Germany's middle classes hit by cost-of-living crisis

They are many, and so far they have lived comfortable lives: Teachers, public servants, and craftspeople. The middle-income group, the middle class, is a pillar of German society that has sustained the country for many years.

There are various definitions of who exactly belongs to it, based primarily on disposable income.

According to calculations by the Institute of the German Economy (IW), this was between €1,700 to €3,100 ($1,650 - $3,000) net income per month for a single person in 2019, and €3,540 to €6,640 net household income for a couple with two children. 

The middle class provides a large chunk of Germany's tax revenue, which helps ensure that the welfare state is secure, and the middle classes generally have a relatively high level of confidence in democracy, providing a certain stability.

Many people want to be part of the middle class, to the extent that some of those who don't necessarily belong to it socioeconomically nevertheless consider themselves a part of it. Around 73% of people in Germany describe themselves as part of the middle class, according to a study by the Bertelsmann Foundation and the Organization for Economic Cooperation and Development (OECD).

Germany's middle class is slightly larger than the OECD average, alongside countries like Denmark or Slovakia.

"There is still a relatively broad middle class in Germany, to which a significant portion of the population belongs, or at least can belong if one makes an effort and is hard-working," Patrick Sachweh of the Inequality and Social Policy Research Center at the University of Bremen told DW. 

"The middle class has always also been something towards which those who do not yet belong to it aspired to," he added. "And that was a kind of integrative center of society to which people wanted to belong."

The middle class has long represented a promise of social advancement in Germany, but the good times seem to be very much over. That is particularly true for "young people, for whom it is becoming increasingly difficult to secure a place in the middle class," notes the joint study by the OECD and the Bertelsmann Foundation. According to the study, their chance of belonging to the middle-income group is on average 10 percentage points lower than in the mid-1990s.

A heterogeneous group

The middle class is also shrinking overall. The share of the middle-income group as part of the population's total income fell from 74% to 67% in Germany between 1995 and 2018.

It's a decline that mostly occurred before 2005. And if you look more closely, the shrinking of the middle class does not affect the entire group — because the middle class is far from homogeneous. There is a difference of several thousand euros a month in income between the bottom and the top.

Meanwhile, relegation or advancement into adjacent social groups has increased, though more people are moving down up. The consequence of this is that the promise of advancement is gradually being replaced by fear. This is very clearly reflected in the current crisis. Christoph Butterwegge, a researcher on poverty, said that  povertyhad long since ceased to be a phenomenon associated only with marginalized groups.

Initial figures confirm this: The Society for Consumer Research (GfK) found that Germans are expecting to earn ever-lower incomes in the future, according to a report in the daily Frankfurter Allgemeine Zeitung.

Fear and anxiety

The debtor and insolvency counseling services of the Diakonisches Werk in Cologne and the German Parity Welfare Association of North Rhine-Westphalia have also noticed that more people are worried they can no longer cope with rising prices and energy costs.

"Colleagues from the municipal utilities companies call us because they want to be trained in dealing with social crises," technical officer Martin Debener told DW. "They have to deal with people who call them in despair and are afraid."

Maike Cohrs of the debt counseling service can confirm this: "We do notice that there are many who, let's say, belong to the lower middle class, who go to work, who could actually get by quite well with their income, but who quickly get into financial trouble due to payment obligations, high rents and now high cost of living and energy prices."

The lower middle class, or, in other words, people at the lower end of the middle income scale. According to OECD figures, that included 18 million people in 2018.

Sachweh also says that those at the lower end of the middle-income scale, which the OECD says includes some 18 million people in Germany, could be hit hard by inflation and the energy crisis. "The average wealth in the lower middle class is €40,000, but many are likely to have significantly less," she said. "There aren't too many reserves to fall back on to cushion the price increases."

A study by the Institute of the German Economy has shown that energy poverty does indeed strongly affect the lower middle class. As soon as a household spends more than 10% of its net income on energy, it is considered "energy poor."

Between 2021 and May 2022, the proportion of energy-poor households in the lower middle class income bracket doubled to just under 41%. This means that a great many people without any financial reserves will find themselves in considerable difficulty if they are suddenly burdened with high energy bills.

According to Sachweh, it will be the task of policymakers not to forget these people — and to provide them with specific support.

Changing self-image

Although the middle and upper middle classes will probably be less affected by the energy crisis and inflationin the coming months, Sachweh nevertheless sees a difference compared with previous crises.

This is because the self-image of this confident and relatively well-off pillar of society could change. Until now, part of the middle class has cultivated a lifestyle that Sachweh describes as "investment in status."

This means that the idea of being able to invest disposable income to make extra income will likely take a blow, as interest rates and rising prices are making that an option for fewer and fewer people.

To cushion this, the middle class could change so that it invests in "human capital" instead of material things, says Sachweh. In other words, in education — with the hope that their children will then once again have the opportunities of prosperity, advancement, and a secure place in society.

This article was originally written in German.

While you're here: Every Tuesday, DW editors round up what is happening in German politics and society. You can sign up here for the weekly email newsletter Berlin Briefing.