As inflation threatens living standards across the developed world, governments are stepping in to soften the blow for some of the lowest-paid workers — but their actions can only partially protect those most in need.

Several European countries plan to raise their minimum wages in the coming year to combat inflation.

In Germany, successive hikes will raise the minimum wage by nearly 10 percent to 10.45 euros in the year to July, and the new ruling coalition has pledged to raise it further to 12 euros. In Portugal, Poland, the Czech Republic and Romania, the statutory wage floor rose by 6% or more from January. France’s hourly minimum wage, already one of the highest among rich economies, will continue to rise based on prices (inflation was 3.4% in December). In the UK, the statutory wage floor will be raised by 6.6% in April.

Meanwhile, the EU is preparing draft legislation to ensure that minimum wages – where applicable – are high enough to be “sufficient”, or at least 60% of the national median income.

This is a stunning reversal from the policies adopted on the eve of the financial crisis in 2008, when EU leaders issued an ill-timed policy. Calls to limit wages to prevent price pressure from increasing.

“This would not have happened a few years ago,” said Stefano Scarpetta, director of the OECD’s employment, labour and social affairs bureau. “This time, we’ve put a lot of money into the economy and there’s a concern that it should go to those on the lower end.”

The problem is that the government is too reliant on a single tool – the minimum wage – to protect only some vulnerable people.

Market forces are providing tailwinds, with labor shortages in some low-wage industries forcing employers to fiercely compete for workers for the first time in years. In the U.S., while Joe Biden’s ambition to nearly double the federal minimum wage hasn’t won support, wages for those at the bottom of the labor market have risen the most — with a third of them in the past six months One worker’s wages have risen faster than the rate of inflation. minimum income.

But economists have warned that action is needed more broadly to protect households from the painful cost-of-living crunch.

Scarpetta argues that the minimum wage is a good way to set social norms, but “not a very targeted poverty eradication measure”. Many people on benefits live with higher-income partners, and when the wage floor rises, workers often lose benefits or pay higher taxes as a result.

A higher wage floor could also lead employers to hire workers on shorter hours or on less secure terms – for example, the free use of zero-hour contracts in the UK hospitality industry – and would only affect those near the bottom of the income distribution.

“It only helps those with the lowest wages. It doesn’t help build a middle class,” said Patrick Belser, a senior economist at the International Labour Organization. Workers’ share of income will only increase in countries that also have effective collective bargaining arrangements, he said.

Laurence Boone, chief economist at the OECD, argues that “traditionally, policies to address inequality have focused on skills and wage setting – minimum wages, collective bargaining”. But now, the government needs to look more closely at other issues, notably competition policy, she said.

new OECD Research The study found that up to one-third of overall wage inequality is due to differences in wages paid by different companies to workers with similar skills. Due to restrictions imposed by employers, such as non-compete contract clauses, workers are often unable to move even when better wages are offered elsewhere.

Fixing the problem would mean outlawing legislation – as the US and UK governments have promised – and requiring competition authorities to study the impact of the merger on workers and consumers.

Belser said stagnant living standards were “not the fault of the minimum wage”. “It’s no other policy.”