Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/280873 
Year of Publication: 
2023
Series/Report no.: 
JRC Working Papers on Taxation and Structural Reforms No. 04/2023
Publisher: 
European Commission, Joint Research Centre (JRC), Seville
Abstract: 
A number of studies documents that minimum wage policies have the potential to reduce income inequality. The recently adopted EU Commission's proposal for a Directive on adequate minimum wages was supported by a detailed analysis of the social impacts of hypothetical minimum wage levels in countries with a statutory minimum wage. This paper extends these country-level analyses by exploring the impact of minimum wage policies on EU-level income inequality. To our knowledge, this is the first study that uses a microsimulation model such as EUROMOD to assess the impact of EU-promoted policies on the distribution of income in the EU, beyond their national effects. Assuming no employment effects, static simulation results show that a hypothetical minimum wage corresponding to 60% of the national median wage would bring about a small but significant reduction in EU-level disposable income inequality (by 0.75% in 2019 as measured through the Gini index). This result stems primarily from a reduction in the within-country component of income inequality as the effect on inequality between countries is rather muted. The reduction in EU-level income inequality is the highest in disposable incomes, but some reduction is detectable also in market incomes. In turn, the withdrawal of social benefits because of higher minimum wages seems to neutralise part of this inequality reduction.
Subjects: 
Minimum wage
Microsimulation
European Union
Income inequality
EUROMOD
JEL: 
H31
I32
J31
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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