Living conditions: Germany outperforms the US

Gross domestic product is often presented as encapsulating US success. But on broader benchmarks Germany performs better.

Until now there has been no systematic comparison of living and working conditions in the United States and Germany. The old myth of the superpower US as a rich, modern and efficient economy remains alive, underpinned by a per capita gross domestic product (in 2022) 57 per cent higher than in Germany—still 21 per cent superior after adjusting for the differential effect of exchange rates on purchasing power.

The picture however changes with a wider perspective on economic, social and environmental standards. Indeed a new study by myself, published by the Macroeconomic Policy Institute of the Hans-Böckler-Stiftung (und auf Deutsch hier), finds that Germany not only outperforms the US but reaches overwhelming superiority on most of 15 associated dimensions.

Objective indicators

A quick methodological preface. Eighty indicators are drawn on—subjective indicators, such as life satisfaction, based on polls or surveys, are excluded—with the reference year again 2022. The granular, multidimensional focus on only two countries provides much more detailed information than multi-country analyses (such as the Better Life Index of the Organisation for Economic Co-operation and Development, the happiness report promoted by the United Nations or the UN Development Programme’s Human Development Index).

The dimensions assessed are incomes per capita, household incomes, poverty of the working poor and children, pensioner incomes, work-life-balance (annual working time as proxy), wealth per household, private consumption, health conditions, environmental standards (including climate policy), individual safety and security, education and research, housing conditions, gender inequality, social security provisioning, and the overall income and wealth distribution. This last is a catalyst for unequal living conditions, to the detriment of the lower social strata.

A special emphasis is placed on median (middle) rather than mean (average) values if data allow. In the income hierarchy, for instance, 50 per cent of persons lie above and below the median. In highly unequal societies the mean is pulled, flatteringly, well above the median by very high incomes.

US weaknesses

The comparison shows that Germany is superior on ten of the 15 dimensions, while the US is superior on four (one is on par). Furthermore, if the size of the gap (small, large, very large) is addressed (allocated one, two or three points, respectively), Germany scores 23 overall and the US just six (see table). Indeed, if data were available to use median (rather than mean) values also for consumption, health, security and education, Germany would achieve super superiority. This despite the fact that Germany’s welfare state is fragile and has deteriorated in many ways in recent years—so some of Germany’s relative strengths betoken US weaknesses.

		Degree of advantage 1-3		Advantage without degree
		US	DE	US	DE
1	Wages, median		1		*
2	Household income, median	2		*
3	Poverty (child, working-age)		2		*
4	Old-age income, median	0	0	–	–
5	Work-life balance		3		*
6	Wealth, median		1		*
7	Consumption per capita	2		*
8	Environment		3		*
9	Health		3		*
10	Security		3		*
11	Housing	1		*
12	Education	1		*
13	Gender issues		3		*
14	Social security network		2		*
15	Inequality of incomes and wealth		2		*
	Summing up	6	23	4	10

The US superiority in (median) household incomes remains strong and fuels private consumption, reinforced by a lower propensity to save than in Germany. Upon closer inspection, though, this is because Americans work 35 per cent longer each year; median hourly wages are higher for Germans, who enjoy more leisure time if lower GDP.

Indeed, Germany is one of the OECD countries with the shortest annual working time, due to systematic pressure from trade unions over many decades, as well as more part-time work and many paid sick-leave days. German households also benefit from much higher in-kind transfers from government, such as free tuition for students and childcare, than their US counterparts.

America has slight advantages in housing, with higher space per head despite poor energy insulation (no data available) and in educational spending, according to OECD data. The latter however focus on tertiary education and ignore Germany’s strength in vocational training (classified as ‘secondary’ education). US spending per capita on research and development exceeds that of Germany only slightly.

Germany’s strengths

Germany’s strengths come mainly in five dimensions. The superior work-life-balance has been mentioned—leisure is a much appreciated ‘asset’.

Health conditions are way better in Germany, with life expectancy five years lower in the US. From Angus Deaton’s research, this is mainly due to low life expectancy among individuals with low ‘human capital’ (no college education) and poor incomes, facing high private health costs. Here the US deficit on standard measures—numbers of physicians, nurses and hospital beds per 100,000 inhabitants—plus its disastrous death toll during the pandemic give Germany a decisive advantage, even though its social-insurance-based health system costs much less as a proportion of GDP.

Most environmental indicators, especially ecological footprint and greenhouse-gas emissions, award Germany a markedly better standing. On security and safety, the gap is most pronounced on the homicide rate—the US ranks 155th in the world (similar to Russia) while Germany is on rank 43—but other indicators point in the same direction. On gender discrimination, international data (mainly from the OECD) indicate that Germany performs significantly less badly than the US. Germany is, amazingly, slightly superior on median household wealth, whereas the mean gives a huge advantage to the US due to its much higher share of super-rich.

On social security, Germany looks comparatively a land of milk and honey: paid sick leave, compulsory care insurance, almost 100 per cent health-insurance coverage, parental-leave legislation, national minimum holidays and national minimum wages—way beyond the US $7.50 per hour, although some states mandate more—as well as free childcare and university access, unemployment insurance for the long-term unemployed (Bürgergeld), an accommodation allowance for low-income renters, and protection from dismissal for workers and eviction for tenants. This is far below the standards in the four Scandinavian countries, and includes many weaknesses and fissures, but it is there.

Different brand

Germany’s surprisingly superior performance is due to a different brand of capitalism, a mild-universal welfare capitalism contrasting with the ‘liberal’ capitalism of the US with its small, minimalist welfare bolt-on. Behind these competing systems stand the different degrees of inequality in income and wealth distribution.

The standard Gini coefficient of income inequality ranges from zero in a state of total equality to one where one person hoards all income. Before taxation it is almost the same in Germany and the US but after taxation and welfare transfers the Gini is much lower for Germany: 0.296 compared with 0.375 for the US. Government revenues, including social-insurance contributions as well as tax, as a proportion of GDP are 6-7 percentage points higher in Germany, allowing for more redistribution and expenditure on public goods.

Deaton, a British Nobel laureate, argues that economics in the US systematically misses the point in focusing on GDP and using standard neoclassical models. Economists should scrutinise the data more carefully. Doing so would reveal the deep cause of the great divide in US society—inequality—and the consequent rise of populism.