The European Commission has released a new consultation document on addressing challenges related to fair minimum wages. Fairness, along with environmental sustainability, productivity gains, and macro-economic stability, are the four pillars of the EU’s economic policy for the coming years.
An adequate wage that allows for a decent standard of living for European workers is at the heart of both economic stability and fairness; in line with this, President von der Leyen announced recently that “a legal instrument to ensure that every worker in our Union has a fair minimum wage” will be proposed, as part of “an action plan to fully implement the European Pillar of Social Rights”, and reiterated that minimum wages “should allow for a decent living.”
Addressing minimum wages is critical because the living conditions of low wage workers have not improved despite some moderate wage growth, and income inequality across Europe has worsened. The number of Europeans who earn a low wage increased from 16.7% to 17.2% from 2006 to 2014; the number of those suffering from in-work poverty increased from 8.1% to 9.6% from 2005 to 2018.
Non-standard work including temporary employment, working multiple part-time positions, and on-call work has increased and increase the risk of in-work poverty. Ensuring fair minimum wages protects workers who earn that wage and at the same time have been shown to increase productivity. In a larger scale, minimum wage increases have been correlated with overall wage growth throughout the economy. Less workers in poverty and with a higher standard of living can bolster the economy by increasing domestic demand and support resilience in the economy.
Minimum wages must be assessed in relation to the conditions of each member country. Wages are considered adequate if they are fair when considering the wage distribution of the country and if they can provide a decent standard of living. Gross minimum wages are compared to gross median or average wage; strong collective bargaining systems (such as Italy and Denmark with nearly 80%) usually have higher wage floors compared to those countries that do not. Other factors to be taken into account when deciding if a wage is fair are prices levels in the country, take home wages in relation to gross wages, and the impact of taxes and social contributions.
As part of the consultation, the Commission “takes the view that an EU initiative on fair minimum wages could be appropriate”. Such an initiative would seek to improve working conditions, take on in-work poverty, and promote a more even arena for firms in the Single Market. Such an action would seek to ensure the following: an adequate minimum wage set in light of national economic and social conditions; workers protected by minimum wages effectively; social partners involved in minimum wage adjustments and collective bargaining; and statutory minimum-wage setting guided by national frameworks based on clear and stable criteria with reasonably frequent and regular updates.
For further information: First-stage consultation of social partners on Fair Minimum Wages in the EU