Does Germany Have a Poverty Problem? - "No One's Existence Is Really Threatened by Absolute Poverty"

At first glance, Europe's sovereign debt crisis has left Germany unscathed. The economy is benefiting from a weak euro, unemployment is falling and the federal budget is balanced. But a recent alarming figure has upset the economic idyll: about 12.5 million people in Germany are affected by poverty – more than ever before. Is poverty in Germany increasing, compared to other countries? ZEW financial economist Andreas Peichl stresses that poverty is relative - and that data about the edges of the income distribution are relatively imprecise.

Germany is considered one of the world's richest countries. Yet studies show that the poverty rate is 15.5 per cent, an all-time high. How poor are we?

No one's existence in Germany is really threatened by absolute poverty. A person is considered poor if they have an income below 60 per cent of the median income. A statistical poverty rate of 15.5 per cent is just one of many estimates. In a current assessment, based on the Socio-Economic Panel dataset, we determine a poverty rate of 14.3 per cent for 2012. Moreover, we found that the rate of persistent poverty - the number of persons who are affected by poverty in consecutive years - has dropped markedly. In 2012, 2.3 per cent of persons in private households in Germany fell below the poverty threshold in three of the four previous years. Consequently, 84 per cent of persons deemed "poor" in 2012 lived above the poverty line the year before. Conversely, many people who were once poor are no longer. Hence, there is a high level of mobility out of poverty, but of course a high level of mobility into it as well.

But the criticism is that although employment has risen, the number of poor has not decreased. Have unemployment rates and poverty rates become decoupled?

Unemployment and poverty continue to be interlinked. The poverty rate for the unemployed is significantly higher than that of other economic strata. Over 70 per cent of all persons in households where all employable persons are without work are at risk for poverty. But the unemployment rate in Germany has receded strongly since 2005, while the poverty rate has remained relatively constant. A reason for this is that many previously unemployed have accepted "mini-jobs" or other forms of marginal employment. It is a political question whether people should take such work rather than completely rely on welfare, even if the wages they earn do not meet minimum existential requirements and the government must continue to provide some additional support.

It feels as though more and more capital is becoming concentrated in the hands of fewer people, while the German economy is not growing fast enough to benefit everyone.

Wealth in Germany is much more unequally distributed than income. In 2012 the top 10 per cent of earners earned 1.9 times the net income of the poorest 50 per cent. When it comes to wealth, however, the top 10 per cent owns 10.6 times as much as the poorest 50 per cent. Moreover, since 2003, this number has increased by 23 per cent. In 2003 the poorest 50 per cent of the population owned 2.5 per cent of total assets; by 2013 they only owned one per cent. At the same time, more and more households own no assets or haven taken on debt. All the while, the share of total assets owned by the richest ten per cent of the population has risen from 49 per cent to 52 per cent. The perception that wealth has become more concentrated is therefore true.

In many large German cities the cost of living is enormous, while the mean net income varies by federal state. Is more redistribution needed?

The mean net income between East and West Germany differs by more than 4,500 euros per year; the medium income by 3,000 euros. Accordingly, the at-risk-of-poverty rate in East Germany is considerably higher than in the West, with 20.5 per cent versus 12.7 per cent. But this is not only an East-West question; there are large differences between individual German federal states as well. For instance, in Bavaria 4.2 per cent of residents receive welfare and unemployment benefits, while in Bremen more than 18 per cent do. In Berlin the number is as high as 20.7 per cent. The same variance can be found with mean net income in the federal states. These developments are not new, however, and Germany fares better than other countries in this regard.

Let's look at the bigger picture. How does German government social spending measure up in international comparison?

The German social welfare state has no reason to fear comparison with other countries, especially at the global level. Of course there are some countries in Northern Europe in which some benefits are more generous, but, all in all, Germany is doing well. The main problems, I believe, remain long-term unemployment and equal opportunity. Participation in the labour market lowers poverty risk immensely, and it is here that we must set a decisive course for the future.