4

Fair minimum wages and collective bargaining: a key to recovery

Chapter Introduction

Almost overnight, the outbreak of the Covid-19 pandemic in March 2020 turned the European economies upside down. In February 2020 the European Commission (2020a) was still forecasting a continuation of the (modest) growth of the previous years, but economic performance more or less collapsed in all European countries a few weeks later. The new economic context emerging from the pandemic also has far-reaching implications for wages and collective bargaining. During an economic crisis, growing levels of unemployment or uncertainty about job security can make it harder for trade unions to negotiate higher wages. Other matters, such as safeguarding employment,  typically rise to the top of the negotiating agenda during bargaining rounds.

 

From a European perspective, however, one of the key questions in light of the current Covid-19 crisis is whether policymakers have drawn the right set of conclusion from the last crisis in 2008/2009 when the crisis management based on austerity and internal devaluation not only prolonged the crisis itself but also had tragic social consequences and undermined the political support for the European project as a whole (Herman 2017; Müller et al. 2019). In the field of wages and collective bargaining, the most important initiative started before the outbreak of the pandemic with Ursula von der Leyen’s statement that “within the first 100 days of my mandate, I will propose a legal instrument to ensure that every worker in our Union has a fair minimum wage” (Von der Leyen 2019: 9) and the subsequent proposal of a Directive on adequate minimum wages in the EU (European Commission 2020b).

In order to assess whether the proposed Directive really ensures fair minimum wages and supports multi-employer collective bargaining, this chapter will review the Commission’s more general approach to wages and collective bargaining and will chart the development of wages, minimum wages, collective bargaining and strike activity with the ultimate objective of identifying key elements of the Directive that need improvement in order to make fair minimum wages and strong collective bargaining part of the Covid-19 recovery strategy. 

Minimum Wage Developments

Dynamic minimum wage growth as economic stabiliser

Another way to stabilise the economy from a demand-side is to increase minimum wages since employees at the bottom of the wage structure are more likely to spend the additional money available than are employees further up the wage structure. Figure 4.4 illustrates that in 2019, statutory minimum wages continued to grow dynamically. In 17 of the 21 EU countries with a statutory minimum wage, changes were introduced with effect of 1 January 2020. In 2019, Latvia was the only country in which the minimum wage was not increased at all; but discussions were held with a view to increasing the monthly minimum wage from €430 to €500 at the beginning of 2021 (Schulten and Lübker 2020: 9). The other exceptions were Greece, where the minimum wage has been increased by more than 10% in February 2019, Ireland with a minimum wage increase of 3.1% in February 2020, Belgium with an increase of 2% in March 2020, and the UK, where the minimum wage was increased by more than 12% in two stages in April 2019 and April 2020. This comparatively strong increase in the UK is part of the government strategy to end low pay. In autumn 2019, the Conservative government announced that it would increase the adult minimum wage for employees aged 25 and over – the so-called National Living Wage – to £10.50 or two-thirds of the median wage over the next five years until 2024;  the caveat was, however, that this would only be implemented if the country’s economic situation allowed such an increase (Low Pay Commission 2019).

The development to substantially raise minimum wages is furthermore supported by the mounting empirical evidence that the dire predictions of many economists that higher minimum wages would have catastrophic effects on employment (as a representative example see Neumark and Wascher 2007) did not materialise in practice. A recent comprehensive overview of the international evidence commissioned by the Conservative UK government found that even significant minimum wage increases have only very limited negative employment effects (Dube 2019). Against this background, for the UK, Dube (2019) sees enough scope to raise the minimum wage to at least two-thirds of the national median wage.

Source: WSI Minimum Wage Database (WSI 2020).
Note: Conversion of national currencies into euros based on average exchange rate in 2019.

 

Different worlds of minimum wages

Despite these minimum wage increases, in particular in CEE countries, there is still a substantial variation in the levels of statutory minimum wages in the EU, ranging from €1.87 per hour in Bulgaria to €12.38 in Luxembourg. As Figure 4.6. illustrates, three major groups of countries can be identified: the first group comprises seven western European countries with minimum wages of around €10. After the front-runner Luxembourg, the highest minimum wages currently exist in France (€10.15), the Netherlands (€10.14), and Ireland (€10.10). They are followed by minimum wages of just under €10 in the UK (€9.93) and Belgium (€9.85). Germany, with a minimum wage of €9.35, comes in last in this group. Since Figure 4.6 shows the absolute level of the national minimum wage for all countries in Euros it is important to bear in mind the impact of exchange rate developments. The figure for the UK, for instance, is heavily influenced by the devaluation of the British pound vis-à-vis the Euro since the Brexit vote in June 2016. Based on the average exchange rate of the 2000s, the current UK minimum wage of £8,21 would be at €11.78, which in turn would be closer to the level of the frontrunner Luxembourg than to that of the other countries of this group (Schulten and Lübker 2020: 5).

A second, relatively small group includes only three European countries with minimum wages between €4 and €6. This group includes Malta (€4.48), Slovenia (€5.44), and Spain (€5.76). By far the largest third group consists of a dozen EU countries with minimum wages below the €4 mark. These include the southern European countries Portugal (€3.83) and Greece (€3.76) as well as ten central and eastern European EU Member States, where minimum wages range from €1.87 (Bulgaria) to €3.72 (Lithuania).

In the absence of national statutory minimum wages, the minimum wage level in countries where minimum wages are determined by (sectoral) collective agreements can only be determined by analysing the lowest collectively agreed wage groups. Against this background, in the northern European EU states Denmark, Finland and Sweden, the lowest collectively agreed wages in the classic low-wage sectors such as hairdressing, cleaning, and hospitality are generally between €10 and €12 per hour. In Austria, the collectively agreed minimum wage is just under €9, or just under €10.40 if the generally compulsory payment of 14 monthly wages is taken into account. In Italy, the lowest collectively agreed wages are between €6 and €7, and in Cyprus, the minimum wages for some occupational groups vary between €4.50 and €5.50 (Schulten and Müller 2020).

 

Source: own calculations based on OECD Earnings Database (OECD 2020) and European Commission 2020d
* data for 2018

Authors

Torsten Müller
Torsten Müller

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Silvia Rainone
Silvia Rainone

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Kurt Vandaele
Kurt Vandaele

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