The Minimum Wage as a Means of Combating Income Poverty

Data from the Socio-Economic Panel (SOEP), shows that between 2022 and 2023 the proportion of those at risk of poverty among the overall population rose slightly to 16.3 per cent, while among the employed it remained almost unchanged at 8.2 per cent (2023). In the longitudinal analysis, taking only responders to the SOEP in both 2022 and 2023, the rate fell by 0.5 percentage points – again, not a significant change. By 2023, however, the at-risk-of-poverty rate among employees with hourly wages of less than 12 Euro in 2022 had fallen by 5.5 points. To isolate the effect of the minimum wage, a simulation with the hourly wages of this group at 12 Euro was run, while keeping the other data from the 2022 wave of the survey unchanged. The rate for these employees then fell by 2.2 points. An increase to the living wage level of 60 per cent of median hourly pay would only reduce the income poverty rate of the population as a whole by 0.2 percentage points, while for low-wage earners it would fall by 2.9 points. The impact on future poverty in old age is very small, as the potential increase in pension entitlements would be largely offset by lower basic pension supplements, at least for full-time employees. Minimum wage increases are therefore not an effective tool for combating income poverty.