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

Müller, Kai-Uwe () and Viktor Steiner ()
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Müller, Kai-Uwe: DIW Berlin
Viktor Steiner: DIW Berlin

No 3491, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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 means-tested income support.

Keywords: minimum wage; wage distribution; working poor; poverty reduction; micro-simulation (search for similar items in EconPapers)
JEL-codes: I32 H31 J32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-eec and nep-lab
Date: 2008-05
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