The country of inequality

According to recent research by the prestigious DIW (Deutsches Institut für Wirtschaftsforschung) in Berlin, both social inequality and the size of private assets have so far been largely underestimated. According to the DIW, the richest 10% of the population in Germany has 67% of private wealth, while the poorest 50% of the population has only 1% of private wealth. The director of the DIW, Marcel Fratzscher, writes about it in Die Zeit.

Until now, it was not known exactly how rich or poor we Germans really were. The German state did not collect public statistics on the wealth of its citizens - and since wealthy Germans rarely took part in representative surveys, it was also impossible to know what private wealth was actually available in Germany. However, a new and more specific survey by the Deutsches Institut für Wirtschaftsforschung, conducted among the millionaires in this country, is changing the situation: the study shows that the wealth of the wealthiest Germans so far has been grossly underestimated.

In Germany, for example, the total wealth available to citizens is not 8.2 trillion euros, as previously assumed, but more than 10.3 trillion euros. The difference of about EUR 2.1 trillion is equivalent to about two thirds of Germany's annual GDP.

Not surprisingly, people with very high net worth are also reluctant to be interviewed about their wealth, especially since in Germany being rich is usually seen as something negative. The rich are therefore very reluctant to reveal their actual wealth. And they are even less inclined to take part in surveys on the subject. Because of this, our usually very representative socio-economic household survey, i.e. the socio-economic panel of the DIW in Berlin - for which almost 30,000 people in over 20,000 households have been interviewed every year since 1984 - has always had the disadvantage of being able to identify too few people with high net worth and thus to detect their wealth.

My colleagues Carsten Schroeder, Charlotte Bartels, Markus Grabka, Johannes Keunig and Konstantin Goebler have managed to correct this situation. Using a database containing information on the ownership structures of companies, they identified people living in Germany who hold significant shares in at least one company worldwide and asked them if they could interview them. Not all persons with a high level of ownership agreed to be interviewed. But they were large enough to have a representative picture of private wealth in Germany for the first time. In fact, the new dataset also includes 700 Germans with a wealth of over 250 million euros, according to Manager Magazin's list of wealthy people.

Two-thirds of the wealth apartien to 10% richest

The results are very interesting: total private equity - consisting of real estate, financial assets, life insurance, corporate assets and consumer durables such as cars, after deduction of liabilities - is not only at least a quarter higher than was known until now, but is also much more unevenly distributed: the richest 10 % does not own 59 % of total equity, as previously assumed, but holds 67 %. Above all, the top 1% of the distribution is considerably richer than previously thought: instead of the previous estimate of just under 22%, these few individuals, with just over 35%, own more than a third of the total private equity.

In comparison, the poorest 50 % of the population owns only about 1 % of private equity. Expressed in concrete numbers, this means that an average millionaire has an average net worth of around €3 million. Conversely, an average citizen in the lower half of the distribution has an average net worth of €3,682. More than one person in four has practically no net assets or is even in debt.

In an international comparison, the inequality in the distribution of private assets is therefore unusually high. In Europe, Germany is one of the countries with the most unequal asset distribution. The Gini coefficient, a measure commonly used to measure inequality in wealth distribution (a value of zero means a uniform distribution of wealth, a value of 1 a maximum inequality), with the additional data reaches 0.83, and is even higher than it was before (0.78).

Is this right?

Now there will be a heated debate about whether this inequality is right or wrong, economically advantageous or harmful, socially balanced or socially unbalanced - and this will be the focus of the next comment. What is worrying, however, is that so many people in Germany have so few assets and are therefore exposed to great risks, especially in the current coronavirus crisis. Already today, many people with low incomes and low assets have had to draw on a significant proportion of their savings. People on low incomes and with few savings have been particularly affected by the crisis. Their proportion among the almost ten million men and women who have lost their jobs or had to work short hours is disproportionately high.

It should therefore come as no surprise to us that many people are not spending the children's bonus (Kinderbonus) but prefer to save, and choose not to consume despite possible savings from reduced VAT. For people with very high wealth and income, however, these additional transfers from the state make no difference to their consumption behaviour, as they could have financed them even without the transfers. This shows once again that high inequality in terms of income and wealth is a further obstacle to economic recovery, especially in times of crisis like these.