt. (Dieter Schnaas, Wirtschaftswoche , S. 20) 41

42 A Unemployment in Germany Source: Bundesagentur für Arbeit