Second round of discussions on minimum wage
Last week our task force on minimum wage met for the second time. We invited three external speakers.
A representative from DG Employment clarified that the Treaty does not provide any competence for the Commission in setting wages: it is a matter for national governments and the social partners. This largely explains the variety in the conditions and the levels of minimum wage in EU countries where they exist. Two years ago the Commission published the "Employment package" to generate jobs recovery and encouraged the setting of a minimum wage at appropriate levels to support job creation, social cohesion and competitiveness.
Enrique Fernandez from Eurofound presented some of the key findings of the report "Pay in Europe in the 21th Century": in the second part of the report, they constructed a hypothetical scenario imagining how it would be if a 60%median average wage was set at the EU level. It's very clear that in the short run it's not possible and that there are still problems in the long run at the political level.
He recalled that wages are not an EU competence but there are increasing levels of wage coordination, due to the crisis, through different methods: forms of coordination not explicitly included in the treaty are public debt and help from the European Central Bank. The debate around minimum wage started in the EU and was discussed from the 60s to the 90s – from the mid 90s it started being redirected to the national level. When the Union was opened to Eastern Europe the topic was back on the table over social dumping. Juncker talked about it, Commissioner Andor touched upon it as well. The kind of coordination we can observe is about setting a common relative level, because you can coordinate the policies and not the level of wages itself. Coordination can be done in many different ways:
1. Soft vs hard law: hard law at the moment is not possible, a treaty change would be needed. But even soft law is not so clear, it may not be possible either – a way could be through social partner agreements;
2. Levels vs systems: one of the main differences is about the coverage, the common statutory level will be applied to everyone; if you have collective bargaining then you have some categories of workers excluded because they are not covered by unions: this means the State has to come in to fill the gap and cover everyone, so it becomes closer to statutory;
3. What level to set? If the level is set at the median, there won't be big changes in the distribution of wealth. What happened over the last 20years is a massive increase in inequalities because of high increases in the upper levels of income. If you anchor it to the GDP, you would anchor it to the total capacity of the society, rather than to wages: in a way it would be preferable to use this, because unemployment is not necessarily represented in wage levels, but it is in GDP. However, this is not just a technical thing.
The main problem is the diversity in existing levels and mostly in systems. Statutory wage tends to be national standard and universal, the collectively agreed is sector specific and so has a segmented scope. Compliance is another issue: it could again bring social dumping – but there is little information on this.
Finally, we heard from Magdalena Bober of Business Europe. They are not in favour of having a European minimum wage, because the treaty is very clear and there is no reason for changing it. Talking about minimum wages at member state level, it's up to the states. The best answer may differ from country to country, taking into account the taxation system and social benefits. There are reasons in favour of introducing minimum wages, but it can also have negative consequences for those it’s supposed to protect, especially for young people or persons with disabilities who are not ensuring the employer a level of productivity higher than that set by the minimum wage: they will just not be employed at all. If it is introduced, the increase in wages could be passed on to the consumers: and since the propensity for consumption is higher among lower income people, the final effect can be none or even negative. Some workers who earn minimum wage are not living in poor households: so if you want to address poverty, there are more effective and better tools to do it rather than minimum wage.
This exchange clearly testifies how complex and sensitive this topic is. At Social Platform we will continue working on it. Now we are in an exploratory phase.