A European Minimum Wage: Implications for Poverty and Macroeconomic Imbalances

47 Pages Posted: 10 Jun 2020

See all articles by Enrica Detragiache

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS

La-Bhus Fah Jirasavetakul

International Monetary Fund (IMF)

Koralai Kirabaeva

International Monetary Fund (IMF)

Davide Malacrino

International Monetary Fund

Florian Misch

ZEW – Leibniz Centre for European Economic Research

Hyun Woo Park

affiliation not provided to SSRN

Yu Shi

International Monetary Fund (IMF)

Date Written: May 2020

Abstract

A hypothetical European Minimum Wage (MW) set at 60 percent of each country's median wage would reduce in-work poverty but have limited effects on overall poverty, as many poor households do not earn a wage near MW and higher unemployment, higher prices, and a loss of social insurance benefits may erode direct benefits. Turning to competitiveness, since the MW increase to reach the European standard would be larger in euro area countries with excessive external surpluses, the associated real appreciation should help curb existing imbalances. However, a few countries with already weak external positions would experience an undesirable real appreciation.

Keywords: External sector, Cost of living, Wage policy, Labor costs, Labor markets, Minimum Wage, European Union, Poverty Alleviation, Current Account Rebalancing, Monetary Unions, WP, EMW, poor household, median wage, euro area, harmonization

JEL Classification: J3, E64, F45, I38, E01, E2, Z13, O24

Suggested Citation

Detragiache, Enrica and Ebeke, Christian and Jirasavetakul, La-Bhus Fah and Kirabaeva, Koralai and Malacrino, Davide and Misch, Florian and Park, Hyun Woo and Shi, Yu, A European Minimum Wage: Implications for Poverty and Macroeconomic Imbalances (May 2020). IMF Working Paper No. 20/59, Available at SSRN: https://ssrn.com/abstract=3623877

Enrica Detragiache (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

La-Bhus Fah Jirasavetakul

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Koralai Kirabaeva

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Davide Malacrino

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20001
United States

Florian Misch

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Hyun Woo Park

affiliation not provided to SSRN

No Address Available

Yu Shi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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