Wages and institutional trust between 2019 and 2023

Abstract

While research on income inequality and institutional trust mainly focuses on how actual changes in inequality and individuals’ perceptions affect trust, we know little about whether changes in wages relate to institutional trust. This study investigates how institutional trust develops across wage groups over time and whether substantial wage increases are associated with changes in institutional trust. Using data from the Panel Labour Market and Social Security (PASS), we show that wage inequality decreased in Germany between 2019 and 2023. While wage levels are positively associated with trust, decreases in wage inequality do not translate into increases in trust among low-wage workers. To the contrary, whose wages increased by approximately 20% over our observation period, show a decline in institutional trust. Fixed-effects regressions reveal a statistically significant, but only weak, association between wages and institutional trust. Overall, our findings suggest that even substantial wage increases, such as those from minimum wage reforms, may not strengthen institutional trust, highlighting the limits of economic interventions in shaping citizens’ perceptions of government.