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A look at the financial situation of founders in Germany
The German government has ambitious plans that could shake the foundations of the business landscape in Germany. A centerpiece of this reform is the planned introduction of mandatory old-age provision for founders, who have so far been outside the traditional old-age provision systems for specific occupational groups. The aim is to ensure that the self-employed can also build up a solid old-age provision. This directive could be implemented as soon as profit income exceeds the marginal earnings threshold for dependent employment after a waiting period of two years.
Background: opportunities and challenges for the self-employed
This reform is a response to the growing importance of self-employment and entrepreneurship in today's workforce. The self-employed have often been excluded from traditional social security systems, leading to uncertainty about financial security in retirement. The proposed mandatory retirement plan is intended to close this gap and ensure that the self-employed can also benefit from adequate retirement provisions.
Insights from research: IfM Bonn provides insights
A recent analysis by the Institut für Mittelstandsforschung Bonn (IfM Bonn) sheds light on the potential impact of the planned mandatory retirement provision. The analysis excludes individuals who are already insured elsewhere or who operate low-yield energy production facilities. Instead, the focus is on the income development of young start-up cohorts and established self-employed workers.
Data and methodology: a closer look at the numbers
The analysis draws on the Taxpayer Panel, an income tax data source provided by the Research Data Center of the Federal and State Statistical Offices. This dataset covers the period from 2001 to 2018 and allows for a detailed examination of the income situation of the self-employed.
Income distribution and trends: who are those affected?
The study focuses on the income distribution of founders from different cohorts in 2018. Interestingly, it shows that many self-employed people still report negative or low incomes years after their start-up. This suggests that many self-employed people are running their business part-time or part-time.
Outlook: Challenges and opportunities for the future
While the introduction of a mandatory retirement provision for founders is undoubtedly an important measure to secure the financial future of this group, the analysis of income trends makes it clear that many self-employed people may continue to face financial challenges. The federal government faces the task of taking advantage of these findings and, if necessary, adjusting the draft legislation to better address the needs of the self-employed.
The years 2012 to 2016 mark a crucial phase for the startup scene in Germany:
Founding year 2012:
Over 46,000 people ventured into self-employment.
About 24,700 of them recorded negative profit income in their first year.
About 31,900 people earned incomes between €0 and €5,400.
Founding year 2013:
More than 39,700 people ventured into self-employment in 2013.
Over 23,400 of them struggled with negative profit income in their first year.
About 29,000 earned incomes between €0 and €5,400.
Founding year 2014:
Over 38,000 people bravely founded businesses in 2014.
About 23,500 of them struggled with negative profit income in their first year.
About 25,800 earned incomes between €0 and €5,400.
Founding year 2015:
Over 38,800 people ventured into self-employment in 2015.
More than 32,500 of them recorded negative profit income in their first year.
Approximately 30,900 earned incomes between €0 and €5,400.
Founding year 2016:
Over 40,500 people courageously founded a company in 2016.
About 27,700 of them struggled with negative profit income in their first year.
About 38,700 earned incomes between €0 and €5,400.
On average, self-employed individuals with incomes above €5,730 earned a whopping €64,448.
These figures shed light on the financial reality of young businesses in their early years. Many struggle initially with low incomes below €5,400. Those that record higher profits are instrumental in raising the average. This highlights the many challenges young founders face as they build and develop their businesses.