Using data from the 2006 wave of the German Socio-Economic Panel (GSOEP), this paper analyzes how a minimum wage affects employment, wage inequality, public expenditures, and aggregate income in the low-wage sector. It is shown that a statutory minimum wage of EUR 7.50 per hour would cost 840,000 low-paid jobs and increases the fiscal burden by about EUR 4 billion per year, while household income rises only by EUR 1.1 billion per year. Poor households, i.e. those eligible for Unemployment Benefits II, do not benefit from a minimum wage at all. Comparing the effects of a minimum wage with different types of wage subsidies that require the same additional public expenditures, the government can ensure more favorable employment – depending on the subsidies’ incidence – and income effects. Wage subsidies also allow a more equal income distribution than statutory minimum wages. Combining a minimum wage with a wage subsidy, similar to the French minimum wage system, is extremely costly while such a policy is inferior to wage subsidies in all respects.
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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 2432.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General I30 - Health, Education, and Welfare - - Welfare and Poverty - - - General J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Johannes Gernandt & Friedhelm Pfeiffer, 2007.
"Rising Wage Inequality in Germany,"
SOEPpapers
14, DIW Berlin, The German Socio-Economic Panel (SOEP).
[Downloadable!]
Other versions:
Gernandt, Johannes & Pfeiffer, Friedhelm, 2006.
"Rising Wage Inequality in Germany,"
ZEW Discussion Papers
06-19 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
[Downloadable!]
Pfeiffer, Friedhelm & Gernandt, Johannes, 2007.
"Rising Wage Inequality in Germany,"
ZEW Discussion Papers
06-019 [rev.2], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
[Downloadable!]
Gernandt, Johannes & Pfeiffer, Friedhelm, 2006.
"Rising Wage Inequality in Germany,"
ZEW Discussion Papers
06-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
[Downloadable!]