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The Great Widening of Inequality

The gap between rich and poor has been widening, in Germany and elsewhere. Doctoral candidates at Freie Universität study the consequences.

Jan 06, 2014

The gap between rich and poor: It is a major topic, and not only during election season. Depending on your political outlook, it has widened to a greater or lesser degree, and the government should take increasing or less robust action to close it.

Citizens complain of an imbalance in terms of fairness: In one survey conducted by opinion and market research institution Institut für Demoskopie Allensbach this year, nearly 70 percent of respondents stated that economic conditions are unfair, and 64 percent believed the imbalance was going to increase.

Researchers are not surprised to find growing inequality in Germany, as elsewhere. In fact, various studies conducted by sociologists, and especially by economists, have pointed to a global trend for quite some time now. Inequality has grown internationally, and it has been doing so for about 30 years.

In the United States and other English-speaking countries in particular, an increasing share of income is going to a smaller and smaller group of people. Income distribution in the U.S. is currently about as unequal as it was just before World War I. Germany, too, has increasingly become an unequal society: Since the mid-1990s, households with the highest income have seen their share of total income rise by a considerable amount even as real incomes have stagnated. In line with these trends, Germany’s low-wage sector is flourishing, and it is even one of Europe’s largest.

Growing inequality around the globe has also spurred the demand for more detailed study of the root causes behind this development and of what government can do to counteract it. More and more researchers are turning their attention to this topic.

As part of the international research offensive taking shape across economics and the social sciences, the Hans Böckler Foundation and Freie Universität Berlin have teamed up to form a Ph.D. program. Alongside Giacomo Corneo, a professor of public finance and the program’s director, the program is headed by Ronnie Schöb, a professor of finance focusing on international financial policy, and Viktor Steiner, a professor of empirical economic research.

Candidates enrolled in the program spend the first year studying the theory and methodology of research on inequality and exploring the research literature on the topic. During two-day courses, internationally known scholars also teach program participants the basics they need to understand the current status of research on inequality. This past June, one such course was held by Thomas Piketty, of the Paris School of Economics. He is viewed worldwide as a pioneer in more recent research on inequality, and he has documented the development of income inequality over the past two centuries for more than 20 countries.

“This gives the doctoral candidates an excellent opportunity to tie in with the current status of international research on economic inequality and tax transfer systems in their own work,” says program coordinator Charlotte Bartels.

“This is the only program of its kind in Germany,” says Guido Neidhöfer, one of the first participants. It didn’t take long for him to decide whether to apply for a scholarship for doctoral study. The program required a ten-page statement of purpose, which had to specify the student’s planned doctoral studies in detail. “Economic inequality is a highly relevant topic right now, both in Germany and elsewhere, so even before I had finished my master’s degree I decided to continue my research in this area,” he says.

Over the next three years, Neidhöfer will do research on “intergenerational mobility” in industrialized countries and emerging economies. His goal is to study how social origin affects later educational success or income. Neidhöfer is currently working on a study of the likelihood that children of Italian immigrants in Germany will earn higher educational qualifications than their parents.

Studying inequality is especially worthwhile for younger scholars in Germany as there is a wealth of data still waiting to be tapped into. “There are now a number of good sources for Germany in a scope not previously available to researchers,” Bartels says. For example, one data set published this year by the Bundesbank, Germany’s central bank, contains information on assets and income as well as demographic characteristics for more than 3,500 German households.

The program’s primary goal is to advance empirical research on inequality, for example by using the new data to study the development of inequality of assets and inheritances in Germany. Where and how should a welfare state intervene in particular in order to reduce inequality and enhance equality of opportunity?

Projects within the program could also help to answer the question of how new tax laws would affect inequality in Germany. “New calculation models could be used, for example, to predict how planned reforms of taxes and income redistribution payments would change the available income – and whether they would help reduce income inequality,” Bartels explains.

The models have not yet appeared in this year’s German parliamentary elections in such detailed form. Still, whether the gap between rich and poor in Germany widens further or narrows, and how the government should respond, is likely to remain a major topic of interest for citizens and politicians alike.

Further Information

  • Prof. Dr. Dr. Giacomo Corneo, Freie Universität Berlin, School of Business and Economics / Economics, Tel.: +49 30 838-52592, Email: giacomo.corneo@fu-berlin.de 
  • Prof. Dr. Ronnie Schöb, Freie Universität Berlin, School of Business and Economics / Economics, Tel.: +49 30 838-51240, Email: ronnie.schoeb@fu-berlin.de
  • Prof. Dr. Viktor Steiner, Freie Universität Berlin, School of Business and Economics / Economics, Tel.: +49 30 838-54371, Email: viktor.steiner@fu-berlin.de