By Erin Ewen and Malena Ramajo
Proposals from EU Commission president-elect, Ursula Von der Leyen, have called to ensure wages for EU workers remain fair and provide a “decent living.”
Commissioner for Jobs, Nicholas Schmitt, has been entrusted to introduce a “legal instrument” that ensures “a fair minimum wage” for EU workers, as part of his mission to strengthen Europe’s social dimension.
The stress on the need of this wage to provide a decent living makes it closer to the idea of a living wage. The goal is that workers can live comfortably from the income they earn, eliminating the growing number of those experiencing in-work poverty in the EU.
Currently, 22 out of the 28 EU countries have statutory minimum wages. Italy, Cyprus, Austria, Denmark, Finland and Sweden are the exceptions.
Minimum wage within EU member states varies significantly, being just 1.60 euros per hour in Romania and almost 12 euros in Luxembourg. The objective of the incoming EU Commission, then, is not to establish an absolute figure for all the European countries but to set a proportional minimum wage according to their characteristics.
The premise for the living wage is that it must provide “a decent living” for workers. The first step is how to set a common scale to define where to establish a decent income for every country. Economic experts within Europe suggest this common scale sits at 60 per cent of the median national income, which is considered the at-risk-poverty threshold.
Towards a living wage
This will not be the first time Europe discusses the possibility of introducing a legislative minimum wage, but it could be the first time the debate leads to the establishment of specific policies. The difference is that is not only an EU initiative, it is also part of the national agenda in many countries.
There is also a new aspect in the upcoming debate. Whereas previous minimum wages were established with the aim of avoiding the exploitation of workers and reaching basic conditions, now is also outlined the idea of providing a “decent living”. This transforms the idea of a minimum wage into an entirely new concept: a living wage.
John Hurley, researcher at Eurofound, says that “statutory minimum wages are not set necessarily with a view to securing a decent living standard.” If this changes, it will also affect the way in which the minimum wage is calculated.
Hurley explains that the calculation of a living wage “works backwards, from what you need to have a decent basic modest living standard to an actual wage based on a basket of goods and services which would be required to have a living standard.”
This basket would have to be defined in collaboration with each member state. Torsten Müller, from the European Trade Union Institute (ETUI) says that the basket varies in every country. “Member states where childcare is free, won’t have to include this in the basket. Where they must pay for it, that would be included”.
Nevertheless, this approach is not plausible in the short-term. Gathering the information of the real cost of living in the different countries appears as a tough task, dependant on which costs are covered by the welfare state and the taxation system.
Other issues that should be outlines are the type of household used to calculate the minimum wage, as well as which type of employment, (part-time or full-time). Also, it might be necessary to define different levels within a state considering high-cost areas. This is the case of the United Kingdom, where there is already a higher minimum wage set for London in comparison to the rest of the nation due to higher living costs.
Calculation of the minimum wage
Dismissing the idea of trying to set 28 different baskets of goods and services, an alternative approach needs to be sought. Müller explains that “research shows that the threshold of in-work poverty is 60% of the median income.”
Using this measurement, the first goal will be reaching the 60% of the median wage as the goal for the minimum salary. Hurley considers it is a “sensible and ambitious goal” and that it could be part of a two-stage process. The second part would be to shift to the 60% of the average wage, which will result on a general increase.
In this way, it will be assumed that 60% of the median wage corresponds to the living wage. However, Müller points out that “we are not sure if this 60% of the median provides a living wage. If the whole wage structure is low, 60% of the median is also low”.
Rebekah Smith, deputy director in the Social Affairs Department of Business Europe is reluctant to the use of the 60%. “If they want to use the median wage, they are not actually targeting the countries they need to. It is probably more likely to hit the ones where there is more discrepancy between the low and the high wages.”
Legal issues and discrepancies
Von der Leyen advocates for establishing “a legal instrument”, but it is still unclear what this instrument could it be. It could be a directive, that has a larger binding legal reach, or a softer instrument, more towards a recommendation.
One of the main arguments against an EU legal minimum wage is that is not part of the competences of the European Union. Smith, from Business Europe said,” we have a kind of principal opposition to the idea of an EU minimum wage. That is that the Treaty says that the EU can’t deal with these issues of pay.”
This is stated in the 153 (5) article of Treaty on the Functioning of the European Union (TFEU), where pay is excluded from the fields in which the Union can support the member states.
Smith points out that the differences between countries in this area make it logic to be a national competence. She says that “in some countries it’s the social partners that set the wages, the government is not at all involved”.
This is the case of the Scandinavian countries, like Denmark, Finland or Sweden. In these countries, wages are established by collective bargaining, after negotiations between employers’ organisations and trade unions. The salaries reached through this model are in most cases above the 60% of the median.
Marianne Vind, a Danish member of the European Parliament said “we are afraid that if we get a national minimum wage in Denmark, what is the need for collective bargaining after that? Why become a member of the union if you can’t influence the bargaining process, as it’s already decided for you.”
Dorthe Andersen, head of the Danish Trade Union Confederation, explains that keeping the strength of trade unions is essential in Denmark. “We also make negotiations about other issues, including working conditions, childcare, holidays or access to lifelong learning.”
Link to collective bargaining
Müller says that “collective agreements are the preferred method, but that presupposes a certain balance of power and assumes trade unions are strong enough to ensure a decent wage. If not, the state needs to come in and introduce a statutory minimum wage.”
For this reason, he defends that the EU initiative on minimum wage should also be linked with an initiative to support collective agreements at a national level.
It’s a point shared by all the actors in this debate. The Danish Trade Union agrees that there should be a link, but stresses that is also important to encourage “the capacity of building” of unions. Business Europe also agrees that “is necessary to give more capacity of negotiation to social partners if the EU Commission wants to go on a direction where social partners are involved when it comes to setting wages”.