According to a study by the German Economic Institute (IW), the minimum wage fails to achieve its aim of reducing income poverty in Germany. The IW’s analysis shows that after the most significant increase of the minimum wage to 12 € per hour in 2022, there was no observable effect on poverty.
In the year that followed, the overall poverty‑risk rate actually climbed to 16.3 %. Only workers who previously earned less than 12 € per hour saw a decline of 5.5 percentage points in their poverty‑risk rate. Under the common definition, a person is deemed at risk of poverty if their income is below 60 % of Germany’s median household net income.
Proponents of the minimum wage point to the higher earnings of those who were previously below the threshold. Opponents argue that firms hire fewer people because of the higher wage costs.
These data raise doubts about the minimum wage as a broad social‑policy instrument. The IW also cautions that the impact on pension entitlements for full‑time employees would be “very small” since any potential increase would largely be offset by lower basic pension supplements. In other words, the costs are shifted onto companies, yet a noticeable net effect remains because higher wages could reduce social claims or increase taxes.
Economists are equally skeptical about future hikes. Simulations suggest that a planned increase to 14.60 € per hour in 2027 would have only modest effects, even though it represents a 13.9 % rise over last year’s 12.82 € rate. The IW added that an even higher benchmark of 15 € would lower the population’s poverty rate by just 0.2 percentage points.
