Private household expenditures on child care in centers have significantly risen: from an average of 98 euros per month in 2005 to just under 171 euros in 2015 for a child under three and for children three and older (“Kindergarten”1 age group), from 71 to 97 euros in the period between 1996 and 2015. At the same time, more and more households are completely exempt from paying fees for day care. However, relative to their income, households on or below the poverty line that have day care expenditures still pay virtually the same amount as other households. For the first time, based on data from the Socio-Economic Panel (SOEP) and the special study Families in Germany (FiD), the present report shows trends in day care expenditures in recent years and who is carrying how much of a burden as a result. Lower income households and single parents in the Kindergarten age group have been affected to a lesser extent or not at all by increases in day care expenditures over the years. Nevertheless, in the future progressive fee scales should be implemented more thoroughly and, above all, uniformly throughout the federal states. It is not necessary to make day care universally free of charge because households in upper income groups have expressed a high willingness to pay. This potential has not been fully utilized and could be enhanced—especially if public money is used to improve day care quality.
The world economy continues on its upward growth path, with global production expected to grow by 3.7 percent this year and slightly more than that in 2018. The economies in both the developed and the emerging countries are gaining momentum. Solid output growth is expected for the U.S. and euro area over the forecast period; China’s growth rates remain high, though they are declining somewhat; and Russia is coming out of its recession. Private consumption is driving growth in the developed countries, but the rise in inflation – which is due to higher energy prices – is expected to slow down consumption growth a bit. The global increase in prices is likely to also lead to a slightly more restrictive monetary policy overall. A number of economic policy-related risks – not least among them, the protectionism – could have a negative impact on the world economy, in particular on investment activity.
Central banks frequently intervene in foreign exchange markets. Using recognized criteria this report analyzes the probability of success in a data set of 4,500 intervention episodes in 33 countries. It is important to differentiate among exchange rate regimes because each focuses on a different goal. While flexible exchange rate regimes intervene less frequently and seek to influence trends, other regimes target exchange rate stabilization by establishing a band within which the exchange rate can float. Interventions are generally more successful when they involve larger volumes, follow the exchange rate trend, and are oriented on the fundamental value. When decision makers also communicate their interventions or changes to exchange rate policies, the effects of these are likely to be stronger. Central bankers should therefore complement their interventions with communication to improve their likelihood of success.
This report examines how income groups and forms of employment in Germany have changed in the past two decades. Since the mid-1990s, inequality in disposable household income in Germany has generally increased. This trend was in effect until 2005. While fewer people had disposable incomes in the median range, the proportion of the population at both tails of the income distribution increased. At the same time, there were many changes in the labor market. Employment rose, working hours became increasingly differentiated, and starting in 2005, the unemployment rate fell. While the employment increase was spread across almost all income groups, it was reflected differently in each group. The proportion of people with low wages in the income groups below the median rose steadily during the two decades studied. At the same time, in 2014–15 more people in high income groups had regular types of employment than they did in the second half of the 1990s. In the groups in the median range, regular types of employment were recently as frequent as they were 20 years ago and unemployment also declined here. Further, in these groups the proportion of those with jobs paying low wages is higher.
The real disposable income of private households in Germany, accounting for inflation, rose by 12 percent between 1991 and 2014. This is what the present study based on data from the Socio-Economic Panel (SOEP) has shown. However, the trends varied greatly depending on income group. While the middle income segment rose by more than eight percent, the highest income segment increased by up to 26 percent. The lower income segment, on the contrary, declined in real terms. Consequently, income inequality has increased overall, especially in the first half of the 1990s, in the period from 1999 to 2005, and after 2009. It stagnated or even decreased in the interim periods. The proportion of people at risk of poverty has recently become greater again. Gainful employment still provides the most effective protection against income poverty, but more and more employed persons are at risk of becoming poor. Containment of the low wage sector, by revoking the privileged status of mini-jobs, for example, could counteract this effect. And single parents should no longer be fiscally disadvantaged in comparison to childless coupled households – this could also reduce the number of children at risk of poverty.
Due to increasing shares of renewable energies in electricity production, the cost-effective system integration of these installations is becoming more and more important. Technologies and locations are viewed as system-friendly when they are more cost-efficient and easier to integrate because they, unlike other installations, produce at times when electricity is more valuable. This report shows that project developers of renewable energies in Germany have had limited incentivesto invest in system-friendly installations. A market value model is derived based on five criteria for the further development of support instruments. This model creates appropriate incentives for investments in system-friendly installation while simultaneously avoiding additional financial risks for project developers. With such an approach based on a market value factor, the support costs for renewable energies as well as for levies in the overall electricity system and for the energy transition in general can be minimized over the long-term.
This report examines China’s strategy for investing in Europe. While investing in Western Europe is primarily about obtaining access to advanced technologies, investing in Central and Eastern Europe is more about establishing a presence in the EU common market and expanding infrastructure—which also fits into the framework of the New Silk Road Initiative. An econometric analysis reveals that the investments largely follow conventional explanatory patterns. If we distinguish between different forms of market access, the determinants become much more specific. A high industrial share, sound institutions, and unit labor costs in the target country all have a negative impact on investment in new ventures, but not on investment in existing companies. Differing investment patterns, as well as the heterogeneous interests of the EU member states, make it difficult to implement a coordinated response to the Chinese investment offensive. At the very least, however, a kind of reciprocity should be introduced within the framework of an investment protection agreement between the EU and China. This could reduce the growing skepticism surrounding Chinese investment activities.
Towards the very end of this legislative period, a cross-caucus parliamentary majority gave same-sex marriage the green light – progress for the legal equality of homosexuals in Germany. This report focuses on the life situations of homosexual and bisexual people in Germany. The careers they pursue, for example, differ from those of heterosexuals. Hourly wages are an area of significant disparity: homosexual and bisexual men earn less per hour than heterosexual men with the same qualifications in comparable professions. While differences in personality structure are virtually nonexistent, homosexuals and bisexuals describe themselves as less satisfied with their lives and under more psychological stress. An analysis based on the data from the Socio-Economic Panel (SOEP) at the German Institute for Economic Research yielded these and other results. The SOEP is one of the few representative population surveys in Germany that collects information on the sexual orientation of participants. Expanding the scope of regular social reporting to include data on sexual orientation would make it possible to better document differences in life situations and to more effectively identify where action is needed – such as in fighting discrimination.
Demographic projections for Germany indicate a drop in the population of many regions by 2030. This is likely to have an impact on the real estate market. Our report presents the result of a model calculation of asking prices for residential real estate in Germany up to 2030 based on market data from empirica-systeme GmbH and a population projection from the Bertelsmann Foundation. Depending on the model specifications, it appears that real estate price polarization will increase by 2030. As with all model calculations, the results are subject to uncertainty. In the scenario presented here, we strictly focus on the demographic effect on real estate prices. According to our projections, in one-third of all rural districts (Landkreise) and urban districts (kreisfreie Stadte), the market value of condominiums will fall by over 25 percent. This will also be the case for single- and two-family homes in one-quarter of all districts. Some regions in eastern Germany will be hit particularly hard by this development. In and around urban centers, however, the trend of rising prices is expected to continue. Our findings also show that the polarization of real estate prices might cause the inequality of wealth in Germany to rise slightly.
For social and economic reasons, national economies benefit from the inclusion of as many people as possible in financial services. In a cross country study, the present study shows that financial literacy for the general population promotes financial inclusion. This relationship goes beyond the effect of higher economic or financial development. And the effect of higher levels of financial literacy is greatest on the “use of financial products” in financial systems that are more developed. On the contrary, the educational effect on “access to finance” is greatest for countries that are financially less developed. Economic policy that targets financial inclusion should therefore not only concentrate on financial infrastructure, but also on improving financial literacy.
The German economy is on track for continued growth. Due to the unexpectedly robust first six months of 2017, the German Institute for Economic Research is raising its forecast for GDP growth to 1.9 percent for the current year. This year and arguably for the coming two years, the country’s output will exceed potential output; nonetheless, there is no risk of overheating. Economic growth will slow down somewhat, not only because demand from abroad will be expanding at a slower rate. Additionally, both private consumer and public spending will experience only moderate increases, while companies will continue their reluctance to invest in new machines and facilities. Inflation should rise only slightly, even givenmodest wage increases, which further reflects the continued growth of the potential labor pool. The economy is also beset with numerous risks. For example, exports could be adversely affected if the external value of the euro were to rise - for instance as a result of a more restrictive monetary policy than assumed here. And it is entirely possible that increasing protectionism could hinder world trade.
The upswing of the German economy continues and since the beginning of 2017, even at a somewhat faster pace. Sharp gains in employment are still driving consumption. And companies are investing significantly more in machines and facilities. Many global risks that previously limited the propensity to invest—in Germany and many other countries—have vanished. And the euro area is also finally feeling the upswing. The German export industry in particular is enjoying the benefits. The German Institute for Economic Research (DIW Berlin) is thus raising its forecast for German GDP and now anticipates a plus of 2.2 percent for this year. Although the momentum will gradually slow down toward the end of the forecast horizon, Germany’s annual growth for 2018 should be of the same magnitude. All in all, the economy is booming but not to the point of overheating—wage and price movement is restrained.
In the last decade the available labor force has expanded in Germany—despite the decline in the working-age population. The reason: labor market participation has increased, for women in particular and older people in general. Also noticeable was a rise in qualification level because well-educated people have a particularly high propensity to participate in the labor market. Most recently, Germany’s potential labor force has grown as a consequence of many factors, including migration—from other EU member states in particular. The immigrants from EU countries now exhibits higher labor market participation than that of Germans. This is due to the favorable age structure of the migrants from the EU. The situation is different overall for migrants from non-member states: their participation is relatively low. This may have to do with lack of access to the job market. However, another factor is that the participation of women from non-member states is far below the average. In the future, Germany will be more or less reliant on migration. This is the finding of various model calculations showing the effects of demographic influences and participation behavior on Germany’s future labor supply. Even if Germany’s level of labor market participation rises to Switzerland’s current level by 2040, the finding still applies. The Swiss example shows that policy makers were successful at attracting persons with higher labor market participation from abroad. In Switzerland, the labor market participation of older people is also much higher than in Germany. Policy makers in Germany should take that into account and ensure that skill potential is not prematurely lost to early retirement. Granting tax and social contribution privileges to the semiretired is counterproductive.
The German economy's upward growth trend continues, with the economic output expected to increase by 1.4 percent this year with slightly overloaded capacities. Employment growth remains strong with the creation of 600,000 new jobs, which has in turn led to an increase in private consumption – one of the key growth drivers of the German economy. The higher inflation rates are dampening purchasing power, but they will subside later on in the forecast period. The high public budget surpluses will experience a sharp decline. Investment, on the other hand, remains weak, partially due to the fact that Brexit and Trump are creating uncertainty for German exporters. Frictions in the financial markets that may arise as a result of the upcoming elections – in France and the Netherlands, for example – could present risks for the real economy.
The German economy is in the midst of a robust economic cycle: the number of employed persons has reached historic highs and is still increasing powerfully; private household income is on the rise; and the public coffers are overflowing. Inflation is rising only gradually, partly because capacities are not overburdened. The mood is bright among consumers and firms alike, with economic development distributed across the board: the service sector is benefiting from consumers’ more liberal spending habits, while industry is profiting from the robust exports. Yet uncertainties remain high— and this is also why companies continue to hold back on expanding their domestic capital stock. The Brexit negotiations—which include the future of trade relations—are also fraught with considerable uncertainty; as well, foreign trade could also suffer if the U.S. government implements stronger protectionist measures. No significant acceleration in investment—as would be expected given the current economic conditions—is apparent.
Residential heating is responsible for one-fifth of Germany’s energy consumption. Heating costs were around 562 euros per year for an average apartment in 2016, which is more than a 13th month’s rent minus heating costs (Kaltmiete). These are the findings of the 2016 Heat Monitor, published by the German Institute for Economic Research and ista Deutschland GmbH. The report presents evaluations based on an extensive database of heating bills for apartment buildings in Germany. Apartment buildings constitute almost one-half of the total housing stock in Germany. Adjusted for climate and weather, their heating energy consumption rose by around two percent in comparison to 2015. However, a further drop in energy prices provided relief to private households once again. Throughout Germany energy prices decreased by around six percent compared to 2015. But this trend will not continue: energy prices are expected to remain constant or to rise slightly in upcoming heating periods. In the light of these developments and alongside climate policy considerations, it would be shortsighted to reduce effort in retrofitting buildings. After all, energy costs are the major determinant of the “second rent.”
The world needs to continue working to protect the climate—this is generally undisputed. However, there is no agreement on which technologies should be used to decarbonize the energy sector. Many international scenarios still assume a relevant role for nuclear power in the future. However, a study by the German Institute for Economic Research shows that the Paris climate protection target— limiting global warming to below two degrees—can be achieved inexpensively without nuclear power. The results of a global energy system model indicate that no new nuclear power plants have to be built in order to meet the global climate target. It would be cheaper to use a combination of renewable energy and energy storage systems.
The European Central Bank is planning a gradual reduction of government bond purchases under the asset purchase program it initiated in 2015. The present study by the German Institute for Economic Research analyzes the potential macroeconomic implications of different exit strategies. The authors examined the potential effects of a reduction in net purchase volume, an early exit, and a faster exit from the program on output and inflation in the euro area. Model simulations showed that economic growth and inflation rates would decrease in all three scenarios. However, the effects of the scenario with reduced asset purchases are less severe than those of an exit from the program that is earlier or faster than expected. In particular, an early exit from the program should significantly affect inflation rates, an effect that the European Central Bank should factor into its decision-making process.
