Fair minimum wages: A legal and political challenge for EU

Fair minimum wages: A legal and political challenge for EU
MEP Heléne Fritzon, surrounded by Iratze Garcia Péretz, S&D Group President, and Commissioner Nicolas Schmit. Credit: EU

Ensuring that every worker in the EU has a fair minimum wage is a priority for the new European Commission but actions to achieve the objective across Europe meets opposition from some member states. Any legislation on pay also needs a legal basis in the EU Treaty.

In her political guidelines, Commission president Ursula von der Leyen promised that she would propose a legal instrument for fair minimum wage within the first 100 days of her mandate. How that would be achieved was less clear and she left the door open for both statutory minimum wages and collective bargaining.

Anyway, it will take more time than 100 days. In a first step in January, the Commission launched a two-phased consultation with the social partners on possible actions based on article 154 of the treaty. The problem is that article 153 in the same treaty explicitly excludes pay issues from Commission legislation.

“Why the rush?” asked Nicolas Schmit, Commissioner for Jobs and Social Rights, at a workshop last week (5 February) at the European Parliament, organised by the S&D group. “Because we take the issue seriously. We must tackle the problem of increasing insecurity in Europe. It’s both an issue of equality and economy. If the minimum wage is low, other wages are also low.”

From an economic perspective, appropriate minimum wages support overall wage growth, claims the Commission. They have a spill over effect on the wages slightly above the minimum wage, and thereby on aggregate wage growth.

“Low minimum wages for working people results in in-work poverty and brain drain with people moving to other countries for better paid jobs. It also affects negatively gender equality and domestic demand in the economy,” Schmit summarized. “There should be a legal guarantee that the minimum wage should be at least 70 – 80 % of the median wage (the poverty threshold).”

That said, he prefers collective bargaining as the way forward. “Statutory minimum wages are the second-best option, strong collective bargaining is the best option,” he stressed. “If you have a well-functioning collective bargaining system, reaching a certain coverage of the working population, then there is no need for minimum wages.”

The issue of minimum wages was raised already in the European Pillar of Social Rights that was adopted at a summit in Gothenburg, Sweden, in November 2017. Sweden also happens to be one of the few EU member states with a collective bargaining system, dating back to a historic deal in 1938 between employers and unions.

Principle 6 in the pillar states that adequate minimum wages shall be ensured and that wages shall be set in a transparent and predictable way according to national practices and respecting the autonomy of the social partners. The pillar is not legally binding and until now the Commission has influenced member states by issuing economic guidelines.

Different systems

In EU-27, 21 Member States have statutory national minimum wages and six others have wages determined via collective bargaining. Some countries have mixed systems. Minimum wages are considered adequate if they are fair vis-à-vis the wage distribution in the country and if they provide a decent standard of living but this is far from the case in many member states.

According to the Commission’s consultation document, diverse performances across and within member states in achieving fair minimum wages “contradict the promise of shared economic prosperity and undermine the objective of upward convergence”.

Today the share of workers earning the minimum wage in the EU is estimated at levels that vary from below 5% (e.g. in Belgium and Malta) to around 20% (in Portugal and Romania). The monthly rates range from €286 in Bulgaria to €2,071 in Luxembourg, according to a Eurofound report. The wide range does not necessarily reflect productivity differences.

The situation is even worse, with workers earning below already low statutory minimum wages (40 – 60 % of average wages in some countries). This might reflect changes in the labour market, with non-standard and temporary jobs, but is also due to non-compliance with the legislation. That said, some convergence between member states has been noticed in terms of purchasing power standards.

Overall, millions of workers are currently not protected by adequate minimum wages in the EU. There are major gaps in the coverage of minimum wages in some countries. In others, the minimum wages are not regularly adjusted and updated.

The collective bargaining system faces also problems. According to the consultation document, its coverage has decreased in many EU member states, from an estimated average of 68.5% to 59.5%, with particularly strong declines in Central and Eastern Europe (20 % in Estonia, Lithuania and Poland).

Sweden might be an exception. The membership rate in the unions is around 70 % but the collective bargaining system covers 90 % of the workforce.

According to the Swedish National Mediation Office, only 1 % of all employees have a wage below 60 % of the median wage, most of them below the age of 20 or part-time workers. Out of the 700 collective agreements, only about 250 include rules on minimum wages.

The Swedish model

The Brussels Times asked Swedish MEP Heléne Fritzon, S&D group vice-president, who shared one of the panels at the parliament’s workshop, if the Swedish collective bargaining system functions so well that there is no need for statutory minimum wages.

“The wage agreements cover all companies that have signed them and include all employees working in them, irrespective if they are members of the union or not,” she replied. “They are as binding as statutory minimum wages would have been. In addition, they cover also working hours and other work conditions.”

The issue has appeared in the latest national and European Parliament elections but there is an overall consensus on the merits of the collective bargaining system across the political spectrum. Would there be room for a mixed model? “No, in Sweden this issue is totally up to the social partners to decide on. In my view, there is no interest today to change the existing system in Sweden.”

Does this imply that Sweden, as perhaps the other Nordic countries with collective bargaining systems, will oppose a legislative proposal on fair minimum wages, provide that a legal basis can be found? There are shortcomings in the 21 EU member states that apply a system of statutory minimum wages.

“It’s too early to say. The Commission has just started a consultation process. But a condition is that any directive on fair or decent minimum wages must include guarantees for the autonomy of the collective bargaining system. Sweden does not want to legislate on wages since this is up to the social partners to negotiate on.”

“But it’s correct to say that many countries lack a functioning collective bargaining system and for them legislation on minimum wages could be needed,” she added.

While several different perspectives on EU and the issue of minimum wages were discussed at the workshop, the Swedish perspective was also highlighted by a non-paper on a European wage policy initiative, drafted by a representative of the Swedish Trade Union Confederation (LO). In this paper, Sweden recommends the use of recommendations instead of a directive.

In fact, those defending the collective bargaining system has no reason to worry. In the consultation document, the Commission excludes any harmonisation of minimum wages across Europe. Any directive would basically aim at increasing transparency and predictability in the current systems of statutory minimum wages.

Furthermore, the setting of minimum wages will likely involve consultation with the social partners, as it already does in the member states.

“Minimum wages would continue to be set either through collective agreements or legal provisions, in full respect of national competencies and social partners’ contractual freedom. In particular, an EU action would not seek the introduction of a statutory minimum wage in countries with high coverage of collective bargaining and where wage setting is exclusively organised through it.”

M. Apelblat

The Brussels Times

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