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

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  • 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 ratherineffective 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.

Suggested Citation

  • Kai-Uwe Müller & Viktor Steiner, 2008. "Would a Legal Minimum Wage Reduce Poverty?: A Microsimulation Study for Germany," Discussion Papers of DIW Berlin 791, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp791
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    References listed on IDEAS

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    Cited by:

    1. Bartels, Charlotte & Bönke, Timm, 2010. "German male income volatility 1984 to 2008," Discussion Papers 2010/18, Free University Berlin, School of Business & Economics.
    2. Bachmann, Ronald & Penninger, Marion & Schaffner, Sandra, 2015. "The effect of minimum wages on labour market flows: Evidence from Germany," Ruhr Economic Papers 598, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Bachmann, Ronald & König, Marion & Schaffner, Sandra, 2012. "Lost in Transition? – Minimum Wage Effects on German Construction Workers," Ruhr Economic Papers 358, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. repec:zbw:rwirep:0358 is not listed on IDEAS
    5. Taiwo Aderemi, 2017. "Minimum Wage and the Working Poor in Nigeria: Is there a Link?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 60(3), pages 481-499, September.
    6. Ronald Bachmann & Marion König & Sandra Schaffner, 2012. "Lost in Transition? – Minimum Wage Effects on German Construction Workers," Ruhr Economic Papers 0358, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Alexandros Karakitsios & Manos Matsaganis, 2018. "Minimum Wage Effects on Poverty and Inequality," DEOS Working Papers 1801, Athens University of Economics and Business.

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    More about this item

    Keywords

    minimum wage; wage distribution; working poor; poverty reduction; microsimulation;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, 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; Retirement Plans; Private Pensions

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