University of Tübingen: Everyone benefited from the upswing before Corona

The sustained upswing in the labor market after 2005 has brought financial growth to the lower income brackets in particular and has contributed to a more even distribution of income. However, these effects were counteracted by other developments, such as the increase in immigration after 2010 and the greater differentiation of society according to educational qualifications and work experience. This is shown by economists from Tübingen in a study for the federal government’s current poverty and wealth report. The accompanying studies on which the report is based have already been published on the website of the Federal Ministry of Labor and Social Affairs.

A study by researchers from the University of Tübingen and the Tübingen Institute for Applied Economic Research (IAW) for the Federal Government’s 6th Poverty and Wealth Report shows that the labor market upswing after 2005 resulted in significant income increases across wide areas of the income distribution. The upturn in employment was driven by increasing full-time employment of men and women, but to an even greater extent by increasing part-time employment of women.

This long-lasting development was only stopped by the Corona crisis. In the lower range of the distribution it led to real income increases of three to five percent, in the middle to upper range, however, only to increases of one to two percent. This is a net effect: the calculation takes into account the fact that people who would have been unemployed in the absence of the upswing would have been entitled to unemployment and basic security payments.

In addition to the positive effects of the upswing, the study shows the strong stabilizing effect of the German tax and social security system: It mitigates the consequences of economic downturns, but also the consequences of economic upswings on the available net income. “Our results show: Even if all employment gains from the upswing were reversed by the corona crisis, this would only have a limited impact on income distribution due to the strong social security system,” says Martin Biewen, Professor of Economics at the University of Tübingen and one of the authors of the study . However, this applies with restrictions, according to Biewen.

Despite the clear upswing up to the Corona crisis, the inequality of net income has changed only insignificantly – this is due to other factors, the influence of which the authors also examined. They show that the increase in immigration since 2010 and a greater differentiation in society according to educational qualifications and work experience increased inequality in and of themselves. In some cases, this development even outweighed the positive effects of the upturn in employment, but was again mitigated by individual political measures such as the introduction of the extended maternal pension or increases in child benefits.

Changes in wages or capital income and the trend towards more single-person households had no demonstrable impact on income inequality. Taken together, all of the observed developments meant that net income inequality and the at-risk-of-poverty rate were slightly higher at the height of the labor market upswing than at the beginning.

The Tübingen study is part of the federal government’s poverty and wealth report, which is published once every legislative period. The study is part of an extensive report that was written in collaboration with the Ifo Institute in Munich. The Federal Government’s Poverty and Wealth Report is based on extensive accompanying research that deals with a wide range of topics relating to income and wealth distribution and social mobility.

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