Distributional effects of a minimum wage in a welfare state: The case of Germany
AbstractA popular argument for a federal minimum wage is that it will prevent in-work poverty and reduce income inequality. We examine this assertion for Germany, a welfare state with a relative generous means-tested social minimum and high marginal tax rates. Our analysis is based on a microsimulation model that accounts for the interactions between wages, the tax-benefit system and net incomes at the household level as well as employment and price effects on the distribution of incomes induced by the introduction of a minimum wage. We show that the impact of even a relatively high federal minimum wage on disposable incomes is small because low wage earners are scattered over the whole income distribution and wage increases would to a large extent be offset by reductions in means-tested welfare transfers and high marginal tax rates. Taking into account negative employment effects and increases in consumer prices induced by the minimum wage would wipe out any positive direct effects on net incomes of households affected by the minimum wage. --
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Bibliographic InfoPaper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2013/21.
Date of creation: 2013
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minimum wage; employment effects; income distribution; inequality; microsimulation;
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
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-CMP-2014-02-02 (Computational Economics)
- NEP-LAB-2014-02-02 (Labour Economics)
- NEP-LMA-2014-02-02 (Labor Markets - Supply, Demand, & Wages)
- NEP-LTV-2014-02-02 (Unemployment, Inequality & Poverty)
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