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14/06/2012

Mind the gap: net incomes of minimum wage workers in the EU and the US

ETUI Working Paper n. 5/2012  - ISSN: 1994-4454 - ISSN: 1994-4446 (print version)



This paper focuses on the role of minimum wages, in conjunction with tax and benefit policies, in protecting workers against financial poverty. It covers 20 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in certain countries do net income packages at minimum wage level reach or exceed the EU’s at-risk-of poverty threshold, which is set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This remains the case despite shifts over the past decade towards tax relief and additional income support provisions for lowpaid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fi ght against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already  comparatively small and where relative poverty thresholds are mostly a function of the dualearner living standards. In order to fi ght in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against ‘one size fi ts all’ policy solutions.

author(s): I. Marx (CSB, University of Antwerp and IZA), S. Marchal (CSB, University of Antwerp), B. Nolan (University College Dublin)
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