In view of rising wage and income inequality, the introduction of a legal
minimum wage has recently become an important policy issue in Germany. We
analyze the distributional effects of a nationwide legal minimum wage of 7.50
€ per hour on the basis of a microsimulation model which accounts for the
complex interactions between individual wages, the tax-benefit system and net
household incomes, also taking into account potential employment effects as
well as indirect effects on consumption. Simulation results show that the
minimum wage would be rather ineffective in raising net household incomes and
reducing income inequality, even if it led to a substantial increase in hourly
wages at the bottom of the wage distribution. The ineffectiveness of a minimum
wage in Germany is mainly due to the existing system of means-tested income
support and the position of minimum wage earners in the income distribution
