Can Angela Merkel keep the German economy humming and reverse dangerous income inequality?
Germans go to the polls on September 22 to elect a new Bundestag and ruling party or coalition of parties. The latest German polls show Chancellor Angela Merkel’s incumbent Christian Democratic Union (CDU) and her partner, the Christian Social Union, likely to emerge victorious. Still in question is whether these conservatives can rule alone or will need a coalition partner for a legislative majority, and if that coalition will be a grand coalition with the Social Democrats.
To date, the campaign has largely been a referendum on Merkel’s leadership since she became Germany’s chancellor in 2005. With an economy that is outperforming most others in Europe and an unemployment rate of just 5.4 percent — about half that of France’s and a fifth of Spain’s — 75 percent of Germans think the economy is doing well, according to a Pew Research Center survey conducted in March. Little wonder that economic performance under the Merkel-led government has not been a major electoral issue. With growth, joblessness, and inflation of limited concern to German voters, inequality has emerged as a sleeper campaign topic. The Social Democrats have pledged quick action on instituting a national minimum wage and higher taxes on top earners as a means of currying favor with voters.
They may be on to something. Roughly half of Germans (51 percent) think the rich-poor gap is a "very big" problem, showing far greater concern than that evidenced for public debt (37 percent), rising prices (31 percent) or a lack of employment opportunities (28 percent). And 88 percent of Germans say inequality has increased in the last five years. Possibly most significantly, a 42 percent plurality believes that the gap between the rich and the poor should be the government’s highest economic priority.
The inequality issue has salience across various demographic groups in Germany.
Women, in particular, think that the gap between the rich and the poor is a "very big" problem. One reason may be that they simply make far less money than men. Germany has the third largest gender pay gap — 22.2 percent — in Europe, exceeded only by that in Estonia and Austria, according to Eurostat. While such wage inequality can be attributed to many factors — pay practices of firms, differences in the occupations and activities that tend to be male- or female-dominated, differences in the degrees to which men and women work on a part-time basis — the effect is the same: lower pay and frustration with inequality.
As might be expected, low-income Germans (64 percent) are much more likely than high-income Germans (39 percent) to think the rich-poor gap is a major issue. But notably more than half of middle-income Germans (54 percent ) are worried about inequality.
Moreover, such concerns have created a widespread perception within Germany that the current economic system favors the wealthy. About eight-in-ten low-income Germans (81 percent) think the system is unfair. What is striking is that two-thirds of high-income Germans agree with them.
The electoral divide on inequality shows an ideological split. Less than half of Germans who self-identify with the right (47 percent), and are likely to be CDU voters, and less than half of moderate Germans (45 percent) say inequality is a "very big" problem. But 62 percent of Germans on the left, many of whom will vote for the Social Democratic Party or the Greens, think the rich-poor gap is a major concern. Moreover, while 82 percent of those on the left believe the economic system is unfair, only 71 percent of those on the right and 69 percent of moderates share such views. That’s still a big majority on all sides of the political spectrum, but it may explain why Social Democratic and Green party candidates, in particular, talk so much about social justice.
Concern about inequality is likely rooted in the country’s recent economic experience. Germans experienced wage suppression in the wake of labor market reforms a decade ago, which increased labor market flexibility and improved German competitiveness — but at the expense of workers’ earnings.
With an average compensation of 30.5 euros per hour in 2012, Germans have the lowest hourly pay package of eight northern European countries — Belgium, Denmark, France, Luxembourg, Netherlands, Finland, Sweden, and Norway — according to Eurostat, the European Commission’s statistical service. Moreover, among these countries, Germans have experienced the second slowest pay increases since 2008. While Germans’ compensation grew by 9.3 percent over that period, Danes saw a 10.5 percent increase, Belgians 13.1 percent, Finns 13.7 percent and Swedes 24.1 percent. Only the Dutch (with an 8.1 percent improvement) say their pay packet grow slower. So relative to most other comparable Europeans, the German workers have fared less well.
Germany is one of only seven European Union states out of 28 member nations that does not have a national minimum wage. Earlier this year the Christian Democratic Union, Merkel’s party, which had long opposed a minimum hourly pay, announced its support for such a wage floor, in a move that was widely interpreted as an appeal to left-leaning voters. The opposition Social Democratic Party and the Greens have jointly proposed a statutory minimum. So action on pay could be a high priority for the next government.
But frustration with inequality may also be driven by concern about disparities in wealth — such as housing, stocks, bonds and other savings — rather than income, because in Germany wealth is far more highly concentrated than is income. The top 20 percent of income earners control 12.9 times more wealth than the bottom fifth, compared with only 4.5 times the income, according to calculations by Paul De Grauwe of the London School of Economics, and Yuemei Ji of the University of Leuven. Moreover, wealth disparity in Germany is greater than in many other European nations. In France, the wealth ratio is only 7.4; in Italy 5.8.
Germans’ concern about the gap between the rich and the poor suggests inequality is likely to be on Germans’ minds when they cast their ballots September 22. While recent surveys of voters’ intentions do not indicate such worries will necessarily influence the outcome of the election, polling data suggests measures to address inequality may be high on the agenda of the new German government.