Press Releases

Current and older Press Releases of DIW Berlin
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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.”

25 June 2014

Coal Power Endangers Climate Targets: Calls for Urgent Action

Coal-fired power stations are responsible for around a third of Germany's carbon emissions. Failure to reduce the persistently high level of coal-fired power generation threatens Germany's climate targets for 2020 and 2050 and undermines a sustainable energy transition. Calculations by DIW Berlin and other expert opinions prove that, in the long term, lignite, in particular, is no longer relevant for the German energy system. However, if there is no significant increase in the price of CO2 emission certificates in the near future, a market-driven transition from coal to less CO2-intensive energy sources, such as natural gas, is unlikely to occur. Presently, a number of options for reducing the level of power generated by coal are being dicussed. Along with the reform of the Emissions Trading System (ETS), proposals also include minimum energy efficiency levels or greater flexibility requirements, national minimum prices for CO2 emission certificates, capacity mechanisms, a residual emissions cap for coal-fired power stations, emissions performance standards, and network development planning that respects the climate targets. The proposals address both existing and planned coal power plants.

17 June 2014

The Upturn Continues

The German economy is expected to grow by 1.8 percent in 2014, keeping that pace in 2015, at a rate of two percent. GDP is expected to grow during the forecast period at rates only slightly above the trend; the slight under-utilization will therefore decrease correspondingly slowly. Inflation remains weak. Global economic growth was weaker at the start of the year. In both the industrialized and emerging countries, rates of expansion have decreased. Monetary policy orientation will remain globally expansive during the forecast period. The restrictive stimuli of financial policy in industrialized countries will diminish. After a weak start to the year, the pace of growth in global economic development should accelerate somewhat. In the short term, catch-up effects in the US will become particularly evident. Later, the gradually improving situation on the labor markets of industrialized countries in conjunction with continued low inflation rates should bolster real earnings. This is likely to stimulate consumption and, as a consequence, corporate investment activity. Overall, the average annual growth rate of the world economy in 2014 and 2015 will reach 3.5 and 3.9 percent respectively. The rate of inflation is likely to be around three percent in this period. In this environment, the German economy will continue its uptrend, albeit only at rates slightly above potential growth, as the industry will expand only moderately. The previously robust growth in the service sector may be further stimulated by a tangible increase in private consumption expenditure. Equipment investment and exports will increase significantly again going forward. There has been a marked increase in the number of employed people and employment should continue to rise noticeably. All in all, unemployment will recede in both 2014 and 2015 to 2.88 million and 2.83 million respectively and the unemployment rate will decline in both years, to 6.6 and 6.5 percent, respectively. The overall public budget will also show a surplus in both years. This year it is likely to be as high as it was last year (0.2 percent in relation to nominal GDP) and next year it will then increase significantly to 0.7 percent.

12 June 2014

Making the Euro Area Fit for the Future

The crisis in the European currency area is not over yet. Although the situation in the financial markets is currently relatively calm, the economic crisis appears to be bottoming out in most countries. Nevertheless, fundamental design flaws in the Monetary Union continue to exist. If these are not fully addressed, it will only be a matter of time before a new crisis hits, and a partial or complete breakup of the monetary union cannot be ruled out. The economic consequences would be devastating, not least for Germany. To ensure the continued existence of the European Monetary Union, fundamental reform is required in three problem areas: the financial markets, public finances, and the real economy. In order to give the monetary union a stable foundation, all problem areas must be tackled equally; otherwise, due to interactions between these fields, success in one area might be wiped out by a flare-up of the crisis elsewhere. The present DIW Wochenbericht outlines the elements of such a strategy for the institutional restructuring of the Monetary Union. It is therefore the prelude to a series whose subsequent parts are concerned with the role of the ECB as the lender of last resort, with the banking union and bank regulation, community bonds, a European investment agenda, with migration within the EU, a European unemployment insurance, options for fiscal devaluation, and the mechanisms for sovereign bankruptcies.

11 June 2014

Intense Excitement until the Final Whistle - FIFA World Cup Winner More Difficult to Predict this Time Around

At the FIFA World Cup 2006, the method of using the market value of the teams ("transfer value") was first proposed as a simple and transparent basis for forecasting the outcome of a major football tournament. Indeed, the countries with players of the highest market value were world champions in 2006 and 2010 (Italy and Spain, respectively), just as the most expensive team won the European Championships in 2008 and 2012 (Spain). The winner of the upcoming World Cup in Brazil can be forecast in the same way, but it is considerably more difficult to predict the result this time around. This is because the top teams are much more evenly matched - in terms of the market value of the whole squad - than in the previous tournaments when the Spanish team was clearly the most expensive one. Consequently, other factors come into play, such as level of fitness, daily form, and chance, as they did in 2006 when the top teams were also very evenly matched.

4 June 2014

Marriage- and Family-Related Payments in Retirement: Important for Economic Stability of Families

Family-related breaks in employment often lead to lower statutory pension entitlements, especially for retired mothers. Against this background, the legislation for marriage- and family-related payments has been designed to compensate for such deficits in old-age provision. These payments are directly related to old-age pensions and can be of relevant importance for the economic stability of families in retirement. This applies in particular to child-rearing periods and, to a limited degree, also to supplementary child allowance for widow's pensions and credited child-raising periods in relation to revaluation and bringing up several children. In contrast, credited child-raising periods have less relevance for the entitlements of those retiring before the default retirement age.

27 May 2014

Unemployment Also Affects Partners

Unemployment affects the mental health of partners almost as much as that of the unemployed person. The impact on mental health does not depend on which partner is unemployed: both women and men suffer from their partner being unemployed. These are the findings of a study conducted by DIW Berlin on the basis of data from the Socio-Economic Panel Study (SOEP) which looked at couples affected by unemployment due to business closures. The findings show that the costs of unemployment for the health system are underestimated if the impact on partners is not considered.

27 May 2014

European Natural Gas Supply Secure Despite Political Crisis

Natural gas makes a major contribution to European energy supply. Consequently, the political crisis between Russia and Ukraine increases fears of the consequences of Russia suspending natural gas supplies to Ukraine and the European Union. The last time this occurred was in the winter of 2009, as Russia and Ukraine disputed the price of natural gas and transit costs. However, the European Union has subsequently increased the security of its gas supply. Measures proposed by the European Commission are becoming more and more successful, particularly the diversification of sources of supply and an accompanying expansion of natural gas infrastructure to secure supply from third-party countries. Opportunities to ease temporary supply bottlenecks have improved significantly within the Community in recent years. Nevertheless, Russia remains a major supplier of natural gas to the EU. The Russian gas corporation Gazprom is gaining importance in Eastern Europe, and increasingly also in Germany. However, this dependency is not a one-way street: Russia generates high export revenues from its natural gas trade. It currently has few alternatives to exporting to the EU. Model calculations by DIW Berlin show that Europe can cope with any supply disruption by Russia via Ukraine. Some Eastern European countries, however, suffer most from a complete supply stop by Russia. To further increase supply security to Europe in the medium term, it will be necessary to continue diversifying gas supplies, especially by making more efficient use of existing infrastructure, and expanding its pipelines and its capacity to import liquefied natural gas. Additionally, Europe should consider building up strategic gas reserves. It also seems advisable to continue to improve energy efficiency in all areas and consistently expand renewable energies as part of its energy and climate strategy.

21 May 2014

Quality of Day Care Affects Employment Patterns of Mothers with Toddlers - Stronger Link in Eastern Germany

When mothers with young children contemplate employment, a decisive factor is whether day care is available. Extensive research has been carried out on the subject. However, to date, it has failed to address the extent to which the quality of day care affects maternal employment decisions. We examine this research question using data from the Socio-Economic Panel Study (SOEP) and the extension sample Families in Germany (FiD) in conjunction with data from the child and youth services statistics. The official data allow us to measure the quality of day care centers in youth office districts. The data include, for instance, the size of groups in day care centers and the child-staff-ratios. Our analyses show a link between some quality characteristics and the employment patterns of mothers with children under three years. The link is stronger in Eastern Germany than in Western Germany. However, this only applies to characteristics which are also evident to parents, for example, the group size , but not qualifications of pedagogical staff. Overall, the findings indicate that high-quality child care can also be relevant for reconciling work and family life.

14 May 2014

Distributional Effects of Increasing the Insurance Periods Recognized for Bringing Up Children

The planned increase of the insurance periods recognized for bringing up children (Mütterrente) will increase the pension contribution rate by an average of 0.3 percentage points and reduce the gross pension level by an average of 0.4 percentage points by 2018. However, since government subsidies to the pension system are to be gradually increased from 2019, the longer-term impact on contribution rates and pension levels will be dampened, possibly at the cost of an increase of general taxes. Relative to net household income, the Mütterrente will primarily benefit low- and middle-income pensioner households, providing they have children born before 1992. From this perspective, the reform appears progressive. However, pensioners on a low income will only benefit if they are not claiming the basic minimum pension or, as a result of the Mütterrente - less than 30 euros per month per child - no longer qualify for the basic minimum pension. Pensioners who continue to claim the minimum pension will not benefit. This affects approximately three percent of women over the age of 65. At the same time, pensioners with higher incomes will be able to take full advantage of the reform. The bottom line is that those currently paying pension contributions and pensioners who do not have children born before 1992 will have to bear the cost.

7 May 2014

Work-Retirement Transition Pathways: Reforms Have Major Impact

Germany's draft bill to improve the benefits provided under the statutory pension insurance scheme (Gesetz über Leistungsverbesserungen in der gesetzlichen Rentenversicherungen) will entitle, in particular, those who have contributed for many years (at least 45) to retire early on a full pension (without any reductions to their pension payments) at the age of 63. The proposed reform is in stark contrast to the pension policies of past decades, even though the German government maintains it has no intention of changing course and still plans to pursue its objective of raising the retirement age. It is not currently possible to predict the effects of a statutory retirement age of 63. What is certain, however, is that statutory work-pension transition options and labor market policy framework conditions will have a significant impact on when people make the transition from working life to retirement. The German Institute for Economic Research (DIW Berlin) analyzed the impact of pension reforms over the last 20 years on the work-retirement transition of those born between 1932 and 1947. The study analyzed the retirement dynamic between 1990 and 2012 based on representative data from the German Socio-Economic Panel (SOEP). While official German Pension Insurance statistics primarily provide information on retirement age and type of pension, SOEP allows detailed analyses of developments in the phase leading up to retirement. A cluster analysis was used to identify typical work-retirement transition pathways and to examine the impact of labor market and pension policy framework conditions on the relative significance of these pathways in a comparison of cohorts. A further analysis was conducted to determine how the phase leading up to retirement changes between the ages of 58 and 65 in the cohort comparison. There are typically five pathways that characterize the work-retirement transition: in employment until statutory retirement age, in employment until early retirement, inactivity prior to retirement, unemployment prior to retirement, and early retirement or reduced earnings capacity pension. The work-retirement transition behavior of eastern and western Germans differs significantly. Findings clearly show that when options for early retirement exist, they are also used.

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