Thriving middle classes are the backbone of democratic societies and strong economies, but in many OECD countries they face mounting pressures as a result of stagnating incomes, rising expenditures, and greater labour market uncertainty. As evidenced in the OECD report Under Pressure: The Squeezed Middle Class,published in 2019, middle incomes have been growing much more slowly than high incomes for more than three decades. Over the past 30 years median incomes increased by a third less than the incomes of the richest 10% across the OECD, while the incomes at the very top have surged in many countries. Sluggish income growth coincided with an increase in the costs of a middle‑class lifestyle. Across the OECD, prices for housing, health, and education have risen faster than inflation. Meanwhile, labour market trajectories have become more uncertain. Rapid integration of global supply chains, fast and transformative technological change, and population ageing have resulted in labour market polarisation, and one‑in-six middle‑income workers are employed in jobs that face high risk of automation across the OECD on average.

The German middle class – proxied in this review as people living in households with incomes between 75 and 200% of the median – is significantly smaller than it was in the mid‑1990s. Between 1995 and 2018, the German middle‑income group shrank by 6 percentage points, from 70 to 64% of the total population (OECD average of 62%). Among the 26 OECD countries with available data, only Sweden, Finland, and Luxembourg experienced a faster decline. Most of the decline occurred in the early 2000s, when income disparities in Germany widened, and it largely reflects a shrinking of the lower middle‑income group (incomes between 75 and 100% of the median). In spite of strong employment growth after 2005, the German middle‑income group did not recover its size as real disposable incomes for middle‑income households stagnated. In more recent years up to the COVID‑19 crisis, income trends have been more positive, and households across the income distribution experienced a healthy rise in disposable incomes. The available evidence on income developments during the pandemic suggests that up to January 2021 disposable incomes slightly grew on average for workers in low- and middle‑income households, thanks to the comprehensive government support.

This chapter gives an overview of the main findings presented in this report. It starts by presenting trends in the size and composition of Germany’s middle class since the mid-1990s. It then discusses the major labour market developments for middle-class workers in Germany, looking at changes in occupational structure, the incidence of non-standard work, developments during the COVID-19 crisis, and projected employment trends. The chapter proceeds by providing an overview of trends in income mobility in Germany, focusing on the risks and opportunities of middle‑income people as well as on the chances for low‑income people of rising into the middle. The final section discusses policies to strengthen Germany’s middle class by raising the employability of middle‑class workers, creating good-quality, future-oriented jobs, and boosting middle‑class disposable incomes.

This chapter examines trends in the size and composition of Germany’s middle class, proxied by the middle‑income group, i.e. people living in households with disposable incomes between 75 and 200% of the national median. The chapter starts by looking at the share of people belonging to the middle‑income group, at how this share changed over time, and at income trends for middle‑income people. It then analyses changes in the composition of the middle‑income group along various socio‑demographic dimensions, including by age, household type, level of educational attainment, migrant background, and region of residence.

This chapter discusses how labour market trends in Germany since the mid‑1990s have affected workers in middle‑income households. It sets off by looking at the types of jobs carried out by middle‑income workers, analysing changes in occupations and sector of employment and discussing the role of rising female labour force participation. It then provides evidence on the share of middle‑income workers in non-standard and low-paid employment. The chapter discusses future trends in middle‑class employment, looking at the likely impact of automation on middle‑income workers and presenting employment growth forecasts across occupations. The final part provides evidence on the initial impact of the COVID‑19 crisis on employment outcomes and incomes of middle‑income workers.

This chapter examines short-term income dynamics in Germany since the mid‑1990s. It first focuses on the mobility patterns of people in the middle‑income group over a four‑year interval, looking at trends in their risks of sliding out of the middle, and of experiencing poverty, and their opportunities of rising out towards the top. It then looks at changes in the upward mobility into the middle‑income group for low-income households. The last part of the chapter zooms in on the changes in income dynamics for different socio‑economic groups, disaggregating results by age, level of educational attainment and occupational class, migrant background, and region of residence.

This chapter discusses policy options for a stronger middle class in Germany drawing on the findings from the statistical analysis presented in the previous chapters. It focuses on the following policy areas: i) strengthening the employability of middle‑class workers, by expanding adult learning and building pathways into the middle class for the young generation; ii) supporting the creation of good-quality and future‑oriented jobs by renewing Germany’s infrastructure and improving working conditions and pay for care professionals; iii) boosting the disposable incomes of middle‑class households by reducing their labour tax burden and enabling and incentivising women to expand their labour force participation.