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

36 Pages Posted: 27 May 2008  

Kai-Uwe Müller

German Institute for Economic Research (DIW Berlin)

Viktor Steiner

Zentrum Fuer Europaeische Wirtschaftsforschung (ZEW) - Center for European Economic Research; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

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.

Keywords: minimum wage, wage distribution, working poor, poverty reduction, microsimulation

JEL Classification: I32, H31, J32

Suggested Citation

Müller, Kai-Uwe and Steiner, Viktor, Would a Legal Minimum Wage Reduce Poverty? A Microsimulation Study for Germany (May 2008). DIW Berlin Discussion Paper No. 791. Available at SSRN: https://ssrn.com/abstract=1135642 or http://dx.doi.org/10.2139/ssrn.1135642

Kai-Uwe Müller (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Viktor Steiner

Zentrum Fuer Europaeische Wirtschaftsforschung (ZEW) - Center for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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