Rethinking Europe, EconoMatters

After Merkel: Lax Migration Rules Trigger More Poverty

The entire increase in the share of people running the risk of poverty since 2005 is due to the bigger share of immigrants in the German society.

Credit: Antony Oliver www.flickr.com

Takeaways


  • Populists are gaining support in Germany. Why?
  • Germany’s lax and untargeted immigration policies increase the risk of poverty. It is no wonder that especially the poorer parts of German society are more open to “populist” trends in politics.
  • German politicians have lost the ability to differentiate between a good income and being rich.
  • To avoid further calamity and drift, the correct political response to populism would be to adapt Germany’s approach to migration -- and not to increase the level of redistribution.

Populists are gaining support in Germany. Why? First, a practical definition: Being “populist” means opposing the narrative of open borders, a generous social welfare system for economic migrants available upon arrival and shifting ever more power to the EU in Brussels.

In contrast, a large part of the German media and many politicians like to see the root cause for rising “populism” in increased inequality and therefore ask for (even) more redistribution. The key question is whether this actually applies to Germany.

The tale of increased inequality

To be sure, inequality has become an issue over the past decades in many countries of the world. Far beyond the United States, Italy and Brazil, the incomes of the middle class have come under pressure.

This is an inevitable consequence of the globalization of markets. In addition, wealth inequality has increased due to low interest policies following the global financial crisis.

Germany is different

According to data from the OECD, Germany is one of the countries with the lowest inequality when it comes to incomes and the country with the lowest risk of poverty. Between 2007 and 2014, the incomes of the poorest 10% grew faster than the average income. This reflects the economic boom of the past years, which led to record low unemployment.

Given these facts, media and politicians like to focus on a longer-time horizon. Before taxation and social transfers, there indeed is a slight increase in inequality. However, after governmental redistribution through the tax system is accounted for, income inequality in Germany is comparatively low and unchanged, as the OECD data show.

These numbers underscore that Germany doesn’t actually have the problem on which politicians conveniently like to pin the blame for rising populism.

Migration and risk of poverty are linked

Quite the contrary. A closer look at the risk of poverty in Germany reveals that migration and poverty are closely linked:

• The risk of poverty of the German population without immigrant background stands at 11.3%.

• The risk of poverty is almost twice as high for the population with a migrant background — 22.2% of people with a “direct” migrant background (meaning they themselves were born in another country).

• People with an “indirect” migration background (i.e., born in Germany to parents who immigrated) still have 16.1% risk of being poor. That is over 40% higher than for the German population without immigrant background.

Here are the absolute numbers:

• In 2016, about 6.8 million Germans without an immigrant background ran the risk of being poor.

• 2.35 million with direct migration background ran the risk of being poor. So did 1.65 million with an indirect migration background.

Here is the crux: As the share of the population with a migrant background keeps rising, we have an obvious relationship between statistical poverty and the composition of the population.

Assuming a similar risk of poverty as was found in 2014, the entire increase in the share of people running the risk of poverty since 2005 can be explained by the bigger share of immigrants in the German society.

In the end the middle class has to pay

Obviously, Germany’s lax and untargeted immigration policies increase the risk of poverty. Under those circumstances, it is no wonder that especially the poorer parts of German society are more open to “populist” trends in politics.

To avoid further calamity and drift, the correct political response to this development would be to adapt Germany’s approach to migration — and not to increase the level of redistribution.

After all, it is a flight of fancy to believe that it is not the middle class that has to bear the burden of these misled policies. Whenever German politicians talk about the “rich,” they end up referring to those who earn above-average – that is far from high incomes.

German politicians have lost the ability to differentiate between a good income and being rich. The SPD suffers because its union members in the chemical and machine-tool industries are considered “rich” by the party.

Further evidence of how the German taxation system – and the related political coordinates – are out of whack can be found in the fact that the top tax rate starts at an income level of 54,000 euros, which is just 1.3 times the average income. (This is the second-highest rate in the OECD after Belgium).

Also consider this: In 1965, one would have had to earn 15 times the average German income to end up in the top tax rate. That would be equal to 620,000 euros today. This underlines how far the redistributive state in Germany has grown over the last 50 years.

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About Daniel Stelter

Daniel Stelter is the founder of the German think tank Beyond the Obvious and former member of Boston Consulting Group’s Executive Committee . [Germany] Follow him @thinkBTO

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