Labor Market and Income Effects of a Legal Minimum Wage in Germany

Kai-Uwe Müller () and Viktor Steiner ()
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Kai-Uwe Müller: DIW Berlin
Viktor Steiner: Free University of Berlin

No 4929, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In view of rising wage and income inequality, the introduction of a legal minimum wage has recently become an important policy issue in Germany. We analyze the distributional effects of a nationwide legal minimum wage of 7.50 € 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, also taking into account potential employment effects as well as indirect effects on consumption. Simulation results show that the minimum wage would be rather ineffective in raising net household incomes and reducing income inequality, even if it led to a substantial increase in hourly wages at the bottom of the wage distribution. The ineffectiveness of a minimum wage in Germany is mainly due to the existing system of means-tested income support and the position of minimum wage earners in the income distribution.

Keywords: minimum wage; wage distribution; employment effects; income distribution; inequality; microsimulation (search for similar items in EconPapers)
JEL-codes: H31 I32 J32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-05
New Economics Papers: this item is included in nep-cmp and nep-lab
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Citations: View citations in EconPapers (13)

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