ifo Institute: Income Gap Narrows between East and West

Over the past ten years, the income gap between German regions has narrowed, not least due to eastern Germany’s catching up with the western part. This is the result of an analysis by ifo researchers Lea Immel and Andreas Peichl that has now been published in ifo Schnelldienst. Nonetheless, a particularly high concentration of the richest Germans live in the major cities of the country’s west and south; in contrast, an especially high number of the poorest live in eastern German districts.

“Many households in the top 10 percent income bracket live in the big cities – Düsseldorf, Cologne, Frankfurt, Stuttgart, and Munich – and their surrounding regions,” says Peichl, Director of the ifo Center for Macroeconomics and Surveys. There is also a north-south divide: As a proportion of the population, there are more rich households and fewer poor ones in the south than in the north.

Eastern Germany is home to a disproportionate number of households with incomes in the lowest 40 percent. Yet the gap between regions is narrowing, as Peichl explains: “In the east, the richest 10 percent make up a greater proportion of the population on average, while the poorest 40 percent make up a smaller proportion on average. On average, just 4.9 percent of households in eastern German districts numbered among the top 10 percent in 2007, but this figure had risen to 6.2 percent by 2017. The opposite happened to the bottom 40 percent: the share of households in eastern German districts that belonged to the poorest 40 percent fell from 53.2 percent to 47.1 percent.”

Peichl adds: “It is highly probable that we are overestimating the regional differences in our analysis, since the rising cost of housing in metropolitan areas has likely increased the significance of regional prices in recent years. This is especially true for major cities, but also for eastern Germany. For this reason, statistical offices should provide timely information about the development of regional price levels.”