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Trickle-Up Recovery - in Germany

by DoDo Mon Mar 10th, 2008 at 07:30:52 AM EST

Ever since the German economic recovery started three years ago, there is confusion about how to spin it. Some paint it as Merkel's success, some credit the Grand Coalition. The SPD's reform wing points out that the recovery started before the elections, and credit Schröder's reforms (Agenda 2010, of which the most (in)famous element was the Harz IV labour reform). Those more committed to the Church of the Economic Faith than parties have been seeing signs that that growth will soon fizzle out, for lack of further reforms...

Meanwhile in the real world, certain disparities get noticed. Namely, that this recovery resembles that in Dubya's USA: growth for the well-off, more (crap) jobs but less income for the rest. A just released study says real income fell by 3.5%.

How a successful economy looks like, European edition.

This recovery was covered in several diaries on ET (see the new Germany Occasional Series directory). I pick out a few:

On Wednesday 5 March, the Deutsche Institut für Wirtschaftsforschung (DIW, German Institute for Economic Research, a not completely hopelessly marketista institute) released its latest [pdf!] on the development of the income distribution. It begins:

Schrumpfende Mittelschicht - Anzeichen einer dauerhaften Polarisierung der verfügbaren Einkommen?Shrinking middle class - signs of a lasting polarisation of available income?
Die Schicht der Bezieher mittlerer Einkommen ist in Deutschland in den vergangenen Jahren deutlich geschrumpft. Ihr Anteil an der gesamten Bevölkerung ging von 62 Prozent im Jahr 2000 auf 54 Prozent 2006 zurück. The segment of those with medium income in Germany shrank significantly over the past years. Their share in the entire population fell back from 62% in the year 2000 to 54% in 2006.

For this study, the medium income group (in terms less scared of Marx, middle class) is defined as people with income between 70% and 150% of the median.

The following diagram shows the development of the arithmetic mean (higher) and median (lower) real income. It's rather clear that for the majority, real income continued to fall even during the 2005-6 German recovery:

The next diagram shows the development of the ratio of median and mean separately for East (higher) and West (lower). East Germany is still more egalitarian, but the downwards trend is the same.

To get a better picture of the distribution, DIW didn't look at quintiles or deciles, but the population share of people in certain income segments relative to the median (see key at bottom). The share of the poorest (below 50% of the median; in black) is steadily growing, and so does that of the richest (more than 200% of the median; in white).

What about social mobility?

DIW evaluated movements from and to low (up to 70% of median), medium and high (above 150% of median) income segments from 2002 to 2006, and also from 1996 to 2000. I'll put the latter numbers into parantheses.

  • Low-income rising to medium-income: 31.6% (44.2%)
  • Low-income rising to high-income [rags-to-riches]: 2.2% (2.2%)
  • Medium-income falling to low-income: 14.4% (11.0%)
  • Medium-income rising to high-income: 11.1% (9.6%)
  • High-income falling to low-income: 3.9% (3.9%)
  • High-income falling to medium-income: 27.6% (32.6%)

Clearly, it has gotten more difficult for the poor to rise from poverty, while the rich have it more easy to stay so -- and the middle class slips down more easily than rises.

There are a lot more interesting data in the study, but I will show only the (updated) trend for something in dvx's earlier diary: satisfaction with one's income. Here, separately according to income group (low-medium-high), and until 2007 (the rest of the study is until 2006):

Here, the glaring fact is that money does make one happier, yet, the relative changes show that just the richest group, which benefitted most, is the only with still decreasing satisfaction: can they ever be pleased?...

:: :: :: :: ::

Two days after the release of the DIW real income study, a German paper reported that calculations by the rival Institut für Wirtschaft und Gesellschaft (IWG, = Institute for Economics and Society) showed that pensioners' real income will fall 7.5% below the 2003 level by the end of this year.

Coalition poker...

...in Hessen state: one SPD membersaid she would not vote for local SPD leader Ypsilanti as PM of a minority government with Left Party outside support. The right-wing press is burying Ypsilanti and celebrating her as hero -- say, Financial Times Deutschland wants a monument for her. But even Realo Green leader Bütikofer speaks of "mobbing" by the SPD party leadership against the rebel.

....in Hamburg city-state: Black-Green (CDU+GAL[local branch of Greens]) seems coming. Though preliminary talks saw no agreement in some of the thorniest questions (including a new coal power plant demanded by the CDU and rejected by GAL, and a London-style congestion charge demanded by Greens), the GAL party leadership began to present proposed agreements to the party basis, which has to vote on them.

...for the liberals: the FDP banned itself into opposition with a strict declaration of only aligning with the CDU. But now party leader Westerwelle gave in to critical voices within the party: he declared that Traffic Lights (SPD+FDP+Greens) is a possibility after the next federal elections. (This won't mean anything for Hessen, though.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Mar 9th, 2008 at 02:28:30 PM EST
Aren't the voters in part punishing the SPD for implementing the "reforms" under the previous government? Also, Beck has moved the SPD leftward, but he seems to have overplayed his hand. People are writing his political obituary. Do you think he can make a comeback?

Dialog International
by DowneastDem (david.vickrey (at) post.harvard.edu) on Sun Mar 9th, 2008 at 05:59:06 PM EST
Beck was sick for the last two weeks and will come back on the stage Monday. A lot depends on what he says then. The party still seems fairly loyal to him, but he will probably have to scale his move to the left back somewhat in order to avoid a challenger from the Schröder wing.

With all the drama going on in Hesse, it's very hard to say what might happen next - but it's definitely too early for obituaries.

"If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu

by Turambar (sersguenda at hotmail com) on Sun Mar 9th, 2008 at 09:56:41 PM EST
[ Parent ]
As for punishing the SPD for reforms, I guess that's exactly what was done in prior elections (up until the 2005 federal elections).

Beck seems not in sufficient control of the centrists in his party (for a reason also see Turambar), but note that he is no leftie put a power politician himself (he used to govern withe the (neo)liberal Free Democrats in Rhineland-Palatinate state until he wan absolute majority). But those writing his obituary seem to come from the right-wing and right-leaning media, people with an agenda; and they are over-emphasizing voices from one wing of the SPD.

That said, I never took the idea of a chancellor candidate Beck seriously. He seems to me more a kingmaker than king. But sorry I have no evidence to quote, just feelings, and I don't live in Germany...

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Mar 10th, 2008 at 05:31:44 AM EST
[ Parent ]
Are there any inspiring leaders in the SPD?  Seems like the only politicians with some degree of charisma are in the LEFT party (Lafontaine and Gysi).

Dialog International
by DowneastDem (david.vickrey (at) post.harvard.edu) on Mon Mar 10th, 2008 at 06:01:54 AM EST
[ Parent ]
Well, Ypsilanti for one...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Mar 10th, 2008 at 06:27:21 AM EST
[ Parent ]
Then there is Belin mayor Klaus Wowereit, inspiring and charismatic, but I'm not sure he is that much left on the economy.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Mar 10th, 2008 at 06:28:39 AM EST
[ Parent ]
As a meta-comment, I'd prefer a party as a well-working collective to Führers with charisma.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Mar 10th, 2008 at 06:29:55 AM EST
[ Parent ]
If the income of the wealthy doesn't rise while the rest of us fall back, the terrorists win.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 12:49:53 PM EST
I thought when the income of the wealthy rises, terroirists win (better wine.)

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Mon Mar 10th, 2008 at 01:25:31 PM EST
[ Parent ]

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 10th, 2008 at 03:20:08 PM EST
[ Parent ]

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