Scenario modeling of increasing the minimum wage: estimating impact on monetary poverty

Abstract

The article presents scenario modeling of the effects of an increase in the minimum wage on the population income and the poverty rate and gap in Russia. The authors use data from the Rosstat Survey of Population Income and Participation in Social Programs and consider three scenarios for increasing the minimum wage ranging from 6.3% (actual increase in 2023) to a radical increase to a value corresponding to 1.5 subsistence levels of a working-age citizen. The estimates accounting for a number of assumptions about the reaction of the labor market show that an increase in the minimum wage in a given range leads to a weak or moderate increase in per capita income, poverty gap, and poverty rate. Even within the radical scenario, the reduction in poverty rate ranges from –16% to –19% of the initial percentage, and the reduction in the total income deficit ranges from –12% to –17%. The main factors limiting the impact of increasing the minimum wage on the monetary poverty rate are related to the structure of Russian households. On the one hand, two thirds of Russian workers with the lowest wages live in households that are not poor by formal criteria. On the other hand, individual earnings above the poverty line may not be sufficient to overcome the poverty of the entire household if it includes minor children.