Over recent years, but mostly during the economic and social crisis endangered by Covid-19, the creation of a European minimum wage has started becoming a hot topic, increasingly discussed and relevant. Indeed, according to many economists, this tool represents a useful instrument to ensure fair wages and social inclusion all over the Union.
Even if low pay has always been a characteristic of employment in the European Union, since 2020 the situation has been deteriorating: approximately one out of six employees is estimated to be a low-wage earner, getting paid 2/3 or less than the national median gross hourly earnings. Moreover, during recent years, an unfavorable trend can be observed: low wages have not kept pace with other salaries in many EU countries, leading to an increase in income inequality. In particular, the proportion of employed people at risk of poverty has risen from 8.3% in 2010 to 9.3% in 2018. Therefore, this crisis hit particularly hard low wage workers: especially the young, the low skilled and those in precarious forms of employment. A survey conducted in 2020 by Eurofound found that almost 47% of people in the EU reported their financial situation as worse than before, and nearly half indicated that their households could not make ends meet.
However, at present, there is not a European specific tool to help this increasing category of workers. Instead, EU Member States are adopting national minimum wages.
To be precise, as of January 2022, 21 out of 27 EU Member States have a statutory minimum wage, while the others –namely Austria, Cyprus, Denmark, Finland, Italy and Sweden – have wage levels determined though collective bargaining. Nonetheless, even if present, minimum wages vary widely across the EU, considering that in Bulgaria it consists of €312, whereas in Luxembourg €2,142. Despite this, the disparities become significantly smaller when price level differences are eliminated. For instance, if expressed in PPS (Purchasing Power Standard), the level ranges from PPS 547 (Latvia), to PPS 1,634 (Luxembourg).
Thus, minimum wages in Member States with relatively lower price levels become proportionally higher when expressed in PPS, and comparatively lower in Member States with higher price levels. Hence, the adjustment for price levels partly reduces the differences between Member States. Finally, as a result, the extremes of disparities are reduced from a ratio of 1 to 6.9, when expressed in euros, to a ratio of 1 to 3.0 in PPS.
Moving on, recently the focus of mentioned debate has switched from the macro-economic impacts to the social dimension. A statutory European minimum wage is increasingly considered as a useful tool to ensure fair wages and social inclusion: it could assure that all workers earn a decent living in the European Union, fighting income disparities, poverty, racial and gender inequalities with regards of wages.
Contrarily, employers’ organizations believe that wage setting should be left to social partners at national level. In their point of view, if the Commission wished to act for a minimum wage, only an EU Council recommendation would be acceptable.
However, as a result of years of discussions amongst politicians, trade unions, employers’ associations and economists, the key issue now concerning the introduction of a ‘European minimum wage’ is no longer whether or not European minimum wage regulations should be established, but under what legal form, thus either a Council recommendation or a directive. Reason for this is that in November 2017 the EU institutions unitedly proclaimed the European Pillar of Social Rights, setting out, at Principle 6, the European Union’s commitment to fair wages for workers. Then, in October 2020, the Commission tabled a proposal for a directive to improve the adequacy of minimum wages in the EU, once for all settling the debate regarding which legal form a European minimum wage should take.
In the meantime, a debate is still revolving around not only the scope of said minimum wage and its level, but also the procedures and criteria for its periodic adjustment and finally regarding the entanglement of trade unions and employers’ organizations.
To conclude, it is worth mentioning the latest rules implemented by the European Union.
On June 2022, the European Council and the European Parliament reached a provisional agreement on the draft directive on adequate minimum wages in the EU. This directive establishes procedures for the adequacy of statutory minimum wages, promoting collective bargaining on wage setting and enhancing the effective access to minimum wage protection for those workers who are entitled to a minimum wage under national law. Finally, on 14th September 2022, with 505 votes in favor, the new law was adopted, promoting the adequacy of statutory minimum wages and helping to achieve decent working and living conditions for European employees. The Member states have now two years to transpose the directive into national law.
Nonetheless, it is worth highlighting that for countries like Italy it’s not mandatory to adopt the directive. This is because the EU countries in which the minimum wage is already protected exclusively via collective agreements are not obliged to introduce these rules nor to make these agreements universally applicable.
Even if it’s not going to be implemented in every EU Member State, the Statutory European minimum wage is still considered a big achievement. Regarding it, Agnes Jongerius, Dutch Member of the European Parliament, commented: “Prices for groceries, energy bills and housing are exploding. People are really struggling to make ends meet. We have no time to waste, work must pay again. This directive sets the standards for what an adequate minimum wage should look like. At the same time, we are giving a boost to collective bargaining, so more workers will be better protected.”