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

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  • Müller, Kai-Uwe
  • Steiner, Viktor

Abstract

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.

Suggested Citation

  • Müller, Kai-Uwe & Steiner, Viktor, 2013. "Distributional effects of a minimum wage in a welfare state: The case of Germany," Discussion Papers 2013/21, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:201321
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. John T. Addison & McKinleyl Blackburn, 1999. "Minimum Wages and Poverty," ILR Review, Cornell University, ILR School, vol. 52(3), pages 393-409, April.
    4. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    5. Tim Maloney & Gail Pacheco, 2012. "Assessing the Possible Antipoverty Effects of Recent Rises in Age-Specific Minimum Wages in New Zealand," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(4), pages 648-674, December.
    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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    Citations

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    Cited by:

    1. Caliendo, Marco & Fedorets, Alexandra & Preuss, Malte & Schröder, Carsten & Wittbrodt, Linda, 2018. "The short-run employment effects of the German minimum wage reform," Labour Economics, Elsevier, vol. 53(C), pages 46-62.
    2. Richard V. Burkhauser, 2015. "The minimum wage versus the earned income tax credit for reducing poverty," IZA World of Labor, Institute of Labor Economics (IZA), pages 153-153, May.
    3. Sebastian Link, 2019. "The Price and Employment Response of Firms to the Introduction of Minimum Wages," CESifo Working Paper Series 7575, CESifo Group Munich.
    4. Carsten Schröder, 2014. "Kosten und Nutzen von Mindestlöhnen," DIW Roundup: Politik im Fokus 22, DIW Berlin, German Institute for Economic Research.
    5. Heise, Arne, 2018. "Reconciling Facts with Fiction, or: A Theoretical Speculation of why the Minimum Wage has no Discernible Effect on Employment," MPRA Paper 92483, University Library of Munich, Germany.
    6. repec:bla:germec:v:20:y:2019:i:3:p:257-292 is not listed on IDEAS
    7. Marco Caliendo & Carsten Schröder & Linda Wittbrodt, 2019. "The Causal Effects of the Minimum Wage Introduction in Germany – An Overview," German Economic Review, Verein für Socialpolitik, vol. 20(3), pages 257-292, August.
    8. Antje Schubert & Johannes Steinbrecher & Marcel Thum & Michael Weber, 2016. "Auswirkungen des flächendeckenden Mindestlohns auf die gewerbliche Wirtschaft im Freistaat Sachsen," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 77, October.
    9. Bofinger, Peter & Buch, Claudia M. & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314.
    10. Arni, Patrick & Eichhorst, Werner & Pestel, Nico & Spermann, Alexander & Zimmermann, Klaus F., 2014. "Kein Mindestlohn ohne unabhängige wissenschaftliche Evaluation," IZA Standpunkte 65, Institute of Labor Economics (IZA).
    11. AntjeSchubert & Michael Weber, 2016. "Der flächendeckende Mindestlohn in Sachsen: Hohe Reichweite, vielfältige Reaktionen der Betriebe," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 23(03), pages 05-11, June.
    12. Boll, Christina & Hüning, Hendrik & Leppin, Julian & Puckelwald, Johannes, 2015. "Potenzielle Auswirkungen des Mindestlohnes auf den Gender Pay Gap in Deutschland: Eine Simulationsstudie," HWWI Policy Papers 89, Hamburg Institute of International Economics (HWWI).
    13. Boll, Christina & Hüning, Hendrik & Leppin, Julian & Puckelwald, Johannes, 2015. "Potential effects of a statutory minimum wage on the gender pay gap: A simulation-based study for Germany," HWWI Research Papers 163, Hamburg Institute of International Economics (HWWI).

    More about this item

    Keywords

    minimum wage; 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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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