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Blog post






One step closer to adequate minimum wages in the EU





| 15/06/2022


| Klervi Kerneïs |

| Labour and social affairs



Download pdf →  | ← Download epub

--------------------------------------------------------------------------------

Recommended citation:
Kerneïs K. 2022. “One step closer to adequate minimum wages in the EU“,
Blogpost, Paris: Jacques Delors Institute, 15th June.

--------------------------------------------------------------------------------

Ahead of the Employment, Social Policy, Health and Consumer Affairs Council
(EPSCO) on June 16th, during which the provisional agreement on the Directive on
adequate minimum wages in the EU will be put to a vote, we take a look back at
this landmark EU initiative, provide some insights on the final compromise, and
more broadly, clarify what is at stake for European workers.   

Context and original proposal

Putting forward a legislative proposal on minimum wages was one of the key
promises made by European Commission President Ursula von der Leyen to European
workers. The goal was to tackle in-work poverty, which increased from 8.3% to
9.4% between 2007 and 2018,[1] and contribute to implement the European Pillar
of Social Rights, proclaimed in 2017 under her predecessor Jean-Claude Juncker.
In the meantime, the COVID pandemic struck, and, as one of the consequences,
sectors with high proportions of low wages, made up of the so-called ‘essential
workers’, no longer remained below the political radar. Today, as EU citizens
are facing rising prices and many are struggling to make ends meet, the
Directive has found yet another purpose: protecting low-wage workers against
inflation.

The proposal did not receive the warmest welcome from the get-go though. Nordic
countries were especially reluctant to see the EU legislate on such matter for
fear of damaging their national welfare systems. In six EU countries (Sweden,
Denmark, Finland, Austria, Italy, Cyprus), wages are indeed set exclusively
through collective bargaining and thus do not have a statutory minimum wage.
Some central and eastern countries, in particular Hungary, were also finding the
Directive to trample on their national sovereignty and would have preferred the
issue to be left entirely up to the Member States. For others though, such as
France, Luxembourg, Belgium, Italy and Spain, the Directive was seen as an
opportunity to accelerate wage convergence in the EU – the statutory minimum
wage in Luxembourg is about 7 times higher than the one in Bulgaria, and about 3
times higher when we take into account national prices[2] – and therefore fight
social dumping.

The Commission thus had to walk a fine line between these different political
perspectives, while being careful not to stray too far away from the Treaties’
provisions, whereby pay is explicitly excluded from the competences of the
EU.[3] The proposal put forward in October 2020 reflected these various
constraints.

Still, the Commission managed to clearly outline its two main objectives for the
Directive. Firstly, and only for the 21 Member States concerned, the proposal
aims to ensure the adequacy of statutory minimum wages, meaning that they must
allow workers to live in a decent manner. Behind this somewhat vague concept of
‘adequacy’, the Commission proposed several mandatory criteria, namely
purchasing power, the level, growth and distribution of wages, as well as labour
productivity (Article 5). The text provided that internationally recognised
reference values may be used to guide countries in their evaluations, and that
minimum wages ought to be updated regularly (Article 5). The tabled Directive
also put forward provisions on possibilities for exemptions (Article 6), on the
involvement of social partners (Article 7) as well as on ways to enhance the
access of workers to this protection (Article 8). Secondly, the Directive was
designed to promote collective bargaining in all EU Member States (Article 4)
since countries with high collective bargaining coverage tend to have higher
minimum wages, less low-wage earners, and lower wage inequalities. The proposal
thus intended to strengthen the capacity of social partners and encourage
negotiations on wages among them. It also stated that Member States where
collective bargaining coverage falls below 70% must provide a framework of
enabling conditions and an action plan to promote collective bargaining.
Horizontal provisions on public procurement, data collection and monitoring as
well as right to redress and penalties (Article 9-12) were also included in the
draft legislation.

Negotiations and next steps  

At the end of 2021, the European Parliament and the Council both managed to
adopt their respective positions. The Parliament reinforced the text in several
ways, for instance by making in-work poverty and a national basket of goods and
services at real prices into two of the criteria to assess the adequacy of
minimum wages, and by demanding an annual actualisation of the said wages. The
Parliament also raised the objective for collective bargaining coverage to 80%
of the workforce, removed the article on derogations (without forbidding them
explicitly) and added important provisions to protect trade unions and their
representatives throughout the text. On the side of the Council, the agreement
on a general approach under the Slovenian presidency was deemed as a surprise
due to the sensitive nature of the file. The compromise made exemptions to some
minimum wages as well as provisions on monitoring, controls and data collection
more flexible than in the Commission’s proposal. It also removed references to
internationally recognised reference values to guide the assessment of minimum
wages and changed the objective for collective bargaining coverage into a simple
‘threshold’. In the end, only two Member States voted against the proposal
(Denmark and Hungary) and two abstained (Austria, and Germany due to the
national political situation at the time) – even Sweden, which was, with
Denmark, arguably one of the main opponents of the Directive, ended up
supporting it.

Because the Parliament’s position strengthened the text while the Council went
on to protect national traditions and practices as much as possible (no doubt
many ‘red lines’ within the Council depended on these safeguards), room for
manoeuvre for interinstitutional negotiations seemed very narrow. And indeed,
eight trilogues were necessary over the course of five months to strike a deal,
from the first trilogue on January 13th to the last one on June 6th, 2022. This
was also seen as a concrete victory for the French Presidency of the Council of
the EU, which had made the file into one of its hallmarks.

Eventually, each legislator was able to take home part of its demands. The
Parliament managed to maintain the mention of the reference values of 60% of the
median wage and 50% of the average wage as well as the one relating to the
basket of goods and services at real prices, but was unsuccessful in adding the
in-work poverty criteria. The Council trumped the Parliament’s ambitions when it
came to the criteria of productivity, which remained in the text, and to the
article on the possibility for exceptions and variations (although the need for
a legitimate objective was still brought back from the Commission’s initial
proposal). A major win for the Parliament was the raised ambition for collective
bargaining coverage, together with increased protection for trade unions.
Finally, the Council managed to maintain the mandatory actualisation of
statutory minimum wages every two years and added an exception of every four
years for Member States with indexation mechanisms in place.

The text was presented to the COREPER on June 8th and left to be examined by the
ambassadors. It is to be formally adopted on June 16th, during the EPSCO
Council. Sweden seems to have backpedalled on its support for the text, despite
negotiators insisting that its concerns were incorporated into the final
compromise. However, it is unlikely that this will affect the outcome of the
Council decision, since qualified majority is more than likely to be reached
with or without Sweden’s support. In parallel, the provisional agreement will
also have to be approved by the European Parliament Committee on Employment and
Social affairs, and at a forthcoming plenary session.

Reception and outlook

While the agreement has been mostly seen as a positive step for a more social
Europe and the protection of workers, many are concerned about the actual reach
of the Directive: if it does not impose a statutory minimum wage in each Member
State, nor sets a minimum threshold that would raise minimum wages in most
countries, what concrete impact will the Directive have on workers?

According to the Commission’s impact assessment, up to 24 million people could
benefit from this new legislation, depending on the extent to which Member
States increase their statutory minimum wages. But these estimates are actually
based on the two reference values (60% of the median wage and 50% of the average
wage) that are only included in the Directive as guidance values for Member
States, and not as objectives per se as called for by the European Trade Union
Confederation, among other stakeholders. Even then, workers in France and
Portugal would for instance have remained mostly unaffected since their minimum
wages are already above or approximating 60% of the national median wage and 50%
of the average wage. The Directive will impact Member States differently as the
share of minimum wage earners vary across countries, so that countries like
Lithuania may be significantly affected by the legislation.

The Directive is also expected to contribute to reducing the gender pay gap
since women are more likely than men to be minimum wage earners. In addition, if
well implemented, the Directive should contribute to boost collective
bargaining, which has been on a downward slope for a while in the EU, falling
from 66% in 2000 to 56% in 2018, with substantial declines in Central and
Eastern Europe especially.[4] Despite the fear of the Nordics, the Directive
could actually be a way to export their efficient collective bargaining model in
other parts of Europe and spread its benefits.

To guarantee that the Directive’s objectives are fully realized, the Commission
will need to monitor its implementation in Member States and evaluate its
effectiveness. However, it is also up to governments to seize the opportunities
provided by the Directive and show some ambition at national level, beyond the
minimum standards agreed upon at EU level (this could include the systematic use
of the abovementioned reference values).

Besides, the text has a strong symbolic reach. Principle 6 of the European
Pillar of Social Rights states that “workers have the right to fair wages that
provide for a decent standard of living”. The entry into force of the Directive
would show that the Pillar is more than a declaration of good intentions, but
that its principles are to be made into concrete proposals, and eventually,
effective instruments to improve the lives of EU citizens. Furthermore, looking
at EU-wide surveys, social inequalities are seen as the top challenge for the
EU, and nine out of ten Europeans claim that a social Europe is important to
them personally.[5] The need for rules on minimum wages in the EU was also one
of the key recommendations submitted by citizens participating in the Conference
on the Future of Europe.[6]

Nevertheless, we must insist on the fact that this Directive should not be seen
as a panacea to guarantee good working and living conditions for EU citizens.
Further ambitious pieces of legislations at EU level will need to follow in
order to continue working towards such goal. The upcoming Directive on platform
workers could lead to the potential reclassification of up to 4.1 million
people, leading to better social security coverage and increased annual
earnings, which would in turn help to reduce in-work poverty.[7] Very
importantly, an EU framework on minimum income would be a gamechanger for the 95
million people at risk of poverty and social exclusion in the EU, almost 22% of
the total population.[8] While the Commission is planning to table a proposal
for a Council Recommendation on adequate minimum income schemes next autumn, we
can wonder whether more legally binding legislation would not have been more
appropriate. It should be recalled that the EU had not managed to reach its
Europe 2020 target of reducing the number of people living in poverty or social
exclusion by 20 million. If it wants to meet its new target set at the Porto
Social Summit in May 2021 – to lift at least 15 million people out of poverty by
2030 – no effort should be spared.

--------------------------------------------------------------------------------

References

[1] European Commission (2020), Impact Assessment accompanying the Proposal for
a Directive of the European Parliament and of the Council on adequate minimum
wages in the European Union, SWD(2020) 245 final, 28 October.

[2] S. Fernandes & K. Kerneïs (2022), A move toward adequate minimum wages in
the EU?, Infographic, Jacques Delors Institute, 10 January.

[3] Article 153(5) TFEU.

[4] European Commission (2020), Op. Cit.

[5] European Commission (2022), Special Eurobarometer 517 on the future of
Europe, January; European Commission (2021), Special Eurobarometer 509 on social
issues, March.

[6] European Union (2022), Conference on the future of Europe: Report on the
final outcome, May.

[7] European Commission (2021), Impact assessment accompanying the Proposal for
a Directive of the European Parliament and of the Council On improving working
conditions in platform work, SWD(2021) 396 final, 9 December.

[8] Eurostat (2022), People at risk of poverty or social exclusion.




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