SOLIDAR Position Paper

EU initiative on minimum wages

Introduction what the Commission is proposing. Finally, it also presents SOLIDAR’s position on the In December 2019, Commissioner for Jobs matter. and Social Rights, Nicolas Schmit, announced that he would put a proposal for an Why is there a need to discuss EU EU minimum wage.1 Six months later, the minimum wages? need for a European initiative on minimum wages is more evident than ever as the Over the years, the share of people in the COVID-19 crisis makes us re-evaluate the living at risk of poverty value of work and highlights that essential despite being employed has risen from 8.3% 3 workers are often left underappreciated, in 2010 to 9.5% in 2018. Currently around underpaid and with precarious contracts. At one in six workers are low-wage earners and 4 the beginning of 2020, the European this is a rising trend. Minimum wages are a Commission launched a two-stage powerful tool for making sure that workers consultation on a possible action addressing have enough income to cover their costs of the challenges of ensuring that every EU living. They will furthermore be crucial in the Member State has in place a decent recovery of our economies from the COVID- minimum wage.2 This briefing paper sets out 19 crisis and in building a more resilient the importance of a decent minimum wage, economy for the future. the current status of the consultation and

1 Rios, B. (2019) Schmit to unveil EU minimum wage 3 Eurostat (2020) In-work at-risk-of-poverty rate by proposal in January: age and sex - EU-SILC survey: https://www.euractiv.com/section/middle-ground- http://appsso.eurostat.ec.europa.eu/nui/submitVie politics/news/schmit-to-unveil-eu-minimum-wage- wTableAction.do proposal-in-january/ 4 European Commission (2020) First phase 2 European Commission (2020) First phase consultation of Social Partners under Article 154 consultation of Social Partners under Article 154 TFEU on a possible action addressing the challenges TFEU on a possible action addressing the challenges related to fair minimum wages: related to fair minimum wages: https://ec.europa.eu/commission/presscorner/api/fi https://ec.europa.eu/commission/presscorner/api/fi les/attachment/860459/Consultation_fair_minimum les/attachment/860459/Consultation_fair_minimum _wages.pdf.pdf _wages.pdf.pdf

The majority of EU Member States (21 out of long-term sustainability of the European 27) have a statutory national minimum wage union and ensure economic convergence in place, with the exception of Austria, between the Member States, it is essential Cyprus, Denmark, Finland, Italy and that all workers are remunerated fairly and Sweden.5 In these countries, minimum any competition is based on quality. wages are agreed sector by sector by the Decent minimum wages also improve the social partners through collective bargaining position of low-wage workers, agreements. The coverage of the minimum improving their working conditions. This will wage thus depends on the coverage of specifically benefit atypical and marginalised collective bargaining. Workers in non- workers as well as women who are more organised sectors, that tend to be more likely to be in low-paid work. In addition, fair vulnerable to begin with are often excluded. minimum wages can increase incentive for The share of non-covered workers is workers to seek employment in the formal estimated to be 2% in Austria, close to 10% economy. Finally, increased minimum wages in Sweden and Finland, close to 20% in Italy will boost purchasing power and as a result and Denmark and about 55% in Cyprus.6 The benefit the economy as a whole. share of people earning the minimum wage also varies significantly between countries, The International Labour Organisation has from 5% of workers in Belgium and Malta, to found that any claims that an (increased) up to 20% in Portugal and Romania. minimum wage would lead to more unemployment have never materialized in With the freedom of movement for workers countries that have introduced or raised the in the EU and an increasing number of minimum wage, especially in developed posted workers, cross-border workers and countries.7 the free movement of goods and services, the effects of national and regional An EU legal instrument on minimum wages minimum wage policies do not stop at the would ensure that all Member States put in border. A common European approach to place a minimum wage that covers all minimum wages can help assure that workers. However, this still does not tell us countries do not compete on the basis of anything about the adequacy of this cheap labour. Not only will this cause a race minimum wage. Gross minimum wage levels to the bottom, it also disincentivises in the European Union vary considerably. As technological innovations that would the map demonstrates, minimum wage increase our overall welfare. To protect the

5 European Commission (2020) Disparities in https://eur-lex.europa.eu/legal- minimum wages across the EU: content/EN/TXT/PDF/?uri=PI_COM:C(2020)3570&fr https://ec.europa.eu/eurostat/web/products- om=EN eurostat-news/-/DDN-20200203-2 7 ILO Minimum wage policy guide: 6 European Commission (2020). Second phase https://www.ilo.org/global/topics/wages/minimum- consultation of Social Partners under Article 154 wages/monitoring/WCMS_438874/lang-- TFEU on a possible action addressing the challenges en/index.htm related to fair minimum wages:

2 levels in the EU range from €312 in Bulgaria to €2142 in .8 To get a complete picture of the adequacy of minimum wages, other factors such as taxation, income subsidies, cost of living and average wages in a country (or region) also need to be taken into account. Although this does decrease the difference between Member States, the adequacy of minimum wages Eastern and Southern Europe remains low compared to Northern Europe. As a rule of thumb, 60% of the median wage is commonly used as a benchmark for the national poverty line. According to this guideline, statutory minimum wages in 17 EU member states are so low that they leave full-time workers at risk of poverty (less than 60% of the median wage).9 To be effective, any European initiative on minimum wages should include provisions that ensure What is the Commission proposing? that a minimum wage worker earns enough to cover the real costs of living. Civil society Principle 6 of the European Pillar of Social organisations can play an important role Rights provides that: “(a.) Workers have the here, providing expertise on the true costs right to fair wages that provide for a decent of living and living circumstances for the standard of living. (b.) Adequate minimum most marginalised in a specific country or wages shall be ensured, in a way that region based on their experience on the provide for the satisfaction of the needs of ground. the worker and his/ her family in the light of national economic and social conditions,

whilst safeguarding access to employment and incentives to seek work. In-work

8 European Commission (2020) Disparities in 9 OECD, Minimum relative to average wages of full- minimum wages across the EU: time workers: https://ec.europa.eu/eurostat/web/products- https://stats.oecd.org/Index.aspx?DataSetCode=MI eurostat-news/-/DDN-20200203-2 N2AVE

3 poverty shall be prevented. (c.) All wages What the European Commission is not shall be set in a transparent and predictable proposing way according to national practices and The European Commission is explicitly not respecting the autonomy of the social proposing to set one minimum wage for the partners”. On this basis, the European entire European Union. It also does not want Commission has set out to introduce “a to impose national minimum wages from EU legal instrument to ensure that every level nor harmonise minimum wage setting worker in our Union has a fair minimum systems. wage. This can be set through collective agreements or legal provisions, depending on each country’s traditions.”10 Current status This EU instrument would aim to ensure that: In the first step of the two-stage consultation process, social partners were asked to give  Well-functioning collective their view on a possible action, addressing bargaining in wage-setting is in the challenges of ensuring that every EU place; Member State has in place a decent  National frameworks allow for minimum wage.12 It soon became clear that statutory minimum wages to be set especially Nordic countries are not and regularly updated according to favourable towards a European instrument clear and stable criteria; on minimum wages. With their wage setting  Social partners are effectively systems successfully based on social involved in statutory minimum wage dialogue and collective bargaining, the setting to support minimum wage Nordic Social Partners are critical to a adequacy; European legal instrument that risks to harm  Minimum wage variations and this system and dismantle the basis for a exemptions are eliminated or well-functioning and widely accepted limited; system of Social Dialogue in their countries.  National minimum wage frameworks are effectively complied Nevertheless, based on the first round of with and monitoring mechanisms consultations, the European Commission has are in place.11 concluded that a European instrument on minimum wages would indeed be desirable.

10 Von der Leyen, U. (2019) Mission letter to Nicolas 12 European Commission (2020) First phase Schmit: consultation of Social Partners under Article 154 https://ec.europa.eu/commission/sites/beta- TFEU on a possible action addressing the challenges political/files/mission-letter-nicolas-schmit_en.pdf related to fair minimum wages: 11 European Commission (2020) Fair minimum https://ec.europa.eu/commission/presscorner/api/fi wages: Commission launches second-stage les/attachment/860459/Consultation_fair_minimum consultation of social partners: _wages.pdf https://ec.europa.eu/commission/presscorner/detai l/en/ip_20_979

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To relay the fears of the Nordics, both proposal. If social partners decide to start Commission President Von der Leyen and negotiations between themselves, the Commissioner Schmit have emphasised on European Commission will suspend its work numerous occasions that they want the on this topic. setting of the minimum wage to be in line with national traditions and expressed their SOLIDAR’s position support for collective bargaining in countries SOLIDAR stresses that there are three where this is the norm. In her Political essential elements that need to be present Guidelines, Von der Leyen also underlined for a European initiative on minimum wages that “minimum wages should be set to be effective. Firstly, with our feet according to national traditions, through historically strongly rooted in the trade collective agreements or legal provisions. I union movement, SOLIDAR always supports am a firm believer in the value of social collective bargaining as the ideal method dialogue between employers and unions, for wage setting. Countries with a high level the people who know their sector and their of collective bargaining coverage tend to region the best”. A possible compromise have better working conditions and a higher would be a system in which countries that standard of living overall. Furthermore, reach a certain threshold of collective wage agreements between social partners bargaining coverage are exempt from the can be tailored to the specific circumstances obligation of introducing a statutory of the sector and tend to come as less of a minimum wage and other countries are shock and have smaller employment effects. supported to encourage collective In those countries with a well-functioning bargaining. collective bargaining system the integrity of In the second stage13 of the consultation the parties should be respected and process, that started on 3 June 2020, social guaranteed. Indeed, as Commissioner partners are invited to provide further input Nicolas Schmit said initially, “the proposal on what a European minimum wage shall not try to fix something that is not instrument should entail. They are asked to broken”. It is important also for the give their views on the objectives, possible acceptance of EU proposals on a national avenues and legal basis for EU action as well level that the social parties feel respected as their willingness to enter negotiations and heard, without the imposition of State between social partners. The next step will interference where there were none. Hence, be that either social partners start we are glad the European Commission negotiations with the objective to come to seems to recognise the inherent value of an agreement under Art. 155 TFEU, or the collective bargaining and to respect the European Commission will present its own integrity of existing social dialogue

13 European Commission (2020). Second phase lex.europa.eu/legal- consultation of Social Partners under Article 154 content/EN/TXT/PDF/?uri=PI_COM:C(2020)3570&fr TFEU on a possible action addressing the challenges om=EN related to fair minimum wages: https://eur-

5 mechanisms, however, we regret the that the minimum wage should apply to exclusion of wider civil society in the atypical workers, including temporary discussions around minimum wages and workers, part-time workers, and platform living conditions. Civil society organisations workers. In addition, also in countries where work closely with those in society who are collective bargaining is well-established, most marginalised and often there needs to be some form of an assurance underrepresented by traditional social for workers in sectors that are not covered partners, many of whom would be directly by collective agreements, to prevent affected by a change in minimum wages. segmentation of the labour market. The fact Therefore, SOLIDAR insists that any EU that the European Commission at the action on minimum wages, is accompanied moment still leaves room for the exclusion of by increased respect, support, and certain groups or occupations lest justified, encouragement of collective bargaining as is worrisome. well as of a broader civil dialogue in all Finally, a minimum wage will only be Member States. effective in ensuring a decent standard of However, it is also important to living if it covers the real costs of living. acknowledge that the coverage of collective Standardised indicators such as a percentage bargaining in some Member States is at such of the median wage or a certain purchasing a low level that the vast majority of workers power can only partially approach the true are left unprotected. In these cases, costs of living. Therefore, it is important to statutory minimum wages are a very seek the expertise of trade unions as well as effective way of making sure that all workers civil society organisations working with low- can count on a minimum wage that allows income people on the ground to determine them to live their life in dignity. Here we call the true costs of living and living on the solidarity of those who already enjoy circumstances. Thus, SOLIDAR once more the benefits of strong social dialogue and underlines the importance of collective adequate minimum wages, to do what is bargaining, processes of social dialogue and necessary to give workers across the EU a the involvement of wider civil society in the decent standard of living while we continue setting of the minimum wage. to respect the diversity of national SOLIDAR welcomes ambitious EU action on arrangements and strengthen collective minimum wages, but stresses that we bargaining systems in all Member States. should not try to fix national systems that Secondly, all workers should be protected are not broken. Strong collective bargaining by a wage floor. This means an EU systems and well-functioning social dialogue instrument should not leave room for mechanisms are the preferred basis for exceptions such as we currently see in some settling conflicts and agreeing on wage countries for young workers, disabled levels. However, decent minimum wages are workers, relatives employed in small family an additional strong basis that will allow for businesses, and participants in active labour us to rebuild resilient economies that put market policies, among others. It also means people’s wellbeing first. However, we

6 maintain that decent minimum wages alone Further reading are not enough and that they should be complimented by adequate and universal Eurofound (2019) Minimum wages in 2019: minimum income schemes to protect and Annual revew: cover those who fall between the cracks of https://www.eurofound.europa.eu/sites/de our labour markets and social protection fault/files/ef_publication/field_ef_documen schemes. t/ef19028en.pdf Especially in the light of the effects COVID-19 European Commission (2020) First phase has had on people’s lives and livelihoods as consultation of Social Partners under Article well as our economies and societies, we call 154 TFEU on a possible action addressing on the European Commission to explore the challenges related to fair minimum options for a European initiative that wages: strengthens existing social dialogue https://ec.europa.eu/commission/presscor mechanisms, collective bargaining schemes, ner/api/files/attachment/860459/Consultat minimum income possibilities in addition to ion_fair_minimum_wages.pdf the minimum wages. European Commission (2020). Second phase consultation of Social Partners under Article 154 TFEU on a possible action Author: Jedde Hollewijn addressing the challenges related to fair Coordination: Laura de Bonfils minimum wages: https://eur- lex.europa.eu/legal- content/EN/TXT/PDF/?uri=PI_COM:C(2020) 3570&from=EN ETUC (2020) ETUC REPLY to the First Phase Consultation of Social Partners under Article 154 TFEU on a possible action addressing the challenges related to fair minimum wages: https://www.etuc.org/sites/default/files/do cument/file/2020- 02/ETUC%20REPLY%20to%20the%20First%

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