Middle Class Demise
March 9, 2008
Forbes magazine ranked 87-year-old Karl Albrecht, owner of the Aldi discounter chain, as number 10 of the world's richest people. His wealth has been estimated at $27 billion (17.7 billion euros).
Albrecht has built his empire on providing food and clothing at knock-down prices to a chain of stores across Europe. But he might soon be losing most of his middle-income customers in Germany as the country counts the cost of income inequality.
Joachim Frick from the DIW Research Institute blamed the Hartz IV social benefit cutbacks and other social reforms introduced under former Chancellor Gerhard Schröder as the main culprit.
"Long-term unemployment and more flexible and temporary working patterns have had an negative effect on the middle classes," said Frick.
Gap between rich and poor widening
The German middle class is shrinking at an alarming rate according to a DIW report, presenting a challenge to Europe's largest economy.
The Berlin-based DIW research institute said the sharpest fall has been recorded in the number of "average earners" -- that's the group with an income of between 90 percent and 110 percent of the median income -- who saw their income drop five percent. The median income has been set at 16,200 euros, according to equivalized disposable income, and those under 11,340 euro are considered as living in poverty.
In 1992, more than 49 million belonged to the middle class and this figure, representing 62 percent of Germany's total population, remained constant until the end of the 20th century.
By 2006, the number of people in the middle class, dropped to 54 percent, or 44 million people, according to the study by the DIW research institute.
DIW said the rich have become richer and the poor not only poorer but have also gained in size.
"There is a bigger concentration on both ends of the scale," the research institute said in a statement.
"The incomes of those in the upper half of society grew faster than those in the lower half, which means that inequalities on the income scale grew," it said.
Traditional families hard hit
Flexible labor patterns are also taking their toll: temporary jobs, part-time work, those self-employed who are dependent on one employer and so-called "one-euro jobs" for those receiving social security benefits.
The study said that more than 11 percent had managed to move up to the upper income bracket. At the other end of the scale, people on lower incomes -- those with 70 percent less than the median -- have increased significantly since 2000 to 25 percent of the German population.
One of the main casualties have been traditional families.The decline in the number of middle income families with children under the age of 16 has fallen by three million in 2006. But also one million people living in multi-generational households have seen their income fall into lower income bracket.
Economic upswing faltering
Germany has emerged from a period of stagnation to experience a mini-economic miracle over the last two years, largely thanks to stronger exports. But a stronger euro, coupled with rising labor costs and energy prices have dented the economic upswing.
The German government has lowered its 2008 growth forecast for the third time in less than a year to 1.7 percent from 2 percent. Economy Minister Michael Glos said the revision amounted to an appeal to avoid excessive wage accords.
Corporate profits from 2002-2006 have increased by roughly a third, however, compared to workers' salaries according to the Federal Statistics Office.
The Macroeconomic Policy Institute (IMK) said real take-home pay had declined 3.5 per cent for salaried employees since the upswing began in the last quarter of 2004.
The Federal Statistical Office (Destatis) in a recent study said that just under 13 percent of the population in Germany were at risk of poverty. According to the EU definition, the at-risk-of-poverty rate is the share of persons having to manage on less than 60 percent of their mean income of the entire population.
That's nearly 11 million, including 1.7 million children. That's less than most of the EU's 27 member countries with only Scandanavian countries achieving better results. Portugal and Greece are bottom of the poverty league table.