Minimum wages are increasingly discussed as an instrument against (in-work) poverty and income inequality in Europe. Just recently the German government opted for a substantial ad-hoc increase of the minimum-wage level to €12 per hour mentioning poverty prevention as an explicit goal. We use the introduction of the federal minimum wage in Germany in 2015 to study its redistributive impact on disposable household incomes. Based on the German Socio-Economic Panel we analyse changes in poverty and income inequality investigating different mechanisms of the transmission from individual gross wage-rates to disposable household incomes. We find that the minimum wage is an inadequate tool for income redistribution because it does not target poor households. Individuals affected by the minimum wage are not primarily in households at the bottom of the income distribution but are spread across it. Consequently, welfare dependence decreases only marginally. The withdrawal of transfers or employment effects cannot explain the limited effect on poverty. Complementary simulations show that neither full compliance nor a markedly higher level of €12 per hour can render the minimum wage more effective in reducing poverty.
AddisonJTBlackburnML (1999) Minimum wages and poverty. Industrial and Labor Relations Review52(3): 393–409.
2.
AhlfeldtGMRothDSeidelT (2018) The regional effects of Germany’s national minimum wage. Economics Letters172: 127–130.
3.
AllegrettoSDubeAReichM, et al. (2017) Credible research designs for minimum wage studies: a response to Neumark, Salas, and Wascher. Industrial and Labor Relations Review70(3): 559–592.
4.
AutorDHManningASmithCL (2016) The contribution of the minimum wage to US wage inequality over three decades: a reassessment. American Economic Journal: Applied Economics8(1): 58–99.
5.
BachmannRDürigWFringsH, et al. (2017) Minijobs Nach Einführung des Mindestlohns – Eine Bestandsaufnahme. Essen, Germany: RWI Materialien 114, RWI – Leibniz-Institut für Wirtschaftsforschung.
6.
BoninHIsphordingIEKrause-PilatusA, et al. (2020) The German statutory minimum wage and its effects on regional employment and unemployment. Jahrbücher für Nationalökonomie und Statistik240(2–3): 295–319.
7.
BosslerMGernerH-D (2020) Employment effects of the new German minimum wage: evidence from establishment-level microdata. Industrial and Labor Relations Review73(5): 1070–1094.
8.
BosslerMSchankT (2020) Wage Inequality in Germany after the Minimum Wage Introduction. IZA Discussion Papers 13003. Bonn, Germany: Institute of Labor Economics (IZA).
BruckmeierKBruttelO (2021) Minimum wage as a social policy instrument: evidence from Germany. Journal of Social Policy50(2): 247–266.
11.
BruckmeierKMüllerGRiphahnRT (2014) Who misreports welfare receipt in surveys?Applied Economics Letters21(12): 812–816.
12.
BruckmeierKWiemersJAbsengerN, et al. (2015) Trotz Mindestlohn: viele bedürftig. Wirtschaftsdienst95(7): 444–446.
13.
BruckmeierKRiphahnRTWiemersJ (2019) Benefit Underreporting in Survey Data and its Consequences for Measuring Non-Take-Up: New Evidence From Linked Administrative and Survey Data. IAB Discussion Paper 06/2019. Nürnberg, Germany: Institut für Arbeitsmarkt- und Berufsforschung (IAB) [Institute for Employment Research].
14.
BrülleJGanglMLevanonA, et al. (2019) Changing labour market risks in the service economy: low wages, part-time employment and the trend in working poverty risks in Germany. Journal of European Social Policy29(1): 115–129.
15.
BruttelOBaumannADütschM (2018) The new German statutory minimum wage in comparative perspective: employment effects and other adjustment channels. European Journal of Industrial Relations24(2): 145–162.
16.
BruttelO (2019) The effects of the new statutory minimum wage in Germany: a first assessment of the evidence. Journal for Labour Market Research53(1): 1–13.
17.
BurauelPCaliendoMFedoretsA, et al. (2017) Minimum wage not yet for everyone: on the compensation of eligible workers before and after the minimum wage reform from the perspective of employees. DIW Economic Bulletin49: 509–522.
18.
BurauelPCaliendoMGrabkaMM, et al. (2020a) The impact of the minimum wage on working hours. Jahrbücher für Nationalökonomie und Statistik240(2–3): 233–267. DOI: 10.1515/jbnst-2018-0081
19.
BurauelPCaliendoMGrabkaMM, et al. (2020b) The impact of the German minimum wage on individual wages and monthly earnings. Jahrbücher für Nationalökonomie und Statistik240(2–3): 201–231. DOI: 10.1515/jbnst-2018-0077
20.
BurkhauserRVFineganTA (1989) The minimum wage and the poor: the end of a relationship. Journal of Policy Analysis and Management8(1): 53–71.
21.
BurkhauserRVSabiaJJ (2007) The effectiveness of minimum-wage increases in reducing poverty: past, present, and future. Contemporary Economic Policy25(2): 262–281.
22.
BurkhauserRVCouchKAGlennAJ (1996) Public policies for the working poor: the earned income tax credit versus minimum wage legislation. Research in Labor Eocnomics15: 65–110.
23.
CaliendoMFedoretsAPreussM, et al. (2017) The Short-Term Distributional Effects of the German Minimum Wage Reform. IZA Discussion Papers 11246. Bonn, Germany: Institute for the Study of Labor (IZA).
24.
CaliendoMFedoretsAPreussM, et al. (2018) The short-run employment effects of the German minimum wage reform. Labour Economics53: 46–62.
25.
CaliendoMSchröderCWittbrodtL (2019) The causal effects of the minimum wage introduction in Germany – an overview. German Economic Review20(3): 257–292.
26.
Coalition (2021) Mehr Fortschritt Wagen. Bündnis für Freiheit, Gerechtigkeit und Nachhaltigkeit. Koalitionsvertrag 2021–2025 Zwischen der Sozialdemokratischen Partei Deutschlands (SPD). Berlin: BÜNDNIS 90/DIE GRÜNEN und den Freien Demokraten (FDP) Technical report.
27.
DeFinaRH (2008) The impact of state minimum wages on child poverty in female headed families. Journal of Poverty12(2): 155–174.
28.
DeutscherBundestag (2014) Entwurf Eines Gesetzes zur Stärkung der Tarifautonomie (Tarifautonomiestärkungsgesetz) Technical report, Drucksache 18/1558, Deutscher Bundestag 18. Berlin: Wahlperiode, Gesetzentwurf der Bundesregierung.
29.
DickensRManningA (2004) Has the national minimum wage reduced UK wage inequality?Journal of the Royal Statistical Society Series A167(4): 613–626.
30.
DiNardoJFortinNMLemieuxT (1996) Labor market institutions and the distribution of wages, 1973–1992: a semiparametric approach. Econometrica64(5): 1001–1044.
31.
DoltonPBondibeneCRWadsworthJ (2012) Employment, inequality and the UK national minimum wage over the medium-term. Oxford Bulletin of Economics and Statistics74(1): 78–106.
32.
DubeA (2019) Minimum wages and the distribution of family incomes. American Economic Journal: Applied Economics11(4): 268–304.
33.
DustmannCLindnerASchönbergU, et al. (2022) Reallocation effects of the minimum wage. The Quarterly Journal of Economics137(1): 267–328.
34.
DütschMHimmelreicherROhlertC (2019) Calculating gross hourly wages – the (structure of) earnings survey and the German socio-economic panel in comparison. Journal of Economics and Statistics239(2): 243–276.
35.
European Commission (2020) Proposal for a Directive of the European Parliament and of the Council on Adequate Minimum Wages in the European Union. Technical report, SWD (2020) 245 final. Brussels: European Commission.
36.
FedoretsAGrabkaMMSchröderC (2019) Minimum wage: many entitled employees in Germany still do not receive it. DIW Weekly Report9(28/29): 223–231.
37.
FedoretsAGrabkaMMSchröderC (2020) Lohnungleichheit in Deutschland sinkt. DIW Wochenbericht7: 92–97.
38.
FreemanRB (1996) The minimum wage as a redistributive tool. The Economic Journal106(436): 639–649.
39.
GarloffA (2019) Did the German minimum wage reform influence (un)employment growth in 2015? Evidence from regional data. German Economic Review20(3): 356–381.
40.
GodøyAReichM (2019) Minimum Wage Effects in Low-Wage Areas. Technical Report, RLE Working Paper No. 106-19. Berkeley, CA: Institute for Research on Labor and Employment (IRLE), University of California.
41.
GramlichEMFlanaganRJWachterML (1976) Impact of minimum wages on other wages, employment, and family incomes. Brookings Papers on Economic Activity7(2): 409–462.
42.
GundersenCZiliakJP (2004) Poverty and macroeconomic performance across space, race, and family structure. Demography41(1): 61–86.
43.
HallerödBEkbrandHBengtssonM (2015) In-work poverty and labour market trajectories: poverty risks among the working population in 22 European countries. Journal of European Social Policy25(5): 473–488.
44.
JohnsonWRBrowningEK (1983) The distributional and efficiency effects of increasing the minimum wage: a simulation. American Economic Review73(1): 204–211.
45.
KawaguchiDMoriY (2009) Is minimum wage an effective anti-poverty policy in Japan?Pacific Economic Review14(4): 532–554.
46.
LeeDS (1999) Wage inequality in the United States during the 1980s: rising dispersion or falling minimum wage?The Quarterly Journal of Economics114(3): 977–1023.
47.
LogueCCallanT (2016) Low Pay, Minimum Wages and Household Incomes: Evidence for Ireland. Dublin: Economic and Social Research Institute.
48.
MaCurdyT (2015) How effective is the minimum wage at supporting the poor?Journal of Political Economy123(2): 497–545.
49.
MarxIMarchalSNolanB (2013) Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US. Minimum Income Protection in Flux, Reconciling Work and Welfare in Europe. Basingstoke: Palgrave Macmillan, 54–80.
50.
Mindestlohnkommission (2016) Erster Bericht zu den Auswirkungen des Gesetzlichen Mindestlohns. Berlin: Mindestlohnkommission.
51.
Mindestlohnkommission (2018) Dritter Bericht zu den Auswirkungen des Gesetzlichen Mindestlohns. Berlin: Mindestlohnkommission.
52.
MorganDRKickhamK (2001) Children in poverty: do state policies matter?Social Science Quarterly82(3): 478–493.
53.
MüllerK-USteinerV (2013) Distributional Effects of a Minimum Wage in a Welfare State – the Case of Germany. Technical report, SOEP Papers on Multidisciplinary Panel Data Research No. 617. Berlin: German Institute for Economic Research (Deutsches Institut für Wirtschaftsforschung, DIW).
NeumarkD (2019) The econometrics and economics of the employment effects of minimum wages: getting from known unknowns to known knowns. German Economic Review20(3): 293–329.
56.
NeumarkDSchweitzerMWascherW (2004) Minimum wage effects throughout the wage distribution. The Journal of Human Resources39(2): 425–450.
57.
NeumarkDSchweitzerMWascherW (2005) The effects of minimum wages on the distribution of family incomes: a non-parametric analysis. The Journal of Human Resources40(4): 867–894.
58.
NeumarkDThompsonMKoyleL (2012) The effects of living wage laws on low-wage workers and low-income families: what do we know now?IZA Journal of Labor Policy1(11): 1–34.
59.
NeumarkDWascherW (2002) Do minimum wages fight poverty?Economic Inquiry40(3): 315–333.
60.
NickellS (2004) Poverty and worklessness in Britain. The Economic Journal114(494): C1–C25.
61.
RovnyAE (2014) The capacity of social policies to combat poverty among new social risk groups. Journal of European Social Policy24(5): 405–423.
62.
SabiaJJ (2008) Minimum wages and the economic well-being of single mothers. Journal of Policy Analysis and Management27(4): 848–866.
63.
SabiaJJBurkhauserRV (2010) Minimum wages and poverty: will a $9.50 federal minimum wage really help the working poor?Southern Economic Journal76(3): 592–623.
64.
SabiaJJNielsenRB (2015) Minimum wages, poverty, and material hardship: new evidence from the SIPP. Review of Economics of the Household13(1): 95–134.
65.
SchmitzS (2019) The effects of Germany’s statutory minimum wage on employment and welfare dependency. German Economic Review20(3): 330–355.
66.
SenARybczynskiKVan De WaalC (2011) Teen employment, poverty, and the minimum wage: evidence from Canada. Labour Economics18(1): 36–47.
67.
SotomayorOJ (2021) Can the minimum wage reduce poverty and inequality in the developing world? evidence from Brazil. World Development138: 105–182.
68.
SteinerVWrohlichKHaanP, et al. (2012) Documentation of the Tax Benefit Microsimulation Model STSM. Version 2012. Technical report, DIW Data Documentation No. 63. Berlin: German Institute for Economic Research (DIW Berlin).
69.
StevansLSessionsD (2001) Minimum wage policy and poverty in the United States. International Review of Applied Economics15(1): 65–75.
70.
StewartMB (2012a) Quantile estimates of counterfactual distribution shifts and the effect of minimum wage increases on the wage distribution. Journal of the Royal Statistical Society Series A175(1): 263–287.
TeulingsCN (2003) The contribution of minimum wages to increasing wage inequality. Economic Journal113(490): 801–833.
73.
VandelannooteDVerbistG (2020) The impact of in-work benefits on work incentives and poverty in four European countries. Journal of European Social Policy30(2): 144–157.
74.
VedderRGallawayL (2002) The minimum wage and poverty among full-time workers. Journal of Labor Research23(1): 41–49.
75.
vom BergePWeberE (2017) Beschäftigungsanpassung Nach Mindestlohneinführung Minijobs Wurden Teilweise Umgewandelt, Aber Auch Zulasten Anderer Stellen. Technical report, IAB-kurzbericht No. 11/2017. Nürnberg, Germany: Institut für Arbeitsmarkt- und Berufsforschung (IAB) [Institute for Employment Research].
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
