Is it better to support low incomes with a higher minimum wage or public transfer payments?

The new coalition government in Germany (SPD/Greens/ l iberals) has decided to increase the minimum hourly wage from EUR 9.60 to EUR 12. In contrast, the minimum wage in France has merely kept pace with inflation for several years and support for low incomes is provided by a public transfer payment (the in-work “activity bonus”). So Germany has chosen to support low incomes by increasing the minimum wage, while France has made the opposite choice to do so with public transfer payments. Which choice is better? For low-skilled workers, being paid a salary is certainly preferable to receiving government support; But the argument used in France is that an increase in the minimum wage destroys low-skilled employment; if companies increase their selling prices, which prevents the job destruction, inflation increases, which can be dangerous. This tilts the argument in favour of the French solution; However, public transfer payments to low-income households must be financed, which leads to tax increases, some of which (corporate social contributions, production taxes) destroy employment. So t here is also a risk of job destruction with the French solution. We show that in reality there is quite a strong similarity between the two strategies, both of which, ultimately, amount to taxing all economic agents (in one case through inflation, in the other through tax) other than low-income households.