Social and fiscal impacts of statutory minimum wages in EU countries: a microsimulation analysis with EUROMOD

Abstract

This paper analyzes the effects of hypothetical MW (HMW) increases on social and fiscal outcomes in 21 European Union (EU) countries with a statutory national MW (NMW) based on a microsimulation approach using EUROMOD. The methodological challenges related to the use of available EU household survey data are described, along with the choices made to address these challenges. The paper assesses hypothetical scenarios in which countries with a statutory NMW increase their minimum wage (MW) to various reference values, set in relation to the gross national median and average wage. The model simulations suggest that MW increases can significantly reduce in-work poverty, wage inequality, and the gender pay gap, while generally improving the public budget balance. The implied wage increases for the beneficiaries are substantial, while the implied increases in the aggregate wage bill are generally modest. Extensions explore possible effects on employment and labor supply at the intensive margin.