The real income of Germans is decreasing because growing portions of economic output are permanently reserved for mandatory government and social expenditures. Klaus Regling, former head of the Eurozone bailout fund, describes a situation in which nominal growth barely translates into increased private consumption. A prolonged economic crisis, far-reaching interventions through pension reform, rising national debt burdens, and structural changes in working hours are noticeably and permanently altering how income is used, inevitably leading to a decline in the prosperity of Germans. (handelsblatt: 19.12.25)
Real Income as a Measure of Real Purchasing Possibilities
For Regling, real income is the most precise indicator of economic reality because it shows what proportion of income remains actually available after taxes, social security contributions, and price increases. When rising defense spending, higher social transfers, and long-term environmental costs tie up larger portions of the gross domestic product, the share available for private consumption decreases. This development does not reduce nominal wages, but rather the amount that is actually available after all obligations.
Former crisis manager Klaus Regling therefore speaks of a historic turning point because, for the first time, it is becoming clear that one generation has fewer real consumption possibilities than the previous one. Real income here describes not a subjective sacrifice, but objectively less financial freedom.
Economic Crisis Reduces Value Added Per Capita
The current economic crisis is not having short-term effects, but rather structural ones. Germany is losing market share because China is exporting directly and US trade barriers are making German products more expensive. At the same time, years of neglected investment are reducing productivity. This combination reduces value added per hour worked, which directly impacts wages and thus real income. The economic crisis therefore limits companies’ ability to offset rising costs or pay higher wages.
Government debt is also gaining in importance because new expenditures can no longer be financed by additional growth. Regling considers debt sustainable but points out that it ties up future revenues and thus restricts fiscal policy options.
Pension Reform Shifts Burdens to the Working Population
The pension reform deeply impacts the income structure because the existing system was designed for a growing number of contributors. Declining employment increases the per capita tax burden. As a result, employees’ real income is not reduced by lower gross wages, but by rising mandatory contributions and transfer payments.
Regling therefore advocates abandoning the link between pensions and wage growth and aligning them with inflation. This would prevent productivity gains from being automatically diverted into increased pension expenditures. Without this adjustment, the pension reform exacerbates the economic crisis because rising non-wage labor costs stifle investment.
Working Hours Determine Overall Economic Performance
Working hours indirectly, but decisively, influence real income. Germany has a lower annual workload per employee compared to other countries. Regling does not advocate a general increase in weekly working hours, but rather more full-time employment and a later retirement age. This would increase overall economic output without reducing productivity per hour.
If the labor supply continues to shrink, rising social spending will be distributed among fewer workers. In this case, real income will decrease not because of unemployment, but because of higher taxes and social security contributions per employee. More efficient use of working time can mitigate this effect.
Public Debt Changes Income Distribution
Regling is less concerned with quotas than with the distributional effects of public debt. Debt-financed investments can secure future real income if they increase productivity. However, if current spending is expanded, the pressure on taxes and social security contributions increases. Regling therefore considers higher wealth and inheritance taxes economically justifiable because capital gains of recent decades have hardly been based on merit.
Without such redistribution, the burden on earned income continues to grow. This further exacerbates the conflicts surrounding pension reform and working hours and reduces the purchasing power of broad segments of the population.
Reforms Must Work Simultaneously
Regling calls for a comprehensive political compromise because individual measures remain ineffective. Only if the economic crisis, pension reform, public debt, and working hours are readjusted together can real income be stabilized. Otherwise, private purchasing power will be permanently lost, and citizens’ prosperity will decline sustainably.