In ormation in this chapter is based on op incomes in Germany, , by harlotte Bartels, ID orld or ing aper eries No /
In 2013, the share of total income received by the bottom half of the
population was 17%, while the share of the top decile was 40%. In 1913, the share of the top 10% was also 40%.The top 1% is, however, lower today than in 1913 (18% versus 13%).
The top 1% increased sharply between the creation of the Reich in 1871 and the establishment of the Weimar Republic in 1918. It then decreased dramatically when social policies were implemented by the Weimar Republic.
The Nazi prewar period is associated with economic recovery and favorable policies for large businesses, and saw temporary surges in top incomes. The top 1% share was then reduced to 10–12% during the 1950–1990 period and has been on the rise since reunification.
Top income earners in Germany have been business owners throughout the twentieth century and up to the present. As most German firms are family owned, with some family members more involved than others, it is difficult to judge how much of top incomes are labor incomes and which part is “pure”
capital income (with limited labor input). Starting in the 1980s, however, highly qualified employees have increasingly entered top-income groups.
In Germany, high income concentration of the industrialization period
dropped as soon as the 1920s and fluctuated around this level throughout the postwar period. This contrasts with other rich countries like United States, the United Kingdom, and France, where the Second World War brought strong and lasting reductions in income concentrations at the top.
Investigating the evolution o ine uality using German income ta data has a long tradition, as particularly russian and a on ta data are internationally praised or their accuracy. simon kuznets partly drew his amous hypothesis o rising ine uality in the early phase of industrialization from prussian income ta data he early introduction o modern income ta ation in German states at the end of the nineteenth century offers a special opportunity to compute inequality series from the industrialization phase until today
the series presented in this chapter are based on pre-ta income data rom historical German income-ta statistics collected by Charlotte bartels. one should note, however, that the impressive length o the period covered in Germany comes with a price, in that changing territories are covered by the series. the two world wars of the twentieth century, the division of Germany after the econd orld ar, and its reunification in leave the researcher ith income ta systems applying across time to uite di er-ently sized territories and populations.
long-run German income inequality dynamics can be split into five periods the evolution of income inequality from
to can be split into five periods Figure 2.6.1 shows the evolution of the top 1% income share from 1871 to 2013. the first period starts ith the oundation o German reich in 1871, which unified German states, and ends with the first World War. the top percentile was the greatest beneficiary o this industriali ation period. its income share moderately increased from 16% in 1871 to 18% in 1913 and then rose to during the irst orld ar he sharp increase observed during that ar might have been the result o e traordinarily high profits rom military spending By , authorities managed to restrict those profits, hich contributed to bringing the top share bac do n to of national income.
the second period includes the years of the Weimar republic (1918–1933), which brought a variety o ine uality-reducing poli-cies, including an increase in the top marginal ta rate rom to in russia, the intro-duction of unemployment insurance, and employment la including employment protections trong unions and the rise o collective bargaining contributed to an increase in ages hich resulted in lo er labor income inequality. hyperinflation eroded financial assets and greatly reduced capital incomes during this period Addition-ally, industrial firms generated very lo profits throughout the s, i any at all, and mostly did not pay out dividends. as a conse-quence, the top percentile’s income share decreased significantly rom in to 11% in 1925 and remained at the latter level until 1933.
the third period starts with the nazi’s seizure of control in 1933 and ends at the eve of the second World War in 1938. after 1938, the statistical office stopped publishing income ta statistics so it is impos-sible to know how income distribution changed during the econd orld ar his pre ar Na i period is mar ed by an e traor-dinary increase in the top percentile’s income share from 11% in 1934 to 17% in 1938, contrasting ith the initial anti-big-business rhetoric of the nazi party. in contrast, to the top percentile, the group the top richest, minus the very top gained only moderately during this period As in most rich countries, economic recovery after the Great depression started in 1932 in Germany Industrial firms sa their profits rise sharply between 1933 and 1939.
erguson and Voth find evidence that firms ith strong ties to the Na i party dispropor-tionately benefited rom the recovery, hich probably contributed to further concentra-tion of incomes at the top.22 he larger firms across all sectors were more likely to form connections ith the Na i government, but this was particularly the case for the rearma-ment industry.
Part II trends in Global inCome inequality
World inequality report 2018 102
the post-war period is marked by a relatively stable but high top percentile income share
the German postwar period is characterized by a comparably high income concentration at the top, paralleled by a rather compressed age distribution rom the mid- s until the 1980s, the top percentile’s share oscillates bet een and his is higher than the top percentile’s share in postwar united tates, nited Kingdom, or rance in the same period his finding is particularly stri ing as the policies (especially nationalizations and rent control) after the second World War and destructions during the econd orld ar are generally seen as long-lasting e uali ing forces both in Germany and in other war-participating countries he currency re orm in 1948 eradicated capital incomes from financial assets or the second time in the t entieth century, hile leaving business assets and real estate untouched avings accounts were reduced to about a tenth of their ormer value As rents ere heavily
regu-lated, top incomes stemmed from business profits n the other hand, strong labor demand and the high national income gro th rates of the German Wirtschaftswunder coin-cided with powerful unions, low unemploy-ment, and a rather compressed age distribu-tion. the bottom 50% then received a third of total income, as Figure 2.6.2 shows. it was not until the s that top age earners increasingly entered top-income groups and the age distribution became increasingly unequal. With the oil crises and the onset of mass unemployment, the share of the bottom decreased to less than a fi th o national income. the fall of the bottom half was mirrored by an increase of the middle 40%, ho received slightly more than o national income beginning in the s Income inequality is rising at the top since reunification
he fi th and last period corresponds to reunified Germany olitical unification on ctober , , brought the eastern states 4%
8%
12%
16%
20%
24%
2010 1990
1970 1950
1930 1910
1890 1870
Share of national income (%)
In 2013, the Top 1% national income share was 13%.
Top 1%
Source: Bartels (2017). See wir2018.wid.world for data series and notes.
Figure 2.6.1
top 1% income share in Germany, 1871–2013
o Berlin, Brandenburg, Mec lenburg estern omerania, a ony, a ony-Anhalt, and huringia into the ederal epublic o Germany he first years a ter reunification ere mar ed by e ceptionally high national income gro th rates or the reuni ied German economy. industrial production quickly collapsed in the east and unemploy-ment rose accordingly hose eeping their
obs benefitted rom an unprecedented ump in real ages, than s to bargaining by the eastern German labor unions that aimed to reach parity ith est German age levels in a ing these e ects together, the top percentile’s income share fell sharply, hereas the bottom gained in the first years ollo ing reunification he start o the ne millennium mar ed another turning point the share o the bottom hal declined significantly rom in to in 2013, a trend that went hand in hand with the gro th o the lo -income sector
he top income group uite steadily increased its income share over the entire
post ar period ighly ualified employees li e engineers, la yers, and doctors have benefitted rom high age gro th and have been increasingly present in top-income groups o ever, very top incomes are still e clusive to business o ners, and profits fluc-tuate with business cycles. the top percen-tile’s share is volatile, as shown in Figure 2.6.3. It su ered large shoc s in the German unifi-cation crisis in the mid-1990s, the burst of the new economy bubble in the early 2000s, and the Great recession in 2009. but despite the large drop a ter the Great ecession, the top percentile s income share still gre by almost 40% between 1983 and 2013, while the bottom 90% share fell by 10%. in 2013, while the average income in Germany as , the top earned , the middle
earned , and the bottom earned
10%
15%
20%
25%
30%
35%
40%
45%
2005 2000
1995 1990
1985 1980
1975 1970
1965 1960
Share of national income (%)
In 2013, the Top 10% national income share was 40%.
Source: Bartels (2017). See wir2018.wid.world for data series and notes.
2010 Top 10%
Bottom 50%
Middle 40%
Figure 2.6.2
Income shares in Germany, 1961–2013
Part II trends in Global inCome inequality
World inequality report 2018 104
80 90 100 110 120 130 140 150
2010 2007
2004 2001
1998 1995
1992 1989
1986 1983
Income share index (baseline 1983)
The share of income going to the Top 1% in 2013 grew by 35% relative to its 1983 value, while the share going to the Bottom 90% in 2013 fell by 13%.
2013 Top 1%
Bottom 90%
Source: Bartels (2017). See wir2018.wid.world for data series and notes.
Figure 2.6.3
Income inequality in Germany, 1983–2013