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 forward 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 European Union 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 Luxembourg.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 4 To relay the fears of the Nordics, both proposal.