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Would a Legal Minimum Wage Reduce Poverty?: A Microsimulation Study for Germany

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Author Info
Kai-Uwe Müller
Viktor Steiner
Abstract

In view of rising wage inequality and increasing poverty, the introduction of a legal minimum wage has recently become an important policy issue in Germany. We analyze the distributional effects of the introduction of a nationwide legal minimum wage of € 7.5 per hour on the basis of a microsimulation model which accounts for the complex interactions between individual wages, the tax-benefit system and net household incomes. Simulation results show that the minimum wage would be rather ineffective in reducing poverty, even if it led to a substantial increase in hourly wages at the bottom of the wage distribution and had no negative employment effects. The ineffectiveness of a minimum wage in Germany is mainly due to the existing system of meanstested
income support.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 791.

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Length: 32 p.
Date of creation: 2008
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Handle: RePEc:diw:diwwpp:dp791

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Related research
Keywords: minimum wage; wage distribution; working poor; poverty reduction; microsimulation;

Other versions of this item:

Find related papers by JEL classification:
I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Sutherland, H., 2001. "The National Minimum Wage and In-work Poverty," Cambridge Working Papers in Economics 0111, Faculty of Economics, University of Cambridge. [Downloadable!]
  2. Riphahn, Regina T., 2000. "Rational Poverty or Poor Rationality? The Take-up of Social Assistance Benefits," IZA Discussion Papers 124, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Richard V. Burkhauser & Kenneth A. Couch & David C. Wittenburg, 1996. "Who gets what from minimum wage hikes: A re-estimation of Card and Krueger's distributional analysis in "Myth and Measurement: The New Economics of the Minimum Wage."," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 49(3), pages 547-552, April.
  4. Neumark, David, 2008. "Alternative Labor Market Policies to Increase Economic Self-Sufficiency: Mandating Higher Wages, Subsidizing Employment, and Raising Productivity," IZA Discussion Papers 3355, Institute for the Study of Labor (IZA). [Downloadable!]
  5. David Neumark & William Wascher, 2000. "Using the EITC to Help Poor Families: New Evidence and a Comparision with the Minimum Wage," NBER Working Papers 7599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Joachim Ragnitz & Marcel Thum, 2007. "Zur Einführung von Mindestlöhnen: empirische Relevanz des Niedriglohnsektors," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 14(03), pages 36-39, 09. [Downloadable!]
    Other versions:
  7. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-wage Employment," OECD Social, Employment and Migration Working Papers 46, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]
    Other versions:
  8. David Neumark & William Wascher, 1997. "Do Minimum Wages Fight Poverty?," NBER Working Papers 6127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Hendrik Schmitz & Viktor Steiner, 2007. "Benefit-Entitlement Effects and the Duration of Unemployment: An Ex-ante Evaluation of Recent Labour Market Reforms in Germany," Discussion Papers of DIW Berlin 678, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  10. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers 060708, University of California-Irvine, Department of Economics, revised Jan 2007. [Downloadable!]
    Other versions:
  11. Johnson, William R & Browning, Edgar K, 1983. "The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation," American Economic Review, American Economic Association, vol. 73(1), pages 204-11, March. [Downloadable!] (restricted)
  12. Hilke Almut Kayser & Joachim R. Frick, 2000. "Take It or Leave It: (Non-) Take-up Behavior of Social Assistance in Germany," Discussion Papers of DIW Berlin 210, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  13. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-31, March. [Downloadable!] (restricted)
  14. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July. [Downloadable!] (restricted)
  15. Kakwani, Nanak, 1980. "On a Class of Poverty Measures," Econometrica, Econometric Society, vol. 48(2), pages 437-46, March. [Downloadable!] (restricted)
  16. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May. [Downloadable!] (restricted)
  17. Amanda Gosling, 1996. "Minimum wages: possible effects on the distribution of income," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 31-48, November. [Downloadable!]
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