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Christoph Schröder / Christian Kestermann IW-Trends No. 2 16. June 2020 The Minimum Wage and Income Poverty

There are currently loud calls for an increase in the minimum wage to 12 euros to ensure that it adequately covers the cost of living. However, the net income of a single person working full-time at the present minimum wage is already very close to the at-risk-of-poverty threshold.

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The Minimum Wage and Income Poverty
Christoph Schröder / Christian Kestermann IW-Trends No. 2 16. June 2020

The Minimum Wage and Income Poverty

IW-Trends

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There are currently loud calls for an increase in the minimum wage to 12 euros to ensure that it adequately covers the cost of living. However, the net income of a single person working full-time at the present minimum wage is already very close to the at-risk-of-poverty threshold.

Indeed, in most European countries the national threshold is actually exceeded. This makes raising the minimum wage seem a relatively blunt instrument for reducing the risk of poverty. In 2018, for example, of the full-time employees who were receiving an hourly wage between the then minimum and 10 euros, only 13 per cent were technically income poor. This was 4 percentage points below the population average. Working hours have an important influence on the risk of poverty. At 26 per cent, the proportion of income poverty among part-time employees with an hourly wage of between 8.84 euros and 10 euros was almost twice as high as among full-time employees. A simulation calculation shows that, even if it was universally observed, an increase in the minimum wage to 12 euros would reduce the income poverty rate by little more than a single percentage point. On the other hand, a sharp increase in the minimum wage is likely to impact negatively on working hours and employment – especially in view of the imminent threat of severe recession. Further compression of the wage structure would also reduce the incentives for low-skilled workers to undergo vocational training.

 

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The Minimum Wage and Income Poverty
Christoph Schröder / Christian Kestermann IW-Trends No. 2 16. June 2020

Christoph Schröder / Christian Kestermann: Mindestlohn und Einkommensarmut

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The Results of Different Data Sets
Judith Niehues IW-Trends No. 5 26. October 2017

Income Development, Inequality and Poverty: The Results of Different Data Sets

The issue of inequality has been receiving more and more attention in public and media debates. This was especially the case in the run up to the 2017 Bundestag elections, when academic studies and reports in the media drew a gloomy picture of how incomes and ...

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Christoph Schröder IW-Trends No. 1 1. March 2017

Poverty in Europe

When discussed in public, poverty is often equated with relative income poverty. However, to define poverty exclusively in terms of low income is to see it too narrowly.

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