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Labor Market and Income Effects of a Legal Minimum Wage in Germany

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  • Kai-Uwe Müller
  • Viktor Steiner

Abstract

In 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 ledto 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.

Suggested Citation

  • Kai-Uwe Müller & Viktor Steiner, 2010. "Labor Market and Income Effects of a Legal Minimum Wage in Germany," Discussion Papers of DIW Berlin 1000, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1000
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    References listed on IDEAS

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    Cited by:

    1. Caliendo, Marco & Fedorets, Alexandra & Preuß, Malte & Schröder, Carsten & Wittbrodt, Linda, 2017. "The Short-Run Employment Effects of the German Minimum Wage Reform," IZA Discussion Papers 11190, Institute for the Study of Labor (IZA).
    2. Carsten Schröder, 2014. "Kosten und Nutzen von Mindestlöhnen," DIW Roundup: Politik im Fokus 22, DIW Berlin, German Institute for Economic Research.
    3. Müller, Kai-Uwe & Steiner, Viktor, 2011. "Beschäftigungswirkungen von Lohnsubventionen und Mindestlöhnen - Zur Reform des Niedriglohnsektors in Deutschland," Discussion Papers 2011/4, Free University Berlin, School of Business & Economics.

    More about this item

    Keywords

    minimum wage; wage distribution; employment effects; income distribution; inequality; microsimulation;

    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

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