Life in Berlin: A Berlin Economist Examines the Poverty Report

Mar 13, 2017

Recently, Germany’s Federal Statistics Office released a report on poverty in the country, and the numbers are concerning. The office estimates that 15.7% of the population live below the official poverty threshold, the largest percentage since reunification. This is despite record low unemployment.

"And the way Germans have defined this kind of poverty is anyone living with a family income below 60% of the median family income, I think is the number. That means if the median goes up, the 60% goes up. And therefore if you have a spreading out of the distribution, even if those people aren’t absolutely worse off, they’re less off relative to a rising median income in the family."

Professor Michael Burda teachers American Economics at Humboldt University.
Credit Courtesy of Professor Michael Burda

This is Michael Burda, an American economics professor at Humboldt University. He has been living and teaching in Germany since 1993. To Burda, the difference between relative and absolute poverty is key in considering the new statistics.

“The relative measure, if you’re stuck at the lower end, because maybe the minimum wage wasn’t raised until 2015; obviously you’re going to have people who have fallen behind but in terms of relative to where they were before, they’re probably better off," Burda says.

Burda sees a correlation between the poverty statistics and the enactment of the social assistance Hartz reforms from 2003 to 2005, which created a new faction of very low-paid workers.

"So you had people working for five or six euros and hour, or even less - especially people from other countries - but the corrective for that is the minimum wage. That’s going to cut off that end."

According to the Federal Statistics Office, Berlin is one of the areas most affected by the rise in poverty. The professor takes issue with the fact that these reports don’t consider dynamics.

"I mean, a lot of people who fall into the poverty region of Germany, especially in Berlin, are students. And students, I know from my statistics, become the elite of every society, and Germany’s no exception," explains Burda.

Additionally, he notes, Berlin is increasingly attracting wealthy newcomers, the presence of whom raises the median income. At the other end, the arrival of numerous refugees who aren’t allowed to work in the country contributes to an appearance of broader poverty.

"We have the same thing in Sweden. If you look at Sweden, their gini coefficient has increased also because they have the most migrants per capita."

The gini coefficient is the most common measure used to assess a population’s inequality of wealth or income. Even as Burda advises looking critically at the factors contributing to a statistical rise in poverty, he notes that in terms of growing inequality, there is cause for concern.

"Northern Europeans and Southern Europeans are generally not used to increasing inequality; even if you’re careful enough to distinguish between family inequality, which is what matters, and inequality of the salaries, you still have this increase. You do have an increase, there’s no doubt about it."