BEERG Newsletter – EU: Minimum Wage moves up the policy agenda

Robbie Gilbert writes: A new report (here) highlights the wide variation in minimum wages across Europe and beyond. It also shows an upward trend in recent years, as Europe climbs out of the post-2008 recession, with increases generally higher than the growth in average earnings. The report is the latest in an annual series produced by the Institute of Economic and Social Research (WSI) of the Hans-Böckler-Stiftung, a foundation set up in 1977 by the German trade unions.

In BEERG, we often flag up these institutions, Stiftungs associated with political parties or trade unions, as thought leaders and incubators for ideas that may be picked up by politicians and the EU Commission.  In due course, some years down the line, these thoughts may re-emerge as proposed Directives. On this occasion the connection is a bit more immediate. 

While the idea of a coordinated European-level minimum wage policy has been around since the 1990s, the German government aims to give it a push when they hold the EU Presidency in the second half of next year. They hope to build on a campaign in the coming weeks and months for some kind of statutory provision, which will be found in several party manifestoes for May’s European Parliament elections.

The report uses figures as at 1 January 2019. It should be noted that in some countries further rises are already in pipeline. For example, in the UK the main hourly rate will rise by 4.85% to £8.21 on 1 April. The fuller report also includes data for other countries with national minimum wages, including several in or adjacent to Europe: Turkey, Serbia, Macedonia, Albania, Russia, Ukraine and Moldova; and, from further afield, Australia, New Zealand, Canada, Japan, Korea, Argentina and Brazil as well as the USA.

To talk of ‘national’ minimum rates can be misleading. In the United States, 29 states set their own minimum wage – in one case more than twice the national figure of $7.25 – as do a growing number of US cities in the wake of ‘fight for fifteen’ campaign which aims to establish a base hourly rate of $15. Other countries with minimum rates that vary geographically within the country include Canada, Russia and Japan.

Policy options

There are several ways of measuring and grading minimum wage levels: the report looks at three: purchasing power, and the minimum wage as a percentage of the median and the average wage for each country. On these bases the ‘league table’ changes dramatically, and the range narrows. 

Increasingly, the policy focus seems to concentrate on setting a general standard rather than a single EU-wide figure. 

Is the national minimum wage sufficient to provide a basic standard of living, in line with ILO Convention 131 and the European Pillar of Social Rights which says that ‘workers have the right to fair wages that provide for a decent standard of living.’ A number of countries, including Spain and the UK, have established future targets for a minimum wage that is set at 60% of mean earnings. This approach could also work better in countries where there are regional variations.

Has the EU any competence in this field?

The EU Treaties prohibit the EU from regulating wage matters. How, then, could an EU-wide minimum wage policy be created?  The Report suggests that the EU could “set common standards and objectives as to what the level of a minimum wage should be”. These could then be applied to national-level policies “through European coordination and governance mechanisms”, such as the ‘European Semester’, a procedure currently used to coordinate aspects of economic policy, including recommendations on pay. 

Both the German Finance Minister and the Federal Labour Minister support the idea, and the latter has said that “the creation of a European legal framework for minimum wages and minimum income” will be one of the priorities for the German EU Council Presidency which runs for 6 months from July 2020.

None of this is going to happen this month or this year; but it is something for us to keep an eye on. Moves on low pay put pressure on differentials all the way through company pay structures.

From BEERG Newsletter #9 of March 15, 2019