European Commission proposes directive on adequate minimum wages across the EU

European Commission proposes directive on adequate minimum wages across the EU
Credit: Unsplash/Raoul Croes

The Commission adopted yesterday a new framework in the form of a directive to ensure that workers in all member states are protected by adequate minimum wages irrespective if they are applying a system of statutory minimum wages or collective agreements.

The issue has been a kind of hot potato for some countries, in particular those with a system of collective bargaining between the social partners in the labour market, that oppose any kind of legislation and fear interference in their domestic labour market policies.

In the proposal, the Commission, after an extensive consultation process, claims that it has come up with a compromise solution that might satisfy all member states. That said, it is clear that the main burden to increase minimum wages will fall on those countries that currently are applying statutory minimum wages and they are even encouraged to do it via extending collective agreements.

The choice of framework stood between a non-binding recommendation and a directive. The Commission argues that a directive has the advantage of giving certainty about the minimum requirements and procedural obligations that member states have to apply. A legal basis for the directive was found in article 153 of the EU treaty on working conditions.

The first article in the proposed directive states that “nothing in this Directive shall be construed as imposing an obligation on the Member States where wage setting is ensured exclusively via collective agreements to introduce a statutory minimum wage nor to make the collective agreements universally applicable.”

For Commission president Ursula von der Leyen it is has been a political commitment since she presented her political guidelines last year.  She returned to the issue in her State of Union Address at the Parliament Plenary in September when she promised a legal proposal to set up a framework for minimum wages.

“Today's proposal for adequate minimum wages is an important signal that also in crisis times, the dignity of work must be sacred,” she said yesterday (28 October). “We have seen that for too many people, work no longer pays. Workers should have access to adequate minimum wages and a decent standard of living.”

This is not the case in a majority of member states, especially in the 21 countries with statutory minimum wages, that have seen an increase in low-income jobs and a more uneven income distribution. The current coronavirus crisis has particularly hit sectors with a higher share of low-wage workers such as cleaning, retail, health and long-term care and residential care.

In-work poverty

According to figures presented by the Commission in the impact assessment, there are huge differences by country. Current levels of net minimum wages are not adequate and below or around 50 % of average wages or 60 % of median wages in most countries. Without specifying the desirable level, a senior Commission official said that an extra effort is required by those countries where the minimum wage is below 50 % of the average.

At a workshop in February, Nicolas Schmit, Commissioner for Jobs and Social Rights, said “There should be a legal guarantee that the minimum wage should be at least 70 – 80 % of the median wage (the poverty threshold).” No such guarantees are given in the Commission proposal.

“Almost 10% of workers in the EU are living in poverty: this has to change,” he said yesterday. “People who have a job should not be struggling to make ends meet. Minimum wages have to play catch up with other wages which have seen growth in recent decades, leaving minimum wages lagging behind. Collective bargaining should be the gold standard across all Member States.”

The senior Commission official explained that the EU cannot not fix the wage levels in the member states and must respect the autonomy of the social partners. “It’s not realistic to change reality simply by legislation. Our proposal focuses on common basic criteria and will add value in particular to the countries with most problems today.”

Minimum wages exist in all EU member states.  21 countries have statutory minimum wages and in 6 member states (Denmark, Italy, Cyprus, Austria, Finland and Sweden) minimum wage protection is provided exclusively by collective agreements. With the exception of Cyprus, the coverage of the agreements is well above 50 % or even 90 % in Sweden.

Overall, the coverage has decreased in recent years, among other because of low membership rates in trade unions, but the Commission source believes that the coverage can be extended by legislation and be universally applied as is the case in for example France.

Six requirements

A remaining issue is the economic impact of the proposal. The Commission assures that it did not identify any negative employment effects. An important impact is the reduction of wage inequality and the increase of gender pay equality. Higher costs for companies might be passed to consumers but on the other hand adequate minimum wages will increase domestic demand.

The proposal lists six requirements for the member states. All member states are required to promote collective bargaining on wage setting and to report annually to the Commission. The idea is that the directive will promote transparency and enable comparisons by country which might lead to some kind of conversion and a more predictable wage setting.

The other four requirements are directed to the 21 member states with statutory minimum wages. They need to establish clear and stable criteria for setting and updating the wages, strengthen the involvement of social partners in the wage setting and limit the use of variations and deductions in their minimum wage systems.

The Commission's proposal will now go to the European Parliament and the Council for approval. Once adopted, member states will have two years to transpose the directive into national law.

The first reaction to the Commission’s proposal from the European Parliament was mixed.  Swedish MEP Heléne Fritzon, S&D group vice-president, told The Brussels Times, “We cannot accept a proposal which risks undermining the Swedish model.”

“It has served us well and we want to continue to protect it together wish Sweden’s employers, employees and trade unions. The Commission proposal lacks sufficient guarantees to protect the Swedish model. At first glance, there is no functioning exception for Sweden,” she said.

MEP Kira Peter-Hansen, Greens/EFA Coordinator in the Employment and Social Affairs Committee in the Parliament, welcomed the Commission’s attempt to tackle the issue but commented that, “More needs to be done to give social partners the means to strengthen collective bargaining and we need to secure that the proposal doesn’t harm well-functioning collective bargaining models.”

M. Apelblat

The Brussels Times

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