Hardly any loss of income due to corona

How big are the losses for employees in the year of the corona pandemic? State transfers have greatly dampened the negative consequences in Germany, according to a new study by labor market researchers.

The German social system has significantly dampened the income losses of Germans caused by Corona. This is the conclusion of a study by the Institute for Employment Research (IAB) and the Ifo Institute. Because no data are yet available on the effects of the Covid-19 crisis on income distribution, the IAB, in cooperation with the Ifo Institute, carried out a simulation study in order to obtain an initial estimate.

The result is clear: the pandemic and the measures used to contain it are having a significant impact on the labor market. Gross incomes are likely to decrease noticeably for all income groups this year. Both well-paid jobs, for example in manufacturing, and lower-paid jobs in the service sector are affected by the crisis, write the authors of the study.

Shock absorber short-time work

If, however, one looks at the disposable household income, the average loss of income among the employed drops significantly to just 1.1 percent. "The losses in earned income are thus considerably mitigated by the tax and transfer system," according to the authors.

"The short-time work works as planned, like a shock absorber on the car," says Andreas Peichl from the Ifo Institute. A large part of the loss of income caused by the crisis is compensated for by unemployment insurance, explains Kerstin Bruckmeier from the IAB. The child bonus, the increase in the income tax exemption for single parents, the emergency child benefit supplement and easier access to basic security benefits for job seekers also had a dampening effect.

Positive effects for the low-income

If you include the special measures for low-income households and consider the total population, i.e. including households without employed persons, i.e. pensioners, the overall effect of the pandemic on disposable household income is reduced to just 0.1 percent.

"We even see positive effects for the 20 percent with the lowest income," the authors say. This is thanks to the child bonus. Unlike child benefit, this is not offset against means-tested benefits, but rather offset against the income tax benefit resulting from the child allowance.

In addition, significantly fewer people are employed in the lower income groups, so that more often there is no loss of income at all. "For the middle income groups, the effects of the corona pandemic are practically zero," says the study. In contrast, there is a decline in the upper income brackets.

Another rise in the pandemic does not change anything significantly

The study only includes developments up to September, "nevertheless the distribution results should not change significantly, also due to the November and December aid," the researchers say.

How the crisis could affect income distribution in the coming years depends crucially on state aid for the population.

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