According to the researchers, one reason for the modest increases in net household income of low-wage earners is that they often live in households where the minimum-wage income is only a small part of the total household income. Another factor is the German system of means-tested income support whereby families with low incomes receive additional benefits from the unemployment office. An increase in earnings of low-wage workers induced by the minimum wage would mean that they would receive less in income-related social transfers. When the negative employment effects of the minimum wage are also taken into account in the study, the average increase in net household incomes drops to barely 400 euros per year. The researchers calculated that the negative employment effects would affect nearly 500,000 individuals. Nearly half of the estimated reduction in employment would affect workers in the eastern part of Germany where skilled workers would be hit relatively hard. In the western part of Germany the job losses would disproportionately affect women in part-time employment. In addition, the higher labor cost would be associated with price increases and lower demand for goods. If the impact of the introduction of a minimum wage on the prices of goods is taken into account, it would actually be associated with a decline in real household income by an average of almost one percent.
Link to the Study
- Kai-Uwe Müller and Viktor Steiner, Distributional effects of a minimum wage in a welfare state – The case of Germany.
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