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Distributional effects of a minimum wage in a welfare state: The case of Germany

  • Müller, Kai-Uwe
  • Steiner, Viktor
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    A 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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    File URL: http://econstor.eu/bitstream/10419/90876/1/777086883.pdf
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    Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2013/21.

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    Date of creation: 2013
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    Handle: RePEc:zbw:fubsbe:201321
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    1. Addison, John T. & Blackburn, McKinley L., 1998. "Minimum Wages and Poverty," ZEW Discussion Papers 98-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. David Autor & Alan Manning & Christopher L. Smith, 2010. "The contribution of the minimum wage to U.S. wage inequality over three decades: a reassessment," Finance and Economics Discussion Series 2010-60, Board of Governors of the Federal Reserve System (U.S.).
    3. Viktor Steiner & Katharina Wrohlich & Peter Haan & Johannes Geyer, 2012. "Documentation of the Tax-Benefit Microsimulation Model STSM: Version 2012," Data Documentation 63, DIW Berlin, German Institute for Economic Research.
    4. Antonczyk, Dirk & Fitzenberger, Bernd & Sommerfeld, Katrin, 2010. "Rising wage inequality, the decline of collective bargaining, and the gender wage gap," Labour Economics, Elsevier, vol. 17(5), pages 835-847, October.
    5. Tim Maloney & Gail Pacheco, 2011. "Assessing the Possible Antipoverty Effects of Recent Rises in Age-Specific Minimum Wages in New Zealand," Working Papers 2011-03, Auckland University of Technology, Department of Economics.
    6. Sutherland, H., 2001. "The National Minimum Wage and In-work Poverty," Cambridge Working Papers in Economics 0111, Faculty of Economics, University of Cambridge.
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