: 8. How will inequality develop in the next few years? What role do large-scale immigration and the minimum wage play?

Generally speaking the trend recently observed is of a renewed increase in inequality of income and wealth. For instance, since the financial and economic crisis the significance of wealth incomes has risen. They act like a kind of driver of inequality, as such incomes flow primarily into high-income households (Schmid and Spannagel 2015). There are currently two further developments that are probably influencing the further trend in inequality substantially:

Inequality could increase in the short term through the large-scale migration of refugees. In the long term, though, employment among refugees will probably increase, curbing the rise in inequality somewhat. The incomes thus generated would then reduce the spread of household incomes again. A point to consider, however, is that this is based on the assumption that 2015 is an exception, and immigration will return to the customary level of the past.

Besides migration, the minimum wage, currently 8.50 euros an hour, will also affect the further development of income inequality. A look at the low-wage sector helps us assess the consequences. In 2012, 15.5 per cent of all waged employees, viz. some 5.25 million gainfully employed people, were on a gross hourly rate below 8.50 euros (Amlinger et al. 2014). Most of this group would probably benefit from the introduction of the minimum wage. Initial studies show that since the introduction of the minimum wage it is precisely in the traditional low-wage sectors that there have been above-average high increases in wages; in East Germany even more markedly than in West Germany (Amlinger et al. 2016). Hence the minimum wage could curb the current rise in income inequality somewhat.

 

References

Amlinger, M., Bispinck, R., Schulten, T. 2014. Niedriglohnsektor: Jeder Dritte ohne Mindestlohn? Ausnahmen vom geplanten Mindestlohn und ihre Konsequenzen (pdf). WSI-Report Nr. 14.

Amlinger, M., Bispinck, R., Schulten, T. 2016. Ein Jahr Mindestlohn in Deutschland - Erfahrungen und Perspektiven (pdf). WSI Report Nr. 28.

Schmid, K. D., Spannagel, D. 2015. Kapitaleinkommen und Einkommensungleichheit in Deutschland. In: Peter Bofinger, Gustav A. Horn, Kai D. Schmid, und Till van Treeck (Eds.): Thomas Piketty und die Verteilungsfrage. Analysen, Bewertungen und wirtschaftspolitische Implikationen für Deutschland,  Leipzig: SE Publ.