Discussion paper / School of Business & Economics ; 2010,11 : Economics
minimum wage; wage distribution; employment effects; income distribution; inequality; microsimulation
339 Makroökonomie und verwandte Themen
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 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.
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