German minimum wage not likely to improve record poverty levels

Concerns are being raised that the new minimum wage will not make a significant impact on the nation’s poor, as Germany reports record poverty levels.

A report by welfare organization Paritätischer Wohlfahrtsverband showed that 12.5m people were categorized as poor in 2013, up 15% from 2012. Overall, poverty has increased by 11% since 2006.

The organization’s Managing Director Ulrich Schneider commented: "Poverty in Germany has never been so high and regional fragmentation has never been as serious as it is today."

Germany’s minimum wage of €8.50 was introduced at the start of this year. Schneider acknowledged that this was a "good sign," but pointed out that many poor people will remain mini-jobbers or receive necessary government support on top of their income.

David Neumark notes this trend that introducing or raising higher minimum wages may discourage employers from using low-wage, low-skill workers that minimum wages are intended to help. Limiting access to jobs for low-skill workers means that minimum wages cannot be viewed as a "free lunch" with which to help poor and low-income families.

Ugo Colombino discusses the merits of an unconditional basic income, writing that this can effectively redistribute economic gains, as well as helping to reallocate jobs and skills. He describes unconditional basic income a simple and transparent policy, though acknowledges that it may require higher taxes.

Read more here.

Related articles:
Employment effects of minimum wages, David Neumark
Is unconditional basic income a viable alternative to other social welfare measures? by Ugo Colombino