Press Releases

Current and older Press Releases of DIW Berlin
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3 December 2014

Lifetime Earnings of Workers in Germany: Inequality Doubles Between 1935 and 1972 Birth Cohorts

Income inequality is usually considered in terms of its current development. A long-term perspective allows us to compare the income situation of today’s generation with that of their parents. For the first time ever, we have measured the inequality of wages and salaries earned over an entire working lifetime using a new kind of dataset. The findings show that the inequality of lifetime social security earnings of western German male workers doubled between the 1935 and 1972 birth cohorts. 20 to 40 percent of this increase can be attributed to a higher level of unemployment among those at the lower end of the wage scale. The remainder is caused by a wider distribution of earnings. The greater inequality of lifetime earnings could have far-reaching consequences. Thus, it is expected that the opportunities to save up significant assets through their own efforts are increasingly limited for the recipients of lower and medium lifetime earnings for the birth cohorts analyzed here.

26 November 2014

German Construction Industry: New Residential Construction at Economic Peak - Public Construction Gaining Ground

The construction industry remains a key pillar of the German economy. According to the latest construction volume calculations by DIW Berlin, the value of construction in the current and coming year is forecast to grow far more rapidly than the economy as a whole: by a price-adjusted 3.3 percent in 2014 and 2.1 percent in 2015. Currently, new residential construction is an important engine for growth with the construction volume in this sector anticipated to increase by almost 12 percent in 2014, in nominal terms. However, this year will also see significant growth in construction on existing buildings. In addition to gains in residential construction, more positive developments are also currently being observed in commercial and public construction, following declines in these sectors in recent years. However, although residential construction is stable, the high growth rates recorded in the current year are unlikely to continue into 2015. Fears that construction price increases would be (too) strong, precisely in this sector, are not supported by the national average. However, the dynamic growth of new construction is expected to tail off appreciably. Moreover, largely as a result of the gloomy economic outlook, the commercial construction sector is also likely to record only moderate growth in construction volume. The highest increases for 2015 are expected in the public construction sector--although the investment program announced by the government is in fact likely to have very little impact, even if further relevant measures are implemented in the next year.

26 November 2014

Renewable Energy: Bavaria, Baden-Württemberg, and Mecklenburg-Western Pomerania Front-Runners Among German Länder

Germany's energy transition envisages a shift toward energy being supplied primarily from renewable sources. The expansion of renewables is largely determined by central government policy but the German Länder also play a major role and could consequently make a significant contribution toward a successful energy transition. DIW Berlin recently conducted its fourth renewable energy ranking of the German Länder. The study is based on a total of 60 input and output indicators at the Länder level appraising , from a renewable energy use perspective, both the efforts and performance of energy and environmental policies as well as technology and economic policies. The overall evaluation puts Bavaria, Baden-Württemberg, and Mecklenburg-Western Pomerania in the lead. Bavaria is the most progressive when it comes to the use of renewables, although wind energy potential is underexploited in this federal state. Baden-Württemberg stands out with its exemplary energy policy framework for the expansion of renewable energy. Mecklenburg-Western Pomerania has made the most advances with regard to technological and economic structural change.

19 November 2014

Sharp Increase in German Real Estate Prices Nationwide But Still No Speculative Bubble

Speculative house price increases potentially mean major real and financial risks and have increasingly been the subject of current public debate in Germany. Recent events in countries such as the US or Spain have demonstrated the negative impact that the bursting of speculative price bubbles can have on national economies. However, the signs of speculative property price bubbles are difficult to detect at national level because the aggregate data conceal opposing developments on regional real estate markets. The present DIW study analyzes a dataset comprising housing rent and price time series in 127 German cities compiled by the independent consulting company bulwiengesa AG. These data allow a detailed analysis of property prices by region and consequently make it possible to identify speculative price increases at an early stage. Explosive growth in prices has been observed in many German cities, which could be an indication of a property price bubble. However, in the majority of cases, the price increases were triggered by rises in residential rents and therefore, for the most part, are not a result of speculative influences. On the whole, also compared to other developed economies, the real estate market in Germany is structurally sound. For example, the share of housing loans with a long-term interest rate fixation tends to be very large and there are no unusual developments in lending practices. Consequently, political intervention is unnecessary at this stage, although a close eye should be kept on regional developments.

19 November 2014

Reduction in Coal Power Generation Could Help Germany Meet Climate Targets

According to the climate target set by the German government for 2020, greenhouse gas emissions are to be reduced by 40 percent compared to 1990 levels. However, current projections indicate that this target will only be achieved if further measures are implemented. The power sector has an important role to play here, around 85 percent of its emissions are produced by lignite and hard-coal power plants. A large number of German power stations are already very old and particularly CO2-intensive. Therefore, in the context of the Climate Action Programme 2020 developed by the German government, early closure of lignite and hard coal-fired power plants is being discussed as an effective short-term measure. This appears to be a particularly favorable option due to the current overcapacities, resultant low wholesale prices, and high electricity exports. Scenario calculations for the German power system for 2015 indicate that closing the oldest and most CO2-intensive coal-fired plants could make a substantial contribution to achieving the German government's climate targets. If additional hard-coal power stations with a total capacity of three gigawatts and lignite power stations with a capacity of six gigawatts were to be closed, this would result in a 23-million-ton reduction in CO2 emissions. The shutdown of hard-coal-fired power plants with an overall capacity of around three gigawatts already announced would generate further reductions. At the same time, wholesale prices are on the increase, which makes power generation by flexible gasdriven plants in particular more cost effective. The wholesale price increase would also lead to a reduction in the EEG surcharge.

5 November 2014

Development of Corporate Earnings: Positive But Inconsistent

Statistics on corporate earnings in Germany are still not being recorded satisfactorily, despite them being an important economic indicator. To date, DaFNE remains a seldom-used data basis for describing company profits. It includes statutory financial statements (balance sheet, profit and loss statement) in a longitudinal (panel) data format that enables individual company profits to be tracked and evaluated over time. The analyses in this Wochenbericht show that, on the whole (or on average), the profits of non-financial corporations are developing positively again in the wake of the financial and economic crises. Further, there appears to be considerable variation behind the averages values, for instance in the development of individual sectors. Indeed, a closer inspection of the panel data on the development of earnings by individual corporations shows a significant proportion of companies made losses in more than half of the years between 2006 and 2011. However, the total value of these losses was far lower than the earnings achieved by those companies making profits in at least half of those years. Companies making a profit before the financial and economic crises (2006, 2007) but making a loss in one of the crisis years more frequently showed losses after the crises (2010, 2011) than was the case for companies making a profit in 2006 and 2007 that also went on to show a profit in 2008 and 2009. What the data do not indicate, however, is to what extent losses incurred in the financial crisis are responsible for subsequent losses.

9 October 2014

German Economy Stagnating - Now Is The Time To Strengthen Growth

The German economy will grow by 1.3 percent this year and by 1.2 percent in 2015, predict the economic research institutes involved in the Joint Economic Forecast in their autumn report. According to the report, Germany’s economy has cooled down markedly. With economic output falling in the second quarter and stagnating in the third quarter of 2014, the engine for economic growth is proving hard to rev up again. Both domestic and foreign demand is weak: the consumer climate deteriorated recently and companies remain cautious about investment. The moderate pace of growth in the world economy and the low level of economic impetus in the euro area over the forecasting period are also having a negative impact. In this environment the economic research institutes are in favour of strengthening growth and creating more favourable investment conditions. They see financial scope for a more investment-friendly tax system and higher spending on areas that promote growth like physical and human capital.

9 October 2014

2013 "Heat Monitor Germany": Heating Energy Consumption Falls While Costs Rise

The heating market plays a key role in achieving the Federal Government's energy and climate policy objectives. In particular, major savings need to be made in heating residential buildings if the majority of buildings are to be climate-neutral by 2050. In light of this, DIW Berlin and ista Deutschland GmbH have created an up-to-date data basis that is based on the heating energy bills of apartment blocks in Germany. Significant savings were achieved between 2003 and 2013. Demand for area-specific heating energy in Multifamily buildings throughout Germany fell by around 16 percent. Given developments in recent years and the continuing increases in floor space, however, the Federal Government's medium-term and, in particular, long-term objectives require significantly greater savings. Nevertheless, decreasing energy demand does not necessarily lead to lower heating costs. The reason for this is largely a rise in oil prices which, on average, has actually overcompensated for energy savings. Given these circumstances, energy-efficiency upgrades to buildings not only provide insurance against soaring energy prices but are also an important long-term tool for maintaining real estate marketability. There are also differences in regional developments: while heating energy demand in the East German states is lower on average, savings in the West German states are more dynamic. Individual regions, for example, in southern Germany, have made substantial progress. The pattern of heating costs varies from region to region. Households in some parts of the East German states and in rural areas, where fuel oil is used more frequently, have higher energy costs.

24 September 2014

Greece: No Progress Without an Innovation System

Economically, Greece is still at rock bottom. Following massive cuts to its unit labor costs, the country no longer has any cost problems but its economy has not yet been reanimated. This makes it quite evident that by focusing solely on cost reductions and institutional reforms, the troika program did not go far enough. Without further reforms, certain sectors of the Greek economy such as tourism, agriculture, and commerce will grow, assuming that these sectors increase their added value. However, this is not sufficient to put the country on a path of sustainable growth. At the same time, Greece has enormous research potential. To better take advantage of this, the country needs to expand its innovation system significantly. There is a lack of networking between science, commerce, and management and application-oriented research linking the findings of existing institutions in Greece with the demands of its companies and start-ups. If this results in innovative industries with greater added value in the medium term, the country has a chance of transforming itself into an innovation-driven economy.

17 September 2014

Pace of Expansion Remains Slow

The German economy will grow by 1.5 percent this year. In the coming year, the increase in GDP will be somewhat higher at 1.8 percent. The jobless rate will be 6.7 percent this year but it will rise by three-tenths of a percentage point in the coming year. Inflation will remain moderate in both years; prices will rise by 1.0 percent this year and 1.5 percent in 2015. Global economic growth was far more sluggish in the first half of 2014 than throughout 2013. While industrialized countries forged ahead more strongly in the second quarter after a poor start to the year, the pace of expansion in emerging economies has fallen slightly. After a weak first half, the pace of growth of the global economy is likely to increase somewhat. The gradually improving situation on the labor market, particularly in industrialized countries, will soon result in rising wages. Along with low inflation rates, this should stimulate consumption and also investment activities by companies. In Europe and in particular in the Eurozone, growth will be slow as high public and private indebtedness weighs on demand. Moreover, geopolitical risks are a drag. Overall, the average annual growth rate of the global economy will reach 3.4 and 3.8 percent in 2014 and 2015, respectively. The German economy will continue its recovery although the dynamic should remain moderate as a result of the sluggish world economy and geopolitical tensions, and only gather speedslowly. In particular foreign trade and investment will grow only slightly. Next year, when geopolitical risks are assumed to have vanished, the German economy will re- gather its moderate pace of expansion. Despite geopolitical risk, growth impulses are coming mainly from increasing foreign demand. In the wake of rising domestic demand, imports will develop equally dynamically. The current account balance surplus will rise slightly to a good seven percent. Investments which marked a tangible upward trend in the winter months of 2013 and 2014 will be hampered by the uncertainty but remain positive over the forecast period as a whole. The prolonged favorable situation on the labor market will stimulate consumption appreciably. Jobs will continue to be created in the course of expanding production, albeit with some loss of momentum. Companies are also meeting the increasing demand by making their employees work longer. Altogether, employment will increase by 330 000 persons this year and by 120 000 persons next year. The number of unemployed will fall slightly this year to 2.91 million. Next year, it will increase slightly to 3.06 million, mainly due to migration and changes in work behavior. As in 2013, the public deficit will remain at 0.3 percent of nominal GDP in both years of the forecast period. The structural surplus this year is 0.7 percent and 0.5 percent next year.

10 September 2014

Inflation Expectations in the Euro Area No Longer Firmly Anchored - Monetary Policy Responses of the ECB

Although the European Central Bank (ECB) has been pursuing an expansionary monetary policy course for many years, inflation in the euro area remains extremely weak. Furthermore, as the present Wochenbericht clearly demonstrates, the inflation expectations in the euro area are no longer firmly anchored. Expectations are becoming increasingly decoupled from the ECB's inflation target which, in turn, augments the risk of the euro area sliding into deflation. In June, the Central Bank introduced negative interest rates on the deposit facility and also announced new targeted refinancing operations (TLTROs) with fixed interest to improve the credit situation in the European crisis countries. In September, the Governing Council of the ECB reduced its key interest rates again and announced two new programs for bond purchases due to start in October. However, the success of these measures is by no means guaranteed. The ECB's expansionary monetary policy urgently needs to be supported by economic policy in order to create a dynamic economic environment in Europe and to stimulate investment.

27 August 2014

Average Income of Women Only Half That of Men

The first ever gender-specific analysis of income and tax distribution in Germany has been implemented using the most recently available data on personal income tax statistics from 2007. According to its findings, the average income of women is only half that of men. This income gap is less pronounced in capital and rental income than in earned income. The total average personal income tax burden for women is lower than that of men. In the lower and middle income groups, however, the average tax burden for married women is more than twice that of married men with the same income. This effect is a result of joint taxation of married couples with full income splitting.

20 August 2014

Public Confidence in Digital Security Policy

Both economic and security policies increasingly rely on opportunities to use and analyze personal data. These opportunities are, however, not universally considered to be positive bythe general public. This applies to digital surveillance in particular. DIW Berlin has analyzed how much trust the general public has in surveillance measures such as communicationsdata retention or the storage of flight passenger data and to what extent this trust is affected by stakeholders involved in monitoring. DIW Berlin also studied how the public view the exchange of personal data between the German security authorities, between EU member states, and with third-party countries such as the US. To this end, it analyzedpublic trust based on representative data from the research project entitled "Security in Public Space (SIRA)." The underlying survey was conducted in November and December 2011. It revealed major differences in the acceptance of various surveillance measures. Dissemination of passenger data is seen more positively than data retention. In contrast, the generalpopulation has limited trust in companies involved in communications data retention and the storage of passenger data. In particular, their handling and protection of the data collected gets criticized. Furthermore, individuals who view the exchange of personal data positively have far more confidence in the work of the security authorities and private security companies.

13 August 2014

Sectoral Wage Development: The Key to Greater Wage Increases Lies in Manufacturing

In the past decade, wages in Germany have risen more slowly than economic performance. Year on year, average wages remained approximately 0.3 percent behind what was available in redistribution volume, given the development of production. Although there are also sectors with low wages, in which wage increases were insufficient according to this benchmark--such as the hospitality industry, construction, or agriculture--it was the economic sectors with relatively high wages that were mainly responsible for the inadequate wage increases. These include, in particular, important industrial sectors producing capital goods, such as automotive or mechanical engineering, and the chemical industry. In order for overall economic performance to develop in line with wages, the labor unions in these sectors need to implement a more aggressive wage policy. However, it is not particularly helpful if--as has been the case up to now--the debate over wage developments is almost exclusively focused on low-wage sectors and the introduction of a minimum wage.

13 August 2014

Functional Restructuring in Manufacturing: Increasing Importance of Production-Related Services

There are fewer and fewer people employed in the German manufacturing sector. Between 1999 and 2013, the number of people working in the industry fell from 7.7 million to 7.3 million. However, not all areas have been equally affected by the decline, rather, there has been a functional restructuring within the industry: while fewer people are being employed in production, employment in many production-related services in the industrial sector, such as research and development (R&D), technical services, and management and organization functions have actually grown. Export-oriented industrial companies, in particular, have expanded their research and development divisions, but firms focusing on the internal market have also significantly increased their R&D activities. That the share of employment in production is falling does not necessarily mean that this area is becoming less important. On the contrary, the production area's demands for a qualified, skilled labor force is high, in export-oriented as well as in sectors focusing on the internal market. The trend toward tertiarization in industry is likely to continue in the future, not least due to the increasing digitalization of information: routine activities will continue to become less important, demanding activities - also in production - will become more important.

30 July 2014

GDP-Linked Loans for Greece

Greece finds itself at the crossroads. There is the imminent question if Greece should apply for a third public support programme. Government officials are confronting European partners with new calls for a de facto haircut on its outstanding debt. Another option would be to swap existing loans from the European support programs into GDP-linked loans. As a result, interest payments would be linked to economic conditions in Greek. This would, firstly, help to stabilise the debt ratio even under a weaker growth performance. It increases the repayment probability of Greek debt and lowers overall default risk, also on the remaining outstanding debt. Secondly, barriers to reform are lowered through GDP-indexation of debt, which increases the ownership of Greece in the reform process. Thirdly, an implicit deferral of interest payments helps Greece in the short run by lowering the pressure to enforce pro-cyclical fiscal policy. Finally, European creditor countries have the outlook to receive higher repayments in the long-run if the Greek economy starts growing again.

23 July 2014

Migration in the European Union

The mobility of the labor force within the European Union - measured as the proportion of EU foreigners in EU-15 countries to the total EU labor force - increased by approximately one-quarter to almost 3.1 percent from 2007 to 2012. This is primarily due to increased migration of persons from the new eastern European EU member states such as Poland and Romania and, to a lesser degree, due to increased migration of persons from the countries in southern Europe most affected by the crisis. In2012, around 7.4 million economically active persons from the EU-27 were living in an EU-15 country outside their home country. Germany, in particular, has recently seen a substantially increased influx of foreign nationals from EU member states, resulting in an increase in annual total net migration of EU-27 nationals to Germany to more than 260,000 people as of 2012. Our empirical analysis shows that the level of migration to Germany is linked to both unemployment and the gross domestic product per capita in the countries of origin, and to the degree of free movement of workers. The overall picture reveals that the mobility response to the gap in EU unemployment rates in the wake of the crisis was low. This suggests that recent migratory movements could reduce regional (labor market) imbalances to only a limitedextent. The income differences between eastern and western European EU countries appear to have had a greater impact on recent migratory movements than the crisis. If these differences are not significantly reduced in the short term and if recent labor market imbalances within the EU continue for some time to come, annual net migration of EU foreigners to Germany is expected to remain high in the near future.

16 July 2014

Better Competition Policy Significantly Improves Productivity Growth

Economists have long discussed the correlation between the quality of competition policies and a country's productivity growth. It is, however, very difficult to prove this connection, to determine its extent or to quantify it. Commissioned by the European Commission, a team of international researchers, led by DIW competition expert Tomaso Duso, has developed the first evaluation system to assess the effectiveness of competition policy, enabling economists to make observations regarding the impact of changes in competition policy on productivity growth. The study shows that a one-percent improvement in competition policy, based on the indicators used here, is responsible for an average increase in Total Factor Productivity (TFP) of 4.5 percent.

9 July 2014

Federal Fiscal Equalization System Before Reform: An Inventory

One of the key tasks of this legislative period is to restructure the federal fiscal equalization system by 2020. There is a lot of money involved: in 2013, nearly 14 percent of ultimate tax revenue from the Länder was redistributed. The existing system has developed over time, is highly complex and convoluted. Thus, there is a high demand for modifications and fundamental adjustments would be desirable. However, it is likely that political agreement will only be reached on partial changes to the existing system. Ultimately, negotiations are likely to be dominated by the issue who gets or pays how much. Obviously the volume of fiscal transfers is essentially driven by the high degree of equalization concerning the fiscal power of the Länder. But there are also other drivers that are of high relevance. It is not yet finally decided which tax revenue should be included or how the number of inhabitants should be taken into account. Finally, supplementary grants will be a task under consideration. In general, any intervention to the system will leave winners and losers behind. Thus, in this report, exemplary changes to the system will be evaluated and quantified. In view of the political process the current uneven distribution of profits and losses among the Länder is a challenge. While Bavaria can expect high gains, Berlin, the two other city-states and the new Länder will lose out. High concentration of gains and losses among individual Länder is from a political point of view difficult to accept. If no fundamental reform can be worked out, though some form of modification is regarded necessary, the Bund will have to decide on the degree of his engagement. This is not a good solution, rather adjustments regarding the distribution of tax revenue should be considered.

3 July 2014

Growing Out of the Crisis: DIW Berlin Proposes European Investment Fund

An investment fund should temporarily improve the capital stock of small and medium-sized enterprises as part of a comprehensive agenda - In the euro area, there is an annual investment gap of approximately two percent of GDP or 180 billion euros - Many sectors both in the manufacturing and service industries are showing signs of a significant lack of investment, especially the energy sector

The German Institute for Economic Research (DIW Berlin) is proposing a comprehensive investment agenda to tackle the European crisis. The core elements of this agenda should be a temporary investment fund, in particular for small and medium-sized enterprises, improved competition policies, investment-friendly tax policies, and the promotion of cross-border joint ventures. “Structural reforms alone are not sufficient to break the vicious circle of banking, debt, confidence and growth crises,” say a team of researchers led by the President of DIW Berlin, Marcel Fratzscher. According to the team, “Europe has a growth problem that can only be overcome through investment. What we need is not more government intervention but significantly more growth impetus for the private sector, more market, more innovation and more competition.”

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