A new academic paper has looked at the role of minimum wages, tax and benefit policies in protecting workers against financial poverty in 21 European countries with a national minimum wage, together with three states in the USA.

Key points

• Net income packages at minimum wage level (i.e. taking into account taxes, social security contributions and benefits) only reach or exceed the European Union’s ‘at-risk-of poverty’ threshold in the case of single people, and in a limited number of countries.
• For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage level are below the EU threshold almost everywhere, usually by a wide margin.
• This is found to be the case despite shifts over the previous decade towards tax credits and additional income support for low-paid workers.

Thus there seem to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. Such policies seem 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 dual-earner living standards.

The authors conclude that, in order to fight in-work poverty, new policy routes need to be explored. But they warn that ‘one size fits all’ policy solutions are unlikely to succeed.

Source: Ive Marx, Sarah Marchal and Brian Nolan, Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US, Discussion Paper 6510, Institute for the Study of Labor, Bonn

Link: Report