Deindustrialisation and the polarisation of household incomes: The example of urban agglomerations in Germany

Abstract

The tertiarisation, or perhaps more accurately, the deindustrialisation of the economy has left deep scars on cities. It is evident not only in the industrial wastelands and empty factory buildings, but also in the income and social structures of cities. Industrialisation, collective wage setting, and the welfare state led to a stark reduction in income differences over the course of the 20th century. Conversely, deindustrialisation and the shift to tertiary sectors could result in increasing wage differentiation. Moreover, numerous studies on global cities, the dual city, and divided cities have also identified income polarisation as a central phenomenon in the development of major cities. Using data from the German Socio-Economic Panel (SOEP), we find an increasing polarisation of household income structures since the mid-1990s. In urban agglomerations, this income polarisation is even more pronounced than in the more rural regions. The income polarisation in Germany is likely to have multiple causes, some of which are directly linked to policies such as the deregulation of the labour market. But extensive deindustrialisation is probably also one of the drivers of this process, and it has directly weakened Germany’s middle-income groups.