Coordinated Minimum Wage Policies: Impacts on EU-Level Income Inequality

Abstract Several studies have shown that minimum wage policies have the potential to mitigate income inequality. Both EU-level and national policies have sparked discussions regarding the adequacy of minimum wages and their impact on income inequality at the country level. However, the impact on EU-level income inequality of coordinated minimum wage policies remain uncertain. While upward convergence in minimum-wage settings across countries may reduce inequality within countries, it could also exacerbate disparities between them. This study assesses the EU-wide impact of minimum wage policies beyond national effects. Using a microsimulation model and assuming negligible employment effects, our results suggest that implementing a hypothetical minimum wage set at 60 % of the national median wage in EU countries would result in a limited yet significant reduction in EU-level income inequality (by 0.6 % in 2019, as measured by the Gini index). This reduction stems from a relative decrease in both within-country and between-country inequality, although the absolute reduction in Gini points is more pronounced for within-country inequality. Notably, the percentage reduction in inequality is broadly similar for both market and disposable incomes. However, the withdrawal of social benefits due to higher minimum wages appears to offset part of this reduction in market inequality.