Labor Market and Income Effects of a Legal Minimum Wage in Germany
AbstractIn 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4929.
Length: 42 pages
Date of creation: May 2010
Date of revision:
Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Find related papers by JEL classification:
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-CMP-2010-05-22 (Computational Economics)
- NEP-LAB-2010-05-22 (Labour Economics)
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.:
- Richard V. Burkhauser & Kenneth A. Couch & David C. Wittenburg, 1996. "Who gets what from minimum wage hikes: A re-estimation of Card and Krueger's distributional analysis in "Myth and Measurement: The New Economics of the Minimum Wage."," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 547-552, April.
- Peter Haan & Viktor Steiner, 2008.
"Making Work Pay for the Elderly Unemployed - Evaluating Alternative Policy Reforms for Germany,"
FinanzArchiv: Public Finance Analysis,
Mohr Siebeck, Tübingen, vol. 64(3), pages 380-402, September.
- Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," Discussion Papers of DIW Berlin 641, DIW Berlin, German Institute for Economic Research.
- Haan, Peter & Steiner, Viktor, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," IZA Discussion Papers 2424, Institute for the Study of Labor (IZA).
- Andreas Knabe & Ronnie Schöb, 2008.
"Minimum Wage Incidence: The Case for Germany,"
CESifo Working Paper Series
2432, CESifo Group Munich.
- Herwig Immervoll, 2007.
"Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment,"
OECD Social, Employment and Migration Working Papers
46, OECD Publishing.
- Immervoll, Herwig, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," IZA Discussion Papers 2555, Institute for the Study of Labor (IZA).
- Johnson, William R & Browning, Edgar K, 1983. "The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation," American Economic Review, American Economic Association, vol. 73(1), pages 204-11, March.
- Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
- Viktor Steiner & Katharina Wrohlich & Peter Haan & Johannes Geyer, 2008. "Documentation of the Tax-Benefit Microsimulation Model STSM: Version 2008," Data Documentation 31, DIW Berlin, German Institute for Economic Research.
- Sutherland, H., 2001. "The National Minimum Wage and In-work Poverty," Cambridge Working Papers in Economics 0111, Faculty of Economics, University of Cambridge.
- Amanda Gosling, 1996. "Minimum wages: possible effects on the distribution of income," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 31-48, November.
- Barry Bluestone & Teresa Ghilarducci, . "Making Work Pay, Wage Insurance for the Working Poor," Economics Public Policy Brief Archive ppb_28, Levy Economics Institute, The.
- Viktor Steiner & Katharina Wrohlich, 2005. "Work Incentives and Labor Supply Effects of the â€˜Mini-Jobs Reformâ€™ in Germany," Empirica, Springer, vol. 32(1), pages 91-116, 03.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).
If references are entirely missing, you can add them using this form.