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GINI DP 56: Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US

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Author Info

  • Ive Marx

    ()
    (Centre for Social Policy, University of Antwerp)

  • Sarah Marchal

    ()
    (CSB , University of Antwerp)

  • Brian Nolan

    ()
    (School of Applied Social Science, University College Dublin)

Abstract

This paper focuses on the role of minimum wages, in conjunction with tax and benefit policies, in protecting workers against financial poverty. It covers 20 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in certain countries do net income packages at minimum wage level reach or exceed the EU’s at-risk-of poverty threshold, which is set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This remains the case despite shifts over the past decade towards tax relief and additional income support provisions for low-paid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already comparatively small and where relative poverty thresholds are mostly a function of the dual-earner living standards. In order to fight in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against ‘one size fits all’ policy solutions.

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Bibliographic Info

Paper provided by AIAS, Amsterdam Institute for Advanced Labour Studies in its series GINI Discussion Papers with number 56.

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Date of creation: Jul 2012
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Handle: RePEc:aia:ginidp:56

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  1. Juan J. Dolado & Florentino Felgueroso & Juan F. Jimeno, 2000. "The Role of the Minimum Wage in the Welfare State: An Appraisal," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 136(III), pages 223-245, September.
  2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 772-93, September.
  3. Boeri, Tito, 2012. "Setting the minimum wage," Labour Economics, Elsevier, Elsevier, vol. 19(3), pages 281-290.
  4. Corak, Miles & Lietz, Christine & Sutherland, Holly, 2005. "The impact of tax and transfer systems on children in the European Union," EUROMOD Working Papers EM4/05, EUROMOD at the Institute for Social and Economic Research.
  5. Denis Anne & Yannick L’Horty, 2009. "Les effets du revenu de Solidarité active sur les gains du retour à l'emploi," Revue économique, Presses de Sciences-Po, Presses de Sciences-Po, vol. 60(3), pages 767-776.
  6. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, Elsevier, vol. 13(6), pages 699-720, December.
  7. Bargain, Olivier & Orsini, Kristian, 2006. "Beans for Breakfast? How Exportable Is the British Workfare Model?," IZA Discussion Papers 2025, Institute for the Study of Labor (IZA).
  8. Juan J. Dolado & Florentino Felgueroso & Juan F. Jimeno, . "The Role of the Minimum Wage in the Welfare State: An Appraisal," Working Papers 2000-12, FEDEA.
  9. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, Elsevier, vol. 88(9-10), pages 1931-1958, August.
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