EN   EN 
 
 
 EUROPEAN  
COMMISSION   
Brussels, 3.6.2020  
SWD(2020) 105 final  
 
COMMISSION STAFF WORKING DOCUMENT  
ANALYTICAL DOCUMENT  
Accompanying the document  
Consultation document  
Second phase consultation of Social Partners under 154 TFEU on a possible action 
addressing the challenges related to fair minimum wages    
 
{C(2020)  3570  final}   
 
2 
  
 
Contents  
1. INTRODUCTION  ................................ ................................ ................................ ...............................  4 
2. WHY MINIMUM WAGES MA TTER AND HOW ARE THE Y SET?  ................................ ..........................  5 
2.1. MINIMUM WAGES PROTECT  LOW-WAGE EARNERS  ................................ ................................ ....................  5 
2.2. WHO ARE THE MINIMUM W AGE EARNERS ? ................................ ................................ .............................  6 
2.3. WHERE DO MINIMUM -WAGE EARNERS LIVE AN D WHAT KIND OF SECTO RS AND FIRMS DO THEY  WORK FOR ? .......  12 
2.4. MINIMUM WAGES ARE SET  THROUGH COLLECTIVE A GREEMENTS OR LEGISLA TIVE PROVISIONS  ..........................  16 
3. WHAT IS THE PROBLEM THAT NEEDS TO BE ADD RESSED?  ................................ .............................  19 
3.1.  MANY WORKERS ARE NOT PROTECTED BY ADEQUAT E MINIMUM WAGES  ................................ ............................  19 
3.1.1.  Insufficient adequacy  ................................ ................................ ................................ ..........  19 
3.1.2. Gaps in coverage  ................................ ................................ ................................ ................  26 
3.2. EXTERNAL DRIVERS OF T HE PROBLEM  ................................ ................................ ................................ .... 27 
3.3. INTERNAL DRIVERS OF T HE PROBLEM  ................................ ................................ ................................ .... 29 
3.3.1.  Declining trend in collective bargaining  ................................ ................................ .............  29 
3.3.2.  Insufficiently clear frameworks to set statutory minimum wages  ................................ ..... 34 
3.3.3.  Exemptions and variations  ................................ ................................ ................................ . 36 
3.3.4.  Insufficient involvement of social partners in statutory minimum wage setting  ...............  37 
3.3.5.  Issues in compliance, enforcement and monitoring  ................................ ...........................  39 
3.4.  WHAT ARE THE CONSEQUENCES ?................................ ................................ ................................ ...............  40 
3.4.1.  For workers  ................................ ................................ ................................ .........................  40 
3.4.2.  For businesses, economy and society  ................................ ................................ .................  42 
3.5. PROBLEM TREE  ................................ ................................ ................................ ................................  44 
4. EU COMPETENCE AND EU  ADDED VALUE  ................................ ................................ ......................  45 
4.1. FOUNDATIONS OF THE RI GHT TO ACT  ................................ ................................ ................................ .... 45 
4.2. NECESSITY AND EU ADDED VALUE  ................................ ................................ ................................ .......  46 
5. OBJECTIVES: WHAT IS TO BE ACHIEVED?  ................................ ................................ .......................  48 
6. WHAT ARE THE AVAILAB LE POLICY OPTIONS?  ................................ ................................ ...............  51 
6.1. BASELINE AGAINST WHIC H THE OPTIONS ARE AS SESSED  ................................ ................................ ............  51 
6.2. POSSIBLE AVENUES FOR EU ACTION  ................................ ................................ ................................ ..... 52 
6.2.1.  Policy options  ................................ ................................ ................................ ......................  53 
6.2.2.  EU le gal basis and instruments  ................................ ................................ ...........................  55 
7. WHAT ARE THE IMPACTS  OF THE POLICY OPTION S? ................................ ................................ ...... 57 
7.1. SOCIAL IMPACTS  ................................ ................................ ................................ ...............................  57 
7.1.1.  General  social impacts  ................................ ................................ ................................ ........  57 
7.1.2.  Impacts on incentives to work  ................................ ................................ ............................  60 
7.2. ECONOMIC IMPACTS  ................................ ................................ ................................ .........................  61 
7.2.1.  Impac ts on economic activity, employment and consumption  ................................ ..........  61 
7.2.2.  Sectoral economic impacts and impacts on competitiveness  ................................ .............  66 
7.2.3.  Impacts on SMEs  ................................ ................................ ................................ .................  66 
7.2.4.  Impacts on public budgets  ................................ ................................ ................................ .. 68 
7.3. OTHER IMPACTS  ................................ ................................ ................................ ...............................  69 
 
3 ANNEX 1: AN OVERVIEW  OF MINIMUM WAGE SETT ING SYSTEMS  ................................ ........................  70 
A1.1.  MINIMUM WAGE SETTING SYSTEMS IN MEMBER STATES WITH COLLECTIV ELY AGREED MINIMUM W AGES ...............  70 
A1.2.  SUMMARY OF S TATUTORY NATIONAL MI NIMUM WAGE SETTING S YSTEMS  ................................ ........................  72 
A1.3.  SUMMARY OF EXEMPTIONS  FROM AND VARIATIONS IN STATUTORY NATIONA L MINIMUM WAGE S .........................  74 
ANNEX 2: INDICATORS OF MINIMUM WAGE ADEQ UACY  ................................ ................................ ...... 76 
ANNEX 3: STATUTORY M INIMUM WAGES AND LAB OUR PRODUCTIVITY, 19 99-2018  ............................  81 
ANNEX 4: METHODOLO GY OF SIMULATIONS PR ESENTED  ................................ ................................ ...... 82 
 
 
 
 
 
 
 
4 
 1. INTRODUCTION  
The EU has been particularly hit by the Covid -19 outbreak, with negative effects on 
Member States’ economies, businesses, and the income of workers and their families. As 
the EU prepares for recovery from this unprecedented crisis , our objectives of promoting 
socially fair transitions toward s climate -neutral and digital economies are more important 
than ever.   
Ensuring  that all workers in the EU earn a decent living  is essential for recovery as well 
as for building fair and resilient economies and minimum wages have an important role 
to play:  when set at adequate levels, they help vulnerable workers to build up a financial 
buffer during good times and limit the fall in income during bad times, thus helping them 
to face economic downturns. Yet in recent decades, low wages have not kept up with 
other wages in many Member States, thus affecting income inequality, in -work poverty, 
and the capacity of low -wage earners to cope with economic distress.1 Also many 
workers in the EU are not protected by adequate minimum wages, either because the 
minimum wage floors applying to them are not adequate, or because they are not covered 
by minimum wages at all.  
In her Political Guidelines2, President von der Leyen underlined the ambition to ensure 
that all workers in the Union are protected by a fair minimum w age allowing for a decent 
living wherever they work, supporting the implementation of Principle 6 on Wages of the 
European Pillar of Social Rights.  
In line with Article 154 TFEU, the Commission is carrying out a two -stage consultation 
of social partners. During the first -stage consultation, carried out between 14 January and 
25 February 2020, social partners were consulted on the need and possible direction of 
EU action. In the second stage, social partners are consulted on the possible instrument 
and cont ent of the envisaged proposal.  
This analytical document, prepared by the Commission services, accompanies the 
consultation document3 of the second stage, approved by the College, which contains a 
summary of the replies of social partners to the first stag e consultation. After this 
introduction, the document explains why minimum wages are important, how they are 
set, and analyses who are the minimum wage earners (Section 2). Then, it identifies the 
problems that need to be addressed to ensure that workers a re protected by adequate 
minimum wages (Section 3), and the EU competence and added value of action at EU 
level to tackle these problems (Section 4). After describing the objectives of EU action 
(Section 5), it presents the available policy options (Sectio n 6) and their likely impacts 
(Section 7).  
This document focuses on all EU Member States throughout the analysis. However, in 
some cases, data is not always available or is not complete due to the variety of 
                                                           
1 In statistical terms, a low -wage is defined as a wage lower than two thirds of the national median wage.  
2 “A Union that strives for more. My agenda for Europe.” Political Guidelines for the next European 
Commission 2019 -2024.  
3 C(2020)3570  
 
5 institutional features in Member States. For ins tance, Section 2 analyses the 
characteristics of minimum wage earners. However, while it is possible to identify these 
workers in the data of countries with a statutory national minimum wage, this is not 
possible in countries which rely on collective barga ining to set minimum wage floors due 
to the multiplicity of such collectively agreed minima and because these are not collected 
systematically. For this reason, for comparability, the characteristics of low -wage 
workers were analysed for these countries as  a proxy group. Similarly, Section 4 
compares the adequacy of minimum wages across all countries. In this case statutory 
national minimum wages are compared with a sample of collectively agreed minimum 
wage floors collected by Eurofound.4 
 
2. WHY MINIMUM WAGE S MATTER AND HOW ARE  THEY SET ?  
2.1. Minimum wages protect low -wage earners  
Minimum wages protect workers with low wages and low bargaining power. They 
can help the pay of low -wage earners and support domestic demand. Adequate minimum 
wages, set in a way to sa feguard access to employment and competitiveness, reduce wage 
inequality at the lower end of the wage distribution, ameliorate in -work (and thus overall) 
poverty and help low wages keep up with productivity developments. Since more women 
than men earn wage s at or around the minimum wage improvements in the adequacy of 
the minimum wage also support gender equality. Moreover, adequate minimum wages 
strengthen the incentives to work and can notably promote the participation of women in 
the labour market. This leads to higher contributions to the social protection systems and 
contribute over time to more adequate pensions.  
Evidence shows that minimum wages help reduce wage inequality, through two 
effects.  Through an immediate effect, the wages of workers who would otherwise earn 
less than the minimum wage are raised to the minimum wage, improving their 
purchasing power. In addition, m inimum wages also have “spill -over effects” on higher 
wages, further redu cing wage inequality. European Commission analysis shows that, 
across EU Member States between 2006 and 2014, minimum wage increases 
significantly affected the wages of the lowest fifth of the wage distribution.5 Research 
indicates that minimum wages reduc e wage inequality both across EU Member States 
and in the US.6 
Minimum wage increases also improve the situation of the families of low -wage 
earners and contribute to reducing in -work poverty . The effects of the minimum 
wage on income inequality and povert y are related to the composition of families. 
                                                           
4 Eurofound, 2019, “Minimum wages in 2019: Annual review”, Figure 3.  
5 European Commission (2018): “Labour market and wage developments in Europe, Annual Review 
2018”, Directorate -General for Employment, Social Affairs and Inclusion, pp. 134 -135.  
6 For evidence on EU Member States, see, Pereira, M.R. and A. Galego (2019): “Diverging trends of wage 
inequality in Europe”, Oxford Economic Papers , 2019, 1 -25. For recent evidence on the U.S., see Autor, D. 
H., Manning, A., & Smith, C. L. (2016), “The con tribution of the minimum wage to US wage inequality 
over three decades: A reassessment”, American Economic Journal  8(1): 58 –99. 
 
6 Whereas families with at least one low -wage earner can expect to benefit from an 
increase in the minimum wage, some poor families that include unemployed, inactive or 
self-employed adults do not benefit from th e income protection provided by minimum 
wage policies.7 Nevertheless, minimum wage policy, combined with the effect of tax and 
benefits systems, may have an impact on poverty and in particular on in -work poverty.8 
In particular, previous analysis by the Eu ropean Commission has found that a 10% 
increase in the minimum wage would reduce aggregate poverty in almost all Member 
States.9 Recent academic research confirms the redistributive effect of minimum wages, 
taking into account second -round macro -economic e ffects, including on consumer 
prices.10 Finally, minimum wages may also contribute to a better safety and security of 
workers, notably insofar as an adequate minimum wage would avoid situations where 
workers have to cumulate several jobs or work extensive h ours to make ends meet.  
 
2.2. Who are the minimum wage earners?  
This section presents the demographic profile of minimum wage workers. The focus 
is on the personal and household characteristics of those paid at the minimum wage, their 
gender, level of educati on, contract type, working time pattern, as well as the type of 
household they live in. The next section looks at the distribution of workers across 
regions (by degree of urbanisation), sectors and the size of the firm they work for. In 
Member States witho ut a statutory national minimum wage (i.e., Austria, Cyprus, 
Denmark, Finland, Italy and Sweden), it is not possible to identify workers who earn the 
collectively agreed minimum -wage floors. This is because of the multiplicity of such 
minima and a lack of systematic data collection about them. For these countries, the 
share and characteristics of low -wage workers (those who earn less than 67% of the 
median wage in the same country) has been calculated as a proxy.  
One in six workers are low -wage earners in the EU, earning less than two thirds of 
the median wage.  Their share is above 20% in 10 Member States (See Section 3.1.1, 
Graph 16 ). Many of these worker s earn the minimum wage: their share is estimated at 
levels that vary from below 5% (e.g. in Belgium and Malta) to around 20% (in Portugal 
and Romania) among countries with a statutory national minimum wage (see Graph 1 ).   
  
                                                           
7 For an overview of this issue, see Brown, C. (1999): “Minimum wages, employment and the distribution 
of income”, in: Ashenfelt er O. and D. Card (eds.): Handbook of Labor Economics , Volume 3, Chapter 32.  
8 Peña -Casas, R., D. Ghailani, S. Spasova and B. Vanhercke (2019): “In-work poverty in Europe: A study 
of national policies” , European Social Policy Network.  
9 European Commissio n (2016): “Labour market and wage developments in Europe: Annual Review 
2016” , Directorate -General for Employment, Social Affairs and Inclusion, Section II.1.4.  
10 See, for instance on simulations included in Harasztosi and Lindner (2019): “Who pays for the  minimum 
wage?” American Economic Review , Vol. 109(8): 2693 –2727.  
 
7 Graph 1: Share of workers with wages at or around the statutory minimum wage, 
2017  
 
Note: Share of workers with wages between 80% and 105% of the statutory minimum wage. In Member 
States without a statutory national minimum wage (i.e., Austria, Cyprus, Denmark, Finland, Italy and 
Sweden), it is not possible to identify workers who earn the collectively agreed minimum -wage floors.  
Source: European Commission based on EU -SILC 2017 for the Member States with a statutory minimum 
wage.  
 
The “typical” minimum wage earner is older than 25 years, female, has upper 
secondary education and is living in a couple in most Member States. Although 
young workers have a highe r likelihood to earn the minimum wage than other age groups 
(Graph 2 (a)), they do not represent the majority of the minimum wage earners ( Graph 
3(a)), since young workers represent a relatively small shar e of workers overall. There 
are substantial differences across Member States regarding the profile of the “typical” 
minimum wage earner in terms of age. While in Romania and Bulgaria, hardly any 
minimum wage earner is younger than 25 years old, the share o f young workers is higher 
in the Netherlands and Malta, close to one in four.  
The majority of minimum wage earners are women. In all Member States, women 
have a higher probability to earn the minimum wage than men ( Graph 2(a)). This gender 
gap varies across Member States: being a woman doubles the likelihood of being a 
minimum wage earner in Czechia, Germany,  France, Croatia, Netherlands, and Slovakia 
but has a limited effect in Bulgaria, Estonia or Lithuania (not shown). Accordingly,  
women  represent the majority of minimum wage earners in all Member States, their 
share exceeding 70% in Czechia, Germany, Malta , the Netherlands, Slovakia ( Graph 
3(b)).  
The majority of minimum -wage earners are medium -skilled in most countries 
(Graph 3 (c)). This is despite the fact that low -skilled workers have a higher chance of 
earning the minimum wage ( Graph 2 ). But, as in the case of young workers, the share of 
low-skilled workers is relatively low in the overall workforce of most countries. The 
patterns are not uniform across countries: the majority of minimum wage earners i s low -
qualified in Portugal, Luxembourg and Malta. In turn, there is a relatively high share 

 
8 (more than 25%) of high -skilled workers among minimum wage earners in Ireland, 
Greece, Spain, and Slovenia.  
Temporary and part -time work increases the likelihood of being a minimum wage 
worker, but in most countries the majority of minimum -wage earners work in 
standard jobs. Having a temporary contract triples the chance of being a minimum wage 
worker on average across the EU. Similarly, the probability of a part -time worker to earn 
the minimum wage is about double that of a full -time worker (Graph 2(b)).  But, since the 
share of temporary and part -time workers is not very high in most countries, their share 
among minimum wage earners is moderate in most countries ( Graph 3 (e) and (f)). There 
are exceptions, however: temporary workers are the majority of minimum -wage earners 
in Greece and Spain, while part -time workers constitute the majority in Belgium, 
Germany and the Netherlands.  
While in some countries single parents have the highest probability of being 
minimum -wage earners, the large majority of minimum -wage earners are living in 
households with two or more  adults.  Single parents have a slightly higher probability 
of being minimum -wage earners than adults living in other household types ( Graph 2 (b)). 
Never theless, most minimum -wage earners live in households with at least two adults, 
including a similar share of couples with and without children ( Graph 3 (d)). 
 
  
 
9 Graph 2: The probability of being a minimum wage earner, by major individual 
and job characteristics in the EU, in per cent, 2017  
(a) Age , gender and educational attainment  
 
 
 
(b) Household type, type of contract, working pattern  
 
 
Note: The graphs display the weighted average across Member States.  For the Member States with a 
statutory national minimum wage, workers with wages between 80% and 105% of the minimum wage 
were considered. For the other Member States, low -wage workers (less than 67% of the median wage) 
were considered.  
Source:  European Commission calculations based on EU -SILC 2017.   

 
10 Graph 3: Characteristics of minimum wage earners by Member State (% of the 
MW earners), 2017  
(a) Age  
 
(b) Gender  
 
(c) Education level  
 
  

 
11 (d) Household type  
 
(e) Type of contract  
 
(f) Working pattern  
 
Note: For the Member States with a statutory national minimum wage, workers with wages between 80% 
and 105% of the minimum wage were considered. For the other Member States, low -wage workers (less 
than 67% of the median wage) were considered.  
Source:  European C ommission calculations based on EU -SILC 2017.   

 
12 2.3. Where do minimum -wage earners live and what kind of sectors and firms do 
they work for?  
Workers in less densely populated areas have a somewhat higher chance of being 
minimum -wage earners. On average across al l Member States for which data are 
available, 14% of the employees living in thinly populated areas earn the minimum wage, 
while there is a lower share of minimum wage earners in intermediate (13%) and densely 
populated areas (11%). This is linked, among o ther things, to regional differences in the 
characteristics of workers as well as the location of various economic sectors (for 
instance, agriculture in rural areas and finance in dense ones). There are, however, 
significant differences between Member Stat es (Graph 4 ). While in many countries the 
share of  minimum wage earners is higher in less densely populated areas, the distribution 
is more even in others, e.g., Belgium, Czechia, and France. In other Member States, the 
share of minimum wage earners was highest in regions with an intermediate population 
density (rather than low density; e.g., in Austria, Ireland and Luxembourg).  
Graph 4: The share of minimum wage earners among all workers, by regions of 
high, intermediate and low density, 2017  
 
Note: For the Member States with a st atutory national minimum wage, workers with wages between 80% 
and 105% of the minimum wage were considered. For the other Member States, low -wage workers (less 
than 67% of the median wage) were considered.  
Source:  European C ommission calculations based on EU -SILC 2017. The classification of regions has 
been done based on the degree of urbanisation variable DEGURBA in the database.  
At the same time, depending on the regional distribution of the population, the 
regional distri bution of minimum wage workers varies across countries. While in 
some Member States, the majority of minimum wage earners live in densely populated 
areas (Malta and Latvia), in others the majority lives in thinly populated areas (e.g., in 
Estonia, Hungary,  Lithuania, Poland, and Slovakia; see Graph 5 ). Re gions of 
intermediate population density have an important weight in Belgium, Luxembourg, but 
also in Czechia, Hungary and Slovakia. These patterns are the result of the regional 
distribution of the overall population and the probabilities reported in the previous graph.   
  

 
13 Graph 5: Distribution of minimum wage earners across regions of high, 
intermediate and low density, 2017  
 
Note: For the Member States with a statutory national minimum wage, workers with wages between 80% 
and 105% of the minimum wage were considered. For the other Member States, low -wage workers (less 
than 67% of the median wage) were considered.  
Source:  European C ommission calculations based on EU -SILC 2017. The classification of regions has 
been done based on the degree of urbanisation variable DEGURBA in the database.  
In virtually all countries, the majority of minimum wage earners works in the 
services sectors ( Graph 6 ). Industry and agriculture sectors employ a relatively small 
share of minimum wage earners in most countries, but this share is higher in some 
Central and Eastern European Member States. Industry accounts for a low share of 
minimum wage earners in some Member States (less than 10% in Belgium and 
Luxembourg), while its weight exceeds 30% in some Central and Eastern European 
Member States (such as Bulgaria, Czechia, Croatia, Slovakia, Poland, and Romania). The 
share of agriculture is less than 10% in all Member States. It is highest (above 7%) in 
Estonia, Hungary, Latvia, and Lithuania. This is because of the low share of agriculture 
in overall employment, but workers in this sector have a high probability of earning the 
minimum wage (see Graph 7 (a)).   
  

 
14 Graph 6: Distribution of minimum wage earners by sector (% of the MW earners), 
2017  
 
Note: For the Member States with a statutory national minimum wage, workers with wages between 80% 
and 105% of the minimum wage were considered. For the other Member States, low -wage workers (less 
than 67% of the median wage) were considered. Employees are divided into six groups related to their 
sector of employment: Agriculture (NACE Rev. 2 sector code: A), Industry (B -E), Construction (F), Trade, 
Transport and Hospitality services (G -I), Professional services (J -N) and Public and other services (O -U). 
Source:  European Commission calculations based on EU -SILC 2017.  
The food and accommodation (or hospitality) sector, a sector particularly affected 
by the Covid -19 pandemic, has a high share of minimum -wage earners. The share of 
minimum -wage earners is higher in services than in industry (see Graph 7 (a)), but it is 
particularly high in the food and accommodation sector, about twice as high as in 
services in general (see Graph 7 (b)). There is a great variety across countries, partly 
reflecting differences in the share of minimum -wage earners at large. The share is highest 
(above one in four) in Croatia, France, Luxembou rg, Portugal and Romania among 
countries with a statutory national minimum wage. In all countries without a statutory 
national minimum wage, the share of low -wage earners in the food and accommodation 
sector is one in three.  
In a majority of Member States,  workers in health and social services are less likely 
to earn the minimum wage than the average worker, but more likely than other 
workers in the public sector. The working conditions and pay of healthcare workers 
have received much attention in the conte xt of the discussions about labour mobility in 
the EU,11 and even more so during the Covid -19 pandemic. In most Member States, the 
share of minimum -wage earners in the human health and social work sector is low (less 
than or close to 5%). But there are Memb er States where this share is high: it is above 
15% in Luxembourg, Portugal and Romania ( Graph 7 (c)). And while in a majority of 
Member States healthcare workers are less likely to be minimum wage earners than the 
average worker, the opposite is the case in particular in France, Luxembourg and 
Portugal. At  the same time, in most Member States, healthcare workers are more likely to 
                                                           
11 See, e.g., Center for Policy Studies (CEPS), 2019: “EU mobile workers. A challenge to public finances?” 
Contribution prepared at the request of the Romanian Presidency of the Council of th e European Union, 
presented at the informal ECOFIN meeting in Bucharest, 5 -6 April, 2019.  

 
15 be minimum wage earners than workers in the public sector in general, except in Estonia 
and Hungary.  
Graph 7: The share of minimum wage earners by sector,  2017  
(a) By broad sectors of the economy  
 
(b) The food and accommodation sector among other services sectors  
 
(c) The public sector and the human health and social work sector  
 
Note: For the Member States with a statutory national minimum wage, workers with wages between 80% 
and 105% of the minimum wage were considered. For the other Member States, low -wage workers (less 
than 67% of the median wage) were considered.  
Source:  European C ommission calculations based on EU -SILC 2017.   
  

 
16 Micro and small enterprises employ a majority of minimum -wage earners but there 
is a variety of patterns across the EU . Firms with less than 50 workers employ more 
than 80% of minimum wage earners in Bulgaria, Estonia, Greece, Latvia, Slovakia and 
Spain (as well as in Cyprus, Finland and Italy, in the case of low -wage earners) while 
their weight is below 60% in Germany, the Netherlands and Slovenia (see Graph 8 ). 
There is also a variety of patterns related to the relative weight of micro and small 
enterprises. Micro enterprises employ a majority of minimum -wage earners in Greece 
and Slovakia (as well as Cyprus, and Italy in the case of low -wage earners). In contrast, 
their weight is only about 20% in Bulgaria, Lithuania and Romania.  
Graph 8: The distribution of minimum wage earners, by firm size (%), 2017  
 
Note: Minimum wage earners are those whose observed full -time equivalent gross monthly wage ranges 
between 80% and 105% of the monthly minimum wage.  
Source:  European Commission calculations based on EU -SILC 2017.  
 
2.4. Minimum wages are set through collective agreements or legislative provisions  
All Member States in the EU have minimum wages, set through collective agreements 
(also called ‘collectively agreed min imum wages’ or ‘collectively agreed wage floors’) or 
legislative provisions (‘statutory minimum wages’). Statutory minimum wages applying 
universally in a country are also called 'statutory national minimum wages’. Statutory 
minimum wages applying only to some occupations (as opposed to universally) exist in 
Cyprus. This section provides an overview of existing institutional settings.  
Minimum wages set through collective agreements   
In six Member States (Austria, Cyprus, Denmark, Finland, Italy, and Swede n) 
minimum wages are set by the social partners in collective bargaining agreements. 
Usually, these agreements are concluded  at the sectoral level. In Cyprus, collectively 
agreed minimum wage floors for certain occupations coexist with statutory minimum 
wages set for other occupations.  

 
17 In general, these Member States have a comprehensive collective bargaining system, 
with high membership of both unions and employers associations.  As a result, a large 
proportion of workers are covered by collective agreemen ts. National traditions of 
collective bargaining vary considerably. In Denmark and Sweden, firms with collective 
agreements are obliged by law to apply the agreement to all workers, regardless of union 
membership. In Austria, employers hold a mandatory mem bership at the relevant 
employers’ association; they are thus obliged to implement bargaining outcomes. In 
Finland, there are extension mechanisms that allow collective bargaining agreements 
signed by members of employers’ associations to apply also to non -member companies 
within a sector. Although formal extension mechanisms do not exist in Italy, case law 
and practice have systematically extended coverage to non -unionised workers. Annex 1.1 
provides more detail on the existing systems in countries relying  on collective bargaining 
to set minimum wage floors.  
Collectively agreed wage floors are generally the outcome of bi -partite negotiations 
by social partners . Since they can be agreed at various levels (national, sectoral, firm or 
regional level), the number of co -existing agreements can be high. In turn, individual 
agreements can, and often do, provide for quite complex pay schedules differentiated by 
occupation, age, seniority, region and other dimensions.  
Minimum wages set through legislative provisi ons  
In the EU, 21 Member States have a statutory national minimum wage, a wage floor 
set by law applying to all sectors of the economy. There is a considerable variety 
across countries in the mechanism to set these.  Differences concern, among other things , 
the actors involved and the level of government discretion in the decision -making 
process. In general, the minimum wage setting systems in the EU are either 
institutionalised (with a formal obligation to consult with relevant stakeholders), rule -
based (i ndexation) or non -institutionalised (the government determines unilaterally the 
adjustment of the statutory minimum wage). The social partners are associated to 
different extents and with different modalities. Independent experts also play a role in a 
numb er of countries. Table 1 provides a summary of various minimum -wage setting 
systems, while Annex 1.2 provides an overview by country.  
Table 1: The role of the government, social partners and other actors in statutory 
minimum wage setting systems  
 
Note:  * For discretionary changes.  
Sources:  Relevant national legislation; ILO Working Conditions Laws Database / Minimum wage fixing database  
Gov't following the 
recommendation of 
MW specialised 
bodyGov't following  a 
tripartite decision 
making processGov't extends 
collective 
agreements by 
legislation
DE BG PT LT BE* BE CZ AT
EL ES SI* PL EE FR CY
IE HR RO SK LU DK
FR* HU MT FI
LV NL IT
MT* SI SEStatutory minimum wage
Minimum wage 
setting relying on 
collective 
bargainingInstitutionalised decisions
Automatic 
IndexationNon-
institutionalise
d decisionsGov't following bilateral/tripartite  
non-binding consultations 
process
 
18 In 6 of the 21 countries (Belgium, France, Luxembourg, Malta, Netherlands and 
Slovenia), formal indexation rules drive   minimum wage updates  on the basis of price 
and wage developments or a combination of both. In  all these cases, there is also the 
possibility for discretionary changes on top of those linked to indexation.  In 3 Member 
States (Belgium, Malta and Slovenia),  the law specifies a formal obligation to consult 
social partners on such discretionary changes. In France, the law entitles social partners 
to present their recommendations to the government and these are published as an annex 
to the annual report of the Minimum Wage Expert Committee.  In Luxembourg and the 
Netherlands, there is no legislative clause for social partner consultation. However, in 
both Member States, social partners provide non -binding views to the government on the 
minimum wage in practice.   
In some Member States, the process of minimum wage setting is led by a minimum 
wage specialised body. In these countries (Germany, Greece, and Ireland), an 
independent specialised body makes recommendations to the government on the annual 
minimum wage adjustment. In Greece and Ireland the government can deviate from the 
recommendation but if it does, it has to justify the decision. In others, the minimum wage 
setting system takes place in a structured tripartite or bipartite setting. Lithuania, Poland 
and Slovakia have structured tripartite systems in which if an agreement is reached 
through the consultation process then this is binding for all the parties.  
In many Member States, the government makes a decision about minimum wage 
updates after an instit utionalised process of consultations mostly with social 
partners. These are systems with well -defined decision making processes and specific 
roles for the main actors. Specifically, in the majority of the Member States (Bulgaria, 
Spain, Croatia, Hungary, L atvia, Malta, Portugal, Slovenia and Romania) the government 
sets the minimum wage following an institutionalised bipartite or tripartite consultation 
process, defined by law. In all of these Member States the social partners provide non -
binding recommenda tions; the government can set the minimum wage unilaterally. In 
Slovakia, Lithuania and Poland, negotiations between social partners or tri -partite deals 
have priority over government intervention. However, the government sets the minimum 
wage unilaterally  when it is not possible to reach an agreement. In Belgium and Estonia, 
changes to the minimum wage are decided bilaterally between the social partners through 
collective bargaining; the agreement is then extended into legislation by the government.  
In Cze chia, the adjustments of the minimum wage are decided by the government 
without specific rules or institutionalised consultation process defined by law. However, 
in practice social partners express views and non -binding recommendations through a 
tripartite  committee.  
  
 
19  
3. WHAT IS THE PROBLEM T HAT NEEDS TO BE ADDR ESSED ?  
Many workers are currently not protected by adequate minimum wages in the EU. In 
some cases, minimum wage floors cannot be considered as adequate. In others, there are 
gaps in the coverage of  minimum wages. The rest of this section lays out various aspects 
of this problem and discusses its drivers and consequences. In particular, Section 3.1 
elaborates on the problem to be addressed while Sections 3.2 and 3.3 discuss in details 
external and in ternal drivers respectively. Internal drivers refer to factors influencing the 
problem that are directly related to minimum wage setting systems and are thus to be 
tackled by the initiative. External drivers, in turn, refer to factors influencing the 
probl ems that are not directly related to minimum wage setting. These factors are thus 
not tackled by the initiative. They include megatrends (e.g., globalisation and 
technological and demographic changes) and policy areas other than minimum wage 
setting (e.g.,  taxes and benefits). Consequences are discussed in Section 3.4 while a 
diagrammatic summary of the relationships between the problem, its drivers, and its 
consequences (the “problem tree”) is presented in Section 3.5.  
3.1. Many workers are not protected b y adequate minimum wages  
3.1.1.  Insufficient adequacy  
Minimum wages can be considered as adequate when they are fair  vis-à-vis the 
wages of other workers in the country and when they provide a decent standard of 
living, taking into account general economi c conditions in the country. Various 
indicators aim to measure these aspects of minimum wage adequacy. Some adequacy 
indicators compare gross minimum wages to the gross median wage12 or average wage. 
They allow to assess whether a minimum wage is fair compa red to the wages of other 
workers in the same country and thus are also informative about the effect of minimum 
wages on wage inequality. Other indicators assess the take -home pay of minimum -wage 
earners against a reference income. These indicators allow a  closer look at what 
minimum -wage earners can afford. The reference income can be relative to the income of 
other groups in society, or an absolute measure of a decent living standard. The 
advantages and disadvantages of various indicators, as well as some  associated data 
issues, are summarised in Annex 2.   
The adequacy of statutory minimum wages has improved in several countries in 
recent years, but it remains low in some. This is true based on all the main indicators, 
both those focusing on gross minimum wages as compared to other wages and those 
focusing on the net income of minimum wage earners. Without prejudice to what the 
targeted adequacy level should be, thresholds referred to in the wider policy debate 
generally range between 40% of the national av erage wage and 60% of the national 
median or average wage. Irrespective of which threshold might be selected within this 
                                                           
12 The median wage is the wage earned by the person in the middle of the wage distribution. Exactly one 
half of people earn less than this person. The median wage is u sually estimated based on earnings (or 
income) surveys, on the distribution of monthly earnings of full -time workers.  
 
20 range, there are always some countries in which the current minimum wage would fall 
short of the threshold. The minimum wage was below 50% of the median wage in ten EU 
countries with a statutory minimum wage in 2018, while it was below 45% of the median 
wage in four.  In 2018, the highest wage floors as compared to the median wage were 
observed in some of the countries with collective barg aining systems (Denmark and Italy 
close to 80%)13 while in other countries minimum wages mostly ranged between 40% 
and 60% (Graph 9 ). Other countries with  higher minimum wages compared to the 
median wage included Bulgaria, France and Portugal, while lower minimum wages were 
observed in Czechia, Estonia and Spain. Comparisons to the average wage are somewhat 
lower, as the average wage exceeds the median wage  since it is affected by very high 
earnings. In 2018, there were ten Member States where the minimum wage was below 
40% of the average wage (Graph 9 ).   
Graph 9: Minimum wages, expressed as a percentage of the gross median and 
average wage of full -time workers, 2018  
 
Notes: * For BG, HR and MT, OECD Tax -Benefit data are used for the median and average wage. + For 
AT, CY, DK, FI, IT  and SE, information on collectively agreed wage floors was taken from Eurofound 
(2019): Minimum wages in 2019 - Annual review, while information on median and average wages was 
taken from the OECD Tax -Benefit model.   
Source: OECD Stats and Commission calc ulations based on OECD TaxBen and Eurofound data.  
 
 
In 2018, the statutory minimum wage did not provide sufficient income for a single 
minimum -wage earner to reach the at -risk-of-poverty threshold in six Member 
States.  Comparing the take -home pay of minimu m-wage earners to income levels is 
informative of whether minimum wages protect against poverty and contribute to 
supporting a decent living. One possibility is comparing the net income of minimum -
wage earners to 60% of median household income, which is th e at-risk-of-poverty 
threshold in the EU. Countries where minimum wage was not sufficient to help a single 
                                                           
13 Data on collectively agreed minimum wage floors are based on information collected in the Eurofound, 
2019, “ Minimum wages in 2019: Annu al review ”, Figure 3. These wage floors have been identified by 
national experts as the “ lowest rates of pay within the largest collective agreements”.   

 
21 worker avoid the risk of poverty include Czechia, Estonia, Malta, Germany with 
comparatively low minimum -to-median wage ratios, but also Latvia and L uxembourg 
with relatively higher ratios ( Graph 10). Compared to average wages, Member States 
relying on collective bargaining for setting minimum wages tend to have higher 
minimum wages than countries with statutory minimum wages.  
Graph 10: Net income of single minimum -wage earners working full -time, relative 
to the at -risk-of poverty threshold, 2018  
 
Note:  The household types con sidered in this graph are not entitled to social assistance and housing 
benefits.  
Source:  European Commission calculations based on OECD TaxBen model. Comparable minimum wage 
floors for Member States without statutory minimum wages (marked by *) were taken  from Eurofound 
(2019): Minimum wages in 2019 – Annual Report.  
Minimum wages also fall short of the standard of decent living defined by the 
Council of Europe in a number of countries.  The Council of Europe’s 1961 European 
Social Charter (ESC) established  the human right of all workers “to a fair remuneration 
sufficient for a decent standard of living for themselves and their families”. Its European 
Committee of Social Rights – which monitors compliance with ESC provisions by the 
states that are party to t he charter proposed that wages should be at least 60% of national 
average net earnings, with a secondary target of 50%. While minimum wages in most 
cases fall short of 60% of the net average wage, they are close to or above 50% in many 
Member States. In 20 18, minimum wages were lowest as a ratio of the net average wage 
(below 45%) in Czechia, Estonia, Germany, Greece and Hungary ( Graph  11).    

 
22 Graph 11: Net minimum wage over net average wage, single childless person not 
entitled to social assistance and housing benefits, 2018  
 
Source: European Commission calculations based on OECD TaxBen model. Comparable minimum wage 
floors for Member States without statutory minimum wages (marked by *) were taken from Eurofound 
(2019): Minimum wages in 2019 – Annual Report.  
 
It would be possible to compare minimum wages to a basket of goods representing a 
reference living standard, but no EU -wide approach has yet been agreed.  One of the 
reasons may be that such an approach, aiming at defining an EU concept of a “living 
wage”, raises difficult methodological questions, including the comparability of the 
relevant basket of goods across Member State s.14 At the same time, there is ongoing 
research to develop a common methodology to construct high -quality comparable 
reference budgets in all EU Member States.15 
 
There are wide differences between the purchasing power of minimum wages across 
Member States . In 2019, statutory minimum wages in the EU ranged from EUR 286 in 
Bulgaria to EUR 2071 in Luxembourg. Taking into account the differences in price 
levels between Member States (a comparison in “Purchasing Power Standard”), the 
difference between the lowes t and highest statutory minimum wages is about one to three 
(Graph 12 ). Collectively agreed wage floors in low -paid occupations in countries relying 
on collective bargaining are comparatively high when compared to statutory minimum 
wages in other countries.16 
 
                                                           
14 For a more detailed discussion, see, e.g., Eurofound (2018): “Concept and practice of a living wage”,  
Publications Office of the European Union, Luxembourg.  
15 More information on a project on reference budgets, supported by the European Commission, can be 
found under: https://ec.europa.eu/social/main.jsp?catId=1092&intPageId=2312&langId=en .  
16 When controlling for the level of economic development, Boeri (2012) finds that collective bargaining 
involves a 12 -13 percentage points  higher ratio of the minimum wage to the average wage. See Boeri, 
Tito: “Setting the minimum wage”, Labour Economics , Vol. 19 (3), June 2012, Pages 281 -290. 

 
23 Graph 12: Minimum wage levels, gross monthly figures, expressed in euro and 
Purchasing Power Standard (PPS), 2019  
  
Notes:  * For AT, CY, DK, FI, IT and SE, information on comparable collectively agreed wage floors was 
taken from Eurofound (2019): “Minimum wages in 2019 - Annual review”, Figure 3, while information on 
PPS was taken from the European Commission's AMECO database .  
Source:  Eurostat [monthly minimum wages; earn_mw_cur], Eurofound and AMECO.  
 
Disparities have narrowed significantly in the last decades, but they still remain 
substantial.  General wage growth has been faster in low -wage countries (especially in 
Easter n European Member States) than in high -wage countries.17 Moreover, the statutory 
minimum wage has increased faster in low -wage countries, even as compared to other 
wages or compared to productivity growth. This is illustrated by Graph 13 , which plots 
the change in labour productivity against the change in the monthly minimum wage 
between 2008 and 2018. In only two countries (Ireland and Malta) did the minimum 
wage significantl y lag behind labour productivity.18 In a few other countries (Belgium, 
Croatia, France, Greece, Luxembourg), the minimum wage lagged behind productivity 
growth to a small degree. In the other Member States, the minimum wage grew faster 
than productivity, es pecially in Eastern European Member States. The minimum wage 
tripled in Romania in euro terms, more than doubled in Bulgaria, and almost doubled in 
Slovakia and Latvia, showing a significantly faster growth than GDP per hour worked. 
Developments in the pre vious decade (1999 -2008) show a more varied picture, but 
overall they also contributed to a convergence in wages and in particular minimum wages 
(See Graph 14 ). Between 1999 and 2008, the minimum wage grew significantly ahead of 
productivity growth in Bulgaria, Czechia, Estonia, Hungary and Slovakia, but behind 
productivity growth in Latvia, Lithuania and Poland. Meanwhile, the minimum wage 
significantly l agged behind productivity in some Western European Member States, in 
particular in the Netherlands, but also in Belgium, France, and Portugal. Despite this 
                                                           
17 Longer -term trends in wage convergence have been analysed by the European Commission (2018): 
“Labour market and wage developments in Europ e: Annual Review 2018”, Directorate -General for 
Employment, Social Affairs and Inclusion, Chapter II.2.  
18 Part of the gap in the case of Ireland can be explained by the upward revision of the GDP in 2015. See 
also the year -by-year developments of labour p roductivity and minimum wages in Annex 3.  

 
24 trend towards convergence in the last two decades, a large gap remains between the 
lowest and the hi ghest nominal minimum wages in the EU (see also Graph 12 ).19    
Graph 13: Changes in labour productivity and changes in the minimum wage, both 
in current euro, 2008 -2018  
 
Notes:  Ireland is a statistical outlier, partly because its GDP was revised upwards in 2015.  
Source:  Monthly minimum wage in euro: Eurostat; GDP per hours worked in current prices, expressed in 
euro: AMECO database of the European Commission.  
Graph 14: Changes in labour productivity and changes in the minimum wage, both 
in current  euro, 1999 -2008  
 
Source:  Monthly minimum wage in euro: Eurostat; GDP per hours worked in current prices, in euro: 
AMECO database of the European Commission.  
 
There is a wide difference across countries in the proportion of low -wage earners 
who report that they find it difficult to ‘make ends meet’.20  The proportion ranges 
                                                           
19 The ratio between the purchasing power of the lowest and highest minimum wage in the EU has 
narrowed from roughly one -to-six in 2010 to one -to-three in 2019. See Eurofound: Minimum wages in 
2019: Annual review, p . 8.   

 
25 from 0% in Sweden and about 10% in the Netherlands and Ireland to proportions near or 
above 50% in Greece, Bulgaria and Italy ( Graph 15 ). Overall, the proportion tends to be 
higher in countries where GDP per capita, wages, and minimum wages are lower, but 
there is no perfect correlation . Countries with a high ratio of the minimum to t he median 
wage tend to have lower shares of low earners reporting difficulties, but the effect is 
intermediated by the tax and benefit system and demographic factors.  
 
Graph 15: Proportion of low -earning workers who find it difficult to make ends 
meet, 2015  
 
Note: Responses to the survey question  ‘Thinking of your household’s total monthly income, is your 
household able to make ends meet …?’ The graph shows the sum of those answering ‘with difficulty’ and 
‘with great difficulty’. The estimated proportion of workers in each country lies with a likelihood of 95 per 
cent between the lower and upper confidence level.  
Source:  Eurofound based on European Working Conditions Survey, 2015. See Aumayr -Pintar, C.: “Fears 
and hope s around future minimum wages”; Link: eurofound.link/ef20039 . 
The adequacy of minimum wages should be considered in a broader economic 
context. General economic conditions (such as unemployment rates, productiv ity and 
general wage growth dynamics) are relevant, both in the short and the long term, for 
assessing the appropriate adjustments in the minimum wage. More generally, minimum 
wage levels need to be set to safeguard access to employment, taking into accoun t the 
level of economic development of the country.    
Insufficient adequacy of minimum wages affects a large number of workers.  The 
share of minimum -wage earners in the EU is estimated at levels that vary from below 5% 
(e.g. in Belgium and Malta) to aroun d 20% (in Portugal and Romania) (see Graph 1  in 
Section 2.2). But minimum wages support the wages of workers also slightly above the 
minimum wage. This means that the group of affected workers is broader. It is estimated 
that about one i n six workers are low -wage earners in the EU, earning less than two 
                                                                                                                                                                            
20 Eurofound estimations based on European Working Conditions Survey, 2015. See Aumayr -Pintar, C.: 
“Fears and hopes around future minimum wages”; Link: eurofound.link/ef20039 . Low earners are defined 
here as full -time workers earning less than 60% of the national median wage.  

 
26 thirds of the median wage ( Graph 16 ).21 In addition, a significant share of workers e arns 
less than 60% (or 50%), of the median wage.  
 
Graph 16: Share of low -wage workers: various thresholds, 2014  
 
Note: The calculations are based on the gross hourly earnings. The Structure of Earnings Survey includes 
firms with 10 or more employees.   
Source: Eurostat  (share of workers below 67% of median, [earn_ses_pub1s]) and European Commission 
calculations based on EU -Structure of Earnings Survey 2014 (rest of the indicators).  
 
 3.1.2.  Gaps in coverage  
Gaps in minimum wage coverage exist in a number of EU countries.  In many 
Member States, specific groups of workers are not protected by minimum wage floors. 
The drivers of these gaps in coverage differ across countries. In some cases, workers are 
not protected by adequate minimum wages because existing minima are not complied 
with (see Section 3.3.5). In Member States with a statutory national minimum wage gaps 
in coverag e arise from specific provisions in the minimum wage legislation which allow 
for exemptions or variations for specific groups of workers.22 Exemptions and variations 
often apply to young workers, or those in education or training (e.g. apprentices) who 
may still lack job experience, but other groups workers are also concerned in national 
legislation (see Section 3.3.3).  
In Member States without a statutory national minimum wage  gaps arise because 
specific groups of workers are not covered by collective agreements.  There are 
substantial differences from Member State to Member State (see Section 3.3.1). Given 
data issues (see Box 1 in Section 3.3.1), information is limited about t he workers not 
covered by collective agreements. Some of these workers may be excluded from the 
                                                           
21 Latest data based on the 2014 wave of the Structure of Earnings Survey. This survey of firms is 
conducted every four years in the EU, including firms wi th 10 employees or more. Other sources of 
information (e.g. the SILC survey) are more up -to-date but involve more reporting error. They confirm a 
high share of low earners in the EU in more recent years.  
22 “Exemptions” mean that the law exempts some groups from the application of minimum wage rules, 
while “variations” mean that a specific minimum wage floor applies to specific groups, for instance a lower 
minimum wage applies to young workers (sometimes ref erred to as “sub -minima”).    

 
27 protection of minimum wages. Existing information suggests that the share of low -wage 
workers is significantly higher among the non -covered in Cyprus, similar t o those 
covered in Austria, Denmark and Finland, while information is not available for Italy and 
Sweden.23   
 
3.2. External drivers of the problem  
The protection of minimum wages matters because the share of low -wage workers is 
sizeable and increasing. About o ne in six workers are low -wage earners in the EU and 
their share has increased in recent years (from 16.7% in 2006 to 17.2% in 2014).24 Their 
share is lowest in Sweden, Belgium and Finland, while is highest in Latvia, Romania and 
Lithuania ( Graph 17 ). Overall, the share of low -wage earners is relatively low in the 
Member States that do not have a statutory minimum wage (Sweden, Finland, Denmark, 
Italy and A ustria), except for Cyprus.  
The share of low -wage earners increased in the EU in the past decade, with a 
considerable variation across countries.  Between 2006 and 2014, the share of low -
wage earners increased in half of the countries. It increased by more than one percentage 
point in Czechia, France, Germany, Greece, and Spain, and with that, in the euro area as 
a whole. In percentage terms, it also increased significantly in Finland and Sweden, albeit 
from very low levels. In contrast, in some Member State s including most Eastern 
European countries, the share of low -wage earners declined. The decline was the largest 
in the countries in which the level was the highest, such as Lithuania, Romania and 
Latvia.  
Graph 17: Share of low wage earners, 2006 -2014  
 
Note:  Low-wage earners are defined as those employees (excluding apprentices) who earn two thirds or 
less of the national median gross hourly earnings. Data in the Structure of Earnings Survey includes firms 
with ten or more emplo yees.  
Source:  Structure of Earning Survey [earn_ses_pub1s].  
                                                           
23 Data extraction from the 2014 wave of the Structure of Earnings Survey, provided by Eurostat.  
24 The definition of low wages is hourly wages less or equal to 67% of the median hourly wage. The source 
of the data is Eurostat, Structure of Earnings Survey [earn_ses_pub1s].  

 
28 The proportion of low -wage workers is influenced by changes in the structure of the 
economy and demographic factors related to skills. The introduction of new 
technologies is raising the demand f or skills. In addition, increased automation and 
robotisation could substitute for workers in performing routine tasks, while they can 
complement workers in  performing non -routine tasks demanding flexibility, creativity 
and complex problem -solving capabil ities.25 Several studies have shown that task -based 
technological change has significantly contributed to job polarisation in the EU: a decline 
of employment in medium -paid (or medium -skilled) occupations and a simultaneous 
increase of low - and high -paid (o r skilled) occupations.26 This change in the structure of 
demand for labour towards high -skilled tasks or occupation has brought about an 
increase in wage inequality. The share of the low -wage sector also depends on t he level 
and distribution of skills in the economy.27 Recent developments in wage inequality in 
the EU were also influenced by minimum wage policies.28 
The increase in the number of non -standard (atypical) workers has also resulted in 
an increase of wage inequality. The proportion of permanent fu ll-time employment 
(also called “standard” employment) has declined from 62% to 59% in the EU -28 over 
the period 2002 -2016, with most of the decline occurring before 2010. The effect of an 
increasing reliance of “non -standard” employment on wage inequality  pays out mainly 
through two channels. First, temporary and part -time workers work fewer hours. Second, 
they also earn lower hourly wages. On average across the EU, employees on open -ended 
contracts earn 13% more compared to employees with similar characte ristics, but 
working on temporary contracts.29  The gap is found to be larger for low -wage earners.  
Minimum wages interact with other policies, including taxes and benefits, to affect 
the living standards of minimum wage earners. In particular, personal in come taxes 
and social security contributions can significantly reduce the take -home pay of minimum 
wage earners. Evidence show that over the last decade (2008 -2018) such policies played 
a significant role in mitigating income inequality and the at -risk-of-poverty rate.30 The 
total tax burden at the minimum wage level has an impact on both providing adequate 
income support to minimum wage workers and their families, and avoiding a too high 
burden on employers, which can result in job losses. The sum of person al income taxes 
                                                           
25 Autor, D. H. , Levy, F. and R.J. Murnane (2003) “The Skill Content of Recent Technological Change: 
An Empirical Exploration” The Quarterly Journal of Economics 118(4): 1279 –1333.  
26 See for a review Sebastia n, R. and F. Biagi (2018), “The Routine Biased Technical Change hypothesis: 
A critical review”, JRC Technical Reports, Publications Office of the European Union, Luxembourg.  
27 For a recent analysis of the relationship between job polarisation and skills m ismatches in the EU, see 
European Commission (2018): “Labour market and wage developments in Europe: Annual Review 2019”, 
Directorate -General for Employment, Social Affairs and Inclusion.  
28 See, for a detailed analysis, Pereira, J.M.R. and Galego, A. (2019 ) “Diverging trends of wage inequality 
in Europe”, Oxford Economic Papers, 2019, 1 -25. For a more detailed discussion of the effects of 
minimum wages on wage inequality, see Section 3.1.  
29  European Commission (2017): “ Labour Market and Wage Development in  Europe – Annual review 
2017”, Directorate -General for Employment, Social Affairs and Inclusion; available at: 
https://op.europa.eu/en /publication -detail/ -/publication/2df2eaca -b3b0 -11e7 -837e -01aa75ed71a1/language -
en 
30 European Commission (2019): “ Labour Market and Wage Development in Europe – Annual review 
2019”, Directorate -General for Employment, Social Affairs and Inclusion; availabl e at:  
https://op.europa.eu/en/publication -detail/ -/publication/439aaf5c -0435 -11ea -8c1f-01aa75ed71a1/langua ge-
en/format -PDF/source -119740004  
 
29 and social security contributions (by employees and employers) payable at the minimum 
wage ranges from below 20% of the total wage cost in Ireland, Malta, the Netherlands 
and Belgium to 45% in Hungary (this ratio is called the tax wedge, se e Graph 18 ). There 
is variation in the EU in terms of how employers and employees share the tax burden: 
Romania is the country with the highest tax burde n on employees and the lowest on 
employers, while Estonia has the exactly opposite pattern, having the lowest burden on 
employees and the highest on employers.  
Graph 18: Tax wedge at the minimum wage and its components, 2018  
 
Notes:  * For AT, CY, DK, FI, IT and SE, information on comparable collectively agreed wage floors was 
taken from Eurofound (2019): “Minimum wages in 2019 - Annual review”, Figure 3. Total wage cost is 
evaluated for a single worker with no children.   
Source: Commission calculations based on OECD TaxBen data.  
 
3.3. Internal drivers of the problem  
3.3.1.  Declining trend in collective bargaining  
Collective bargaining affects the adequacy and coverage of minimum wage floors in 
various ways.  In the countries where mi nimum wage floors are set through collective 
bargaining, the share of protected workers is directly determined by the share of workers 
covered by collective bargaining agreements (“collective bargaining coverage”).31 In 
Member States with statutory minimum wages, collective bargaining has also an effect 
on minimum wage levels. In some Member States (such as Germany and the 
Netherlands), minimum wage updates are directly linked to the dynamics of collectively 
agreed minimum wages. In others, the effect of col lective bargaining on minimum wages 
is more indirect, i.e., through its effect on general wage developments. In particular, 
decreases in collective bargaining coverage have been found to have a negative, although 
                                                           
31 Measurement issues related to collective bargaining coverage are discussed in Box 1.  

 
30 transitory, effect on wage growth.32 Corresp ondingly, high collective bargaining 
coverage is associated with a somewhat higher share of income going to labour ( Graph 
19).  
Graph 19: Collective bargaining coverage and the wage share  
 
Note: Ireland is not included in the graph as its adjusted wage share is an outlier.  
Source: Collective bargaining coverage: ICTWSS database, Version 6.1, University of Amster dam. 
Variable AdjCov (# 111). Adjusted wage share: AMECO database of the European Commission.  
Countries with a higher collective bargaining coverage tend to have lower wage 
inequality and a lower proportion of low -paid workers. Collective bargaining sets the 
terms of employment and working conditions of a large share of workers.  OECD analysis 
suggests that sectoral and multi -level collective bargaining systems are associated with 
lower wage inequality, by around 20 -25 percent.33 This effect seems to be stro ngest 
where the density of union and employers’ associations is high and where bargaining is 
centralised or coordinated. Wage compression effects are greater where collective 
bargaining agreements are extended to workers who are not union members.  As a res ult, 
high collective bargaining coverage is associated by lower shares of low -wage workers 
(Graph 20 ). 
                                                           
32 See European Commission (2018): “Labour market and wage developments in Europe, Annual Review 
2018” Directorate -General for Employme nt, Social Affairs and Inclusion, (Chapter II.1).   
 
 

 
31 Graph 20: Collective bargaining coverage and the share of low -wage workers  
 
Source: Collective bargaining coverage: ICTWSS database, Version 6.1, University of Amsterdam. 
Variable AdjCov (# 111). Share of low -wage workers: Eurostat, Structure of Earnings Survey.  
Collective bargaining coverage shows a decreasing trend in many countries in 
recent years. It fell from an estimated EU average of about 66% in 2000 to about 56% in 
2018 with particularly strong declines in Central and Eastern Europe ( Graph 21 ). In 
Member States which rely on collective bargaining to set minimum wage  floors coverage 
has not declined on average, although a significant decrease can be seen in Cyprus. The 
overall negative trend of collective bargaining coverage in the EU is driven by the 
structural shifts in the economy towards less -unionised sectors, no tably services, and by a 
sharp decline in trade union membership related to the increase of non -standard forms of 
work.  
These trends have resulted in increasing differences between Member States in 
terms of collective bargaining coverage.  In most of the co untries where minimum 
wages are set through collective bargaining the level of coverage is generally very high. 
It is estimated to be 98% in Austria, about 90% in Finland and Sweden, and about 80% 
in Denmark and Italy, while it is 45% in Cyprus. Among the countries with a statutory 
national minimum wage, the coverage of collective bargaining is very diverse, ranging 
from less than 20% in Estonia, Lithuania and Poland to above 80% in Belgium, France 
and the Netherlands ( Graph 21 ). Coverage is high in those Member States wh ere 
bargaining takes place at national or industry level. Key to attaining high coverage are 
well-organized social partners with a broad support base and strong representativeness. 
Unless they are objected by social partners, administrative extensions (or functional 
equivalents) of the minimum wage floors collectively agreed can also raise coverage. 
They are most effective if they successfully incentivise social partners to take part in the 
negotiations and leave sufficient flexibility to firms to adapt to economic shocks or 
particular circumstances.  
  

 
32 Graph 21: Collective bargaining coverage in the EU, 2000 -2018  
 
Notes:  Observations closest to 2000 include  1997 (FR), 2001 (LV), 2002 (BG, LT, MT), 2003 (EE). Latest 
available data are : 2011 (DK); 2013 (SE); 2014 (LV); 2015 (FR, PL, SK); 2016 (CY, FI, BE, BG, CZ, EL, 
MT, PT, RO, SI); 2017 (DE, ES, HR, HU, IE, LT, LU, NL, UK); 2018 (AT, IT)  
Source: ICTWSS database, Version 6.1, University of Amsterdam. Variable AdjCov (# 111). Definition : 
employees covered by valid collective (wage) bargaining agreements as a proportion of all wage and salary 
earners in employment with the right to bargaining, expressed as percentage, adjusted for the possibility 
that some sectors or occupations are exclu ded from the right to bargain.  
Some of the countries where coverage has significantly declined have chosen to 
introduce a statutory minimum wage. This includes Germany in 2015 (where 
collective bargaining coverage had decreased from 68% in 2000 to 58% in 2 014) and 
Ireland in 2000. In these two Member States, trends in collective bargaining coverage 
were not significantly affected by the newly introduced statutory minimum wage. In 
Germany, in the years since its introduction, the minimum wage has had a diffe rential 
effect on collective bargaining in various sectors.34 First, it has had a strong impact on 
wages in sectors with low wages and low collective agreement coverage. Second, it has 
served as a point of reference for the collective bargaining partners  in sectors with low 
wages but with collective agreement coverage (i.e. the national minimum wage has an 
increasing effect on collectively agreed wages). Finally, minimum wages do not seem to 
have had a significant effect in sectors with agreed wages above  the minimum wage level 
where collective bargaining coverage is in the medium or high range. While the overall 
declining trend in collective bargaining continued after the introduction of the minimum 
wage, first evidence found no statistically significant impact of the minimum wage on 
collective bargaining coverage.35   
  
                                                           
34 These  conclusions are  based on Dingeldey, Irene (2019): Wechselwirkungen zwischen Mindestlohn und 
Tariflohn: Verschiedene Typen im Branchenvergleich. In: Arbeit. Zeitschrift für Arbeitsforschung , 
Arbeitsgestaltung und Arbeitspolitik , Vol. 28(1), pp. 55 -72. 
35 Bellmann, L., Bossler, M., Gerner, H. -D., & Hübler, O. (2018): “Collective bargaining coverage, works 
councils and the new German minimum wage.” Economic and Industrial Democracy . 

 
33 Public procurement rules and practices can play a role in supporting collective 
bargaining.  Article 18(2) of the Public Procurement Directive 2014/24/EU  provides that 
Member States shall ta ke appropriate measures to ensure that in the performance of 
public contracts, employers acting as contractors for the public administration comply 
with applicable obligations in the fields of social and labour law established by national 
or EU social and labour rules, applicable collective agreements and/or international law. 
One way to achieve this is to introduce in tender documents the requirement to comply 
with obligations set by collective agreements. Such obligations must always be applied 
also in ac cordance with EU rules on posted workers. Complying with this provision 
therefore ensures that EU, national and international labour obligations are met in the 
execution of public contracts and that obligations stemming from collective agreements 
are appli ed as relevant. However, limited information is currently available regarding the 
application and enforcement of this provision.  
Box 1: The share of workers protected by minimum wages in countries relying on 
collective bargaining to set them: what do we kn ow? 
Collective bargaining coverage is generally used as an indicator of the share of workers 
protected by minimum wage floors in Member States without a statutory minimum wage. 
The primary sources of this information is the ICTWSS database of the University of 
Amsterdam,36 which is also the main source of OECD data. This database uses various 
national and comparative sources, survey data and historical estimates. Comprehensive 
(administrative) data is not available. One limitation of this type of in formation is that is 
that not all collective agreements set minimum wage floors.  
Often, information on collective bargaining coverage relies on company surveys. In some 
cases, various surveys may result in slightly different estimates. For instance, the 
estimate of collective bargaining coverage of 45% in Cyprus corresponds to the latest 
data from the 2014 EU Structure of Earnings Survey (for industry, construction and 
services, excluding public administration). With a different methodology and a smaller 
sample size, the European Company Survey 2013 by Eurofound estimates a coverage 
rate of 61%. For Italy, company surveys focusing on firms employing ten or more 
employees in the private sector, yield higher estimates than the 80% coverage rate found 
in the p rimary data sources.37 Still, as about 95% of Italian enterprises are small 
companies with 9 employees or less,38 these surveys are thought to overestimate the 
economy -wide coverage.  
                                                           
36 For a descr iption of the latest version of the database, see Visser, J. (2019). ICTWSS Database. version 
6.1. Amsterdam: Amsterdam Institute for Advanced Labour Studies (AIAS), University of Amsterdam. 
November 2019.  
37 E.g., EU Structure of Earnings Survey, Eurofound ’s European Company Survey 2013, as well as a 2016 
survey by the National Institute of Statistics and the tripartite National Economic and Labour Council  
[CNEL, ISTAT (2016). Progetto CNEL -ISTAT sul tema “Produttività, struttura e performance delle 
impres e esportatrici, mercato del lavoro e contrattazione integrativa” – Report intermedio, link (last 
consultation on 2 September 2019), p. 105 -106.]  
38 ISTAT (2018). Annuario Statistico Italiano 2018, vol. 14 – Imprese, 
https://www.istat.it/it/files//2018/12/C1 4.pdf (last consultation on 2 September 2019), p. 488.  
 
34 In general, various surveys have different advantages and disadvantages. An  important 
source of information, the EU Structure of Earnings Survey is a large survey of 
companies, comparable across Member States, conducted every four years. However, it 
excludes companies employing less than 10 workers, a segment which is very import ant 
in many Member States: it represents more than 90% of companies employing more than 
10% of workers in manufacturing, almost 50% of employment in construction and more 
than 30% in accommodation and food services.39 Small companies are also less likely to  
be covered by collective agreements.  
 
3.3.2.  Insufficiently clear frameworks to set statutory minimum wages  
Member States differ in the way their frameworks achieve high adequacy.  Some 
Member States may opt for an explicit target for adequacy, while others maint ain a high 
adequacy by setting the criteria to be used in annual updates of the minimum wage.  
Some Member States (Czechia, Croatia, Estonia, Lithuania and Poland), have 
targets for minimum wage levels, either by law or practice.  In Czechia and Estonia, 
the target is set at 40% of the average wage, in Lithuania between 45% and 50%, and in 
Poland at 50% of the average wage. The target is included in the legislation in Poland 
while it was part of bipartite or tripartite agreements in the other countries. In th e case of 
Czechia and Estonia, the adequacy of the minimum wage remains among the lowest in 
the EU despite the setting of a target ( Section 3.1). This is both due to comparatively low 
targets and the fact that they were not achieved by 2018.  
In some Member  States, a clear and stable framework ensures that minimum wages 
maintain their value. This is in particular the case in Member States that use automatic 
indexation to update minimum wages (Belgium, France, Luxembourg, Malta, the 
Netherlands, Slovenia). In  these countries, the law specifies concrete formulas guiding 
minimum wage updates, in some cases depending on specific conditions.  It has been 
shown that clear and stable systems for minimum wage updating were associated with 
more adequate minimum wages.40 At the same time, some flexibility may be needed to 
preserve the capacity of the systems to swiftly respond to changes in socio -economic 
conditions. Indeed, automatic indexation is, in some cases, applied with flexibility under 
adverse economic circumstan ces. In Belgium and the Netherlands, the government has 
the discretionary power not to apply automatic minimum wage increase under specific 
circumstances. Specifically, in the Netherlands the government can choose not to apply 
the automatic increase if thi s is considered  harmful to employment, whereas in Belgium 
the government can choose to ignore the inflation indexation in order to preserve national 
competitiveness.   
In many other Member States statutory minimum -wage setting is not always based 
on clear  and stable criteria.  In some cases, the minimum wage legislation only makes a 
                                                           
39 Eurostat, Structural business statistics overview, URL: https://ec.europa.eu/eurostat/statistics -
explained/index.php/Structural_business_statistics_overview#Size_class_analysis  
40 See European Commission (2016): Labour market and wage developments in Europe: Annual Review 
2016, Directorate -General for Employment,  Social Affairs and Inclusion, Chapter II.1.  
 
35 general reference to the need for minimum wage setting to take into account “broad 
economic conditions” (Lithuania), or a list of variables or factors (including among 
others ex change rates, hours worked, tax burden, household expenditure) is defined (e.g. 
in Germany, Ireland, Greece, Spain, Croatia, Hungary, Latvia, Poland, Portugal, 
Slovakia). In all these cases, no indication is provided on the way in which these 
variables sho uld be used or on their interaction.  For example, while in many Member 
States there is a reference to the need for taking into account wage developments (e.g. in 
Germany, Czechia, Croatia, Ireland, Greece, Latvia, Malta, the Netherlands, Poland, 
Slovakia) , only in three Member States the legislation makes a direct link with the 
outcome of collective bargaining (Germany, the Netherlands, Malta) while in two others 
(Poland, Slovakia) the law defines specific criteria (targets) on the basis of wage 
developmen ts.    
In two Member States (Bulgaria and Romania), no criteria have been established to 
guide minimum wage changes.  In Bulgaria, increases in the minimum wage follow the 
government’s medium -term budgetary projections, however, no explanations are provide 
on the underlying quantitative mechanism. Thus, there is no mechanism for regularly 
updating the minimum wage in line with a set of criteria (poverty line developments, 
inflation or general wage increases). In Romania, minimum wage updates are not based 
on a clear mechanism or a set of stable criteria. This has resulted in an alternation of 
minimum wage freezes in some years and substantial increases in others, negatively 
affecting the business environment.   Over the last years (2014 -2019), both countries 
have received Country -Specific Recommendations which called for the need for more 
transparent minimum wage -setting mechanisms based on objective criteria for 
determining annual minima (such as job creation and competitiveness), as well as 
guidelines for mi nimum wage updating.  
Periods of unpredictable minimum wage developments have been observed also 
when the minimum wage is set to follow the broad economic conditions . For 
example, between 2000 and  2002,  Hungary increased its statutory minimum wage by 
about  60% in real terms. As a percentage of the median wage, it increased from 36% in 
2000 to 57% in 2002. This was followed by a freeze in 2003 and smaller increases in the 
following years, resulting in a ratio to the median wage of 46% in 2005.  
Statutory min imum wage updates do not always follow a reasonable frequency or 
regularity.  In most Member States (Germany, Greece, France, Croatia, Latvia, 
Lithuania, Malta, Netherlands, Poland, Slovenia and Slovakia), both the regularity and 
timeliness of the updates a re defined by law. In others even if this is not the case, an 
established practice exists either for the regularity of the updates  (Belgium, Czechia, 
Estonia and Ireland), and/or their timeliness (Belgium, Estonia, Spain, Hungary,  
Luxembourg and Portugal ). Nevertheless, in some Member States the regularity and 
timeliness of the updates is neither defined in legislation nor established through a 
regular practice. This is the case in Bulgaria and Romania where in recent years 
minimum wage increases occurred  on every year or twice a year but in a rather irregular 
manner.  In Ireland, while in past years minimum wage updates varied both in regularity 
and timing, there seems to be a stabilisation of both elements, and now there is an annual 
 
36 update at the beginni ng of the year since 2016. Finally, in Germany, the Minimum Wage 
Commission takes a decision only every second year about updates of the minimum 
wage, which may have contributed to the erosion of the value of the minimum wage 
since its introduction in 2015 .41  
 
3.3.3.  Exemptions and variations  
The coverage of minimum wages is affected by exemptions. In many Member States 
with a statutory national minimum wage exemptions from the minimum wage legislation 
exist for specific groups of workers. In the majority of these cases, the justification for 
the exemption is related either to their up - or re -skilling or to their integration in the 
labour market. This is particularly relevant to the cases where the exemptions refer to 
(young) workers in education or training ( Belgium, Czechia, Germany, Spain, Ireland) 
and participants in active labour market policies (Belgium, Germany, Croatia). There are 
also often exemptions for relatives employed in small family businesses (Belgium, 
Ireland) and people performing voluntary w ork (Germany, Spain). In other cases, 
specific groups of workers are not covered by the minimum wage law because separate 
laws or provisions cover the pay of those affected. Examples of such cases include 
people in the public service (Belgium, Czechia, Est onia, Spain, Lithuania, Latvia, and the 
Netherlands) and apprentices (Czechia,  Germany,  and Ireland). In addition to these 
cases, a number of country -specific exemptions exist. These include workers employed 
for less than 1 month (e.g. seasonal labour in  agriculture and horticulture) and peer -to-
peer workers (e.g people providing services to the local community or  work for 
recognised digital platforms) and people with local employment contracts in Belgium; 
home -workers (“Heimarbeiter42”) and people with d isabilities in specific "employee -like 
relationships" (e.g. in dedicated workshops) in Germany;  micro -employers (solo self -
employed) in Croatia, sales representatives in France, people performing non -commercial 
activities and prison work in Ierland and pe ople providing certain care services in Poland. 
Futhemore in Spain, regional exemptions are set for the autonomous cities of Ceuta and 
Melilla. For an overview of exemptions from statutory national minimum wages across 
Member States, see Annex 1.3.   
In ma ny Member States with statutory minimum wages, reduced rates (so -called 
“variations”) apply to specific groups of workers.  In general, the possibility of hiring 
at rates below the standard minimum wage can be justified to prevent the loss of 
employment of those groups whose productive capacity is below that of the average 
minimum wage earner. For example, in many Member States (Belgium, Ireland, 
Luxembourg, Malta, and the Netherlands) there are purely age -based variations. In some 
other Member States (Belgi um, Greece, Spain, France, and Portugal) variations can be 
                                                           
41 While in 2015 the minimum wage was about 48% of the median and 43% of the average wage, by 2018 
it had decreased to 46% of the median and 40% of the average wage. Germany is currently reviewing its 
minimum -wage setting in view of the experience gained with the introduction of a statutory minimum 
wage. Cf. Country Report Germany 2020 (SWD(2020) 504 final), p 39 -40; and OECD Statistics.  
42 Workers carrying out a paid work in the location they choose (e.g. home) wh ich results in a product or a 
service specified by and owned by the employer  
 
37 observed that are either education -based and/or experience -based. These types of 
variations can be viewed either as a means for labour market integration or for (further) 
skill development. At the same time, some countries choose not to apply such age -based 
variations in order to ensure equal treatment and encourage the matching of pay with 
competency rather than age. For an overview of variations in statutory minimum wages 
across Member States, see  Annex 1.3.  
In Member States with collectively agreed minimum wages, reduced rates for 
specific groups can also be found in collective agreements.  For instance, in Italy, 
collective agreements can stipulate rates below common minima for apprentices whereas  
interns and paid volunteers of the civil service (which may include non -profit 
organisations and public administration) are paid on the basis of a monthly allowance. In 
Denmark, Sweden and Finland minimum rates are differentiated along several 
dimensions,  usually by experience and occupation and, to a lesser extent, age and region. 
Differentiation by occupation often distinguishes between low - and higher -skilled jobs, 
but differentiation could also exist within these two categories. Variations in rates can  
also be found for apprentices and trainees. For example, in Sweden, many agreements 
differentiate minimum wages by at least one worker characteristic. In Finland, a 
differentiation of rates by region is found in the collective agreement for retail, with 
slightly higher rates in areas with higher costs of living.  
 
3.3.4.  Insufficient involvement of social partners in statutory minimum wage setting  
The involvement of social partners in the minimum wage -setting process varies 
considerably across EU Member States. While social partners play a central role in 
collective bargaining systems, considerable differences exist in their role for adjusting 
statutory minimum wages and in their influence in the decision -making process. The way 
social partners are involved in min imum wage setting is greatly influenced by the basic 
institutional setup, for instance the role of specialised minimum wage committees or the 
possible role of automatic indexation and the degree of government discretion. Finding a 
precise and valid taxonom y of the actual involvement and influence of social partners in 
minimum wage policy is not easy. For example, in some cases requirements on 
consultation may be formal with consulted actors risking not having real influence on the 
minimum wage adjustment.  
Social partners often play only an advisory role in systems where the minimum 
wage setting is led by expert bodies . As described in section 2.2, in some Member 
States (Germany, Greece, Ireland, France43), an independent specialised body makes 
recommendation s to the government on the annual minimum wage adjustment. In most 
of these cases, the involvement of the social partners is limited to an advisable or 
consultation role. In Germany in contrast, social partners play a crucial role in minimum 
wage setting w hich has a strong bargaining component. This is due to the bilateral nature 
of the committee. The committee proposes updates to the level of the minimum wage, 
which the government can adopt or reject but from which it cannot deviate.  
                                                           
43 For discretionary changes.  
 
38 The role of social par tners in the decision making process is variable in Member 
States with automatic indexation . As discussed in section 2.2, in all the Member States 
with automatic indexation (Belgium, France, Malta, Luxembourg, the Netherlands and 
Slovenia), it is also poss ible to make discretionary changes to the minimum wage on top 
of what is due to indexation. In four of these countries (Belgium, France, Malta and 
Slovenia) the law specifies a formal obligation to consult the social partners on such 
discretionary changes.  In France, the law entitles social partners to present their 
recommendations to the government and these are published as an annex to the annual 
report of the Minimum Wage Expert Committee. In Luxembourg and the Netherlands, 
there is no legislative clause  for social partner consultation. However, in both Member 
States, social partners provide non -binding views to the government on the minimum 
wage in practice.  
Social partner consultation often lacks a structured tripartite or bipartite setting, 
thus it le ads to non -binding recommendations . As described in section 2.2, in the 
majority of Member States, an institutionalised bipartite or tripartite consultation process 
is either defined by law or established in practice. However, in most of these cases 
(Bulga ria, Spain, Croatia, Hungary, Latvia, Malta11, Portugal, Slovenia11 and Romania), 
the requirement to consult social partners does not specify the institutionalised setting but 
instead the approach is left to government. This process often leads to non -binding 
recommendations, with an unknown inf luence on the final decision -making. Only in a 
few Member States (Lithuania, Poland, Slovakia) is a structured tripartite system in 
place, in which, if an agreement is reached through the consultation process, it becomes 
binding for all the parties. Howeve r, even in these cases, in practice over recent years, it 
was not possible to reach such an agreement; thus  the government has been setting the 
minimum wage unilaterally. To limit the government’s discretion in such cases, a recent 
reform in Slovakia fore sees that in the absence of a tripartite agreement, the amount of 
the monthly minimum wage for the next calendar year must be set at 60% of the average 
monthly nominal wage.  
In some Member States, the involvement of social partners is insufficient or not 
institutionalised at all.  Czechia is the only Member State where adjustments of the 
minimum wage are decided by the government without specific rules, as there is no 
institutionalised consultation process defined by law. In practice, social partners express  
views and non -binding recommendations through a tripartite committee; however, the 
government has the discretion to set the minimum wage unilaterally in any case.  
  
 
39 In a number of Member States there are challenges related to the involvement of 
social pa rtners in the policy process in general. Such challenges have been identified 
in the framework of the European Semester, the annual cycle of economic policy 
coordination in the EU. In particular, in 2019, Hungary, Poland and Romania received 
Country -Specif ic Recommendations calling for the need to strengthen social dialogue in 
general . In May 2020, the European Commission proposed recommendations to the same 
countries noting a deterioration of the situation of social dialogue in Hungary and Poland, 
in the c ontext of measures taken during the Covid -19 pandemic.44  
 
3.3.5.  Issues in compliance, enforcement and monitoring  
Gaps in coverage and adequacy may also emerge if rules related to existing 
minimum wage floors are not complied with.  For some of the countries with a 
statutory national minimum wage, evidence suggests that there might be workers who, 
even if legally covered, receive in practice remuneration below the minimum wage due 
to a non -respect of existing rules. Some of the evide nce is provided by the institutions in 
charge of enforcing minimum wage rules, such as labour inspectorates or customs 
offices. For instance, labour inspection in Ireland found that 409 of the 4,747 employers 
(9%) inspected in 2017 were in breach of minimu m wage legislation; In Slovakia, the 
682 cases of non -compliance in the same year amounted to 5.4% of the 12,544 breaches 
of labour law.45  
Compliance may also be an issue in some countries relying on collective bargaining 
to set minimum wage floors.  For in stance, it has been estimated that, in Italy, more than 
10% of workers are paid below the wage floor established by their reference collective 
agreement and that such underpayment implies an average shortfall of 20 -23% of the 
reference minimum wage.46  
In some cases, increasing minimum wage levels may lead to a higher risk of non -
compliance, including undeclared work, although other types of interactions are 
also possible.  The risk of undeclared work may be particularly significant in some 
sectors and occupa tions (e.g. domestic work).47 However, minimum -wage regulations 
may also interact with other forms of non -compliance, for instance tax evasion in the 
form of “envelope wages”. This practice entails officially reporting the minimum wage 
while complementing p ay with informal payments (envelope wages). While this may 
increase the net income of some workers, it reduces their future (e.g. pension) 
                                                           
44 Proposals published in the ‘Spring package’ of the European Semester on 20.05.2020, ULR: 
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_901 ,  
45 For a more detailed survey of recent evidence on non -compliance see Eurofound (2019): “Minimum 
wages in 2019: Annual review”.  The other main source evidence is based on survey data. However, in 
surveys it is usually difficult to distinguish non -compliance from measurement errors and exemptions and 
variations based on the existing rules. Notably, measurement error in wages and working hours can stem 
from the inaccuracies of self -reporting, which many surveys are based on.  
46 See: Garnero, A. (2018): “The dog that barks doesn’t bite: Coverage and compliance of sectoral 
minimum wages in Italy”, IZA Journal of Labor Po licy, Vol. 7, No. 1.  
47 See, e.g. ILO (2016): Minimum wage policy Guide, especially p. 89. International Labour Organisation, 
Geneva.  
 
40 entitlements. There is evidence that, in a context of income underreporting for tax 
evasion purposes, envelope wages are reduced when minimum wages are increased.48 
Fighting tax evasion has been the stated aim of some minimum wage increases in the 
past,49 even though the trade -off with the risks of outright undeclared work have also 
been recognised.50      
Moreover, there i s a lack of comprehensive information on collectively agreed wage 
floors and their coverage in concerned Member States.  As Box 1 above explains, 
existing information on collective bargaining coverage is based on a variety of sources, 
but information is inc omplete. More precise information could be useful, also in the 
Member States relying on collective bargaining to set minimum wage floors, for 
governments and in particular social partners to be able to have a thorough assessment of 
the situation of low -wage workers.     
 
3.4. What are the consequences?  
3.4.1.  For workers  
Insufficient protection by adequate minimum wages has negative consequences for 
workers.  Adequate wages are an important component of fair working conditions. As 
minimum wages reduce wage inequal ity and in -work poverty (see Section 2.1), gaps in 
adequacy and coverage of minimum wages hamper these improvements. In particular, 
driven by a number of economic and demographic factors, but also affected by minimum 
wages, in -work poverty increased from 8 .3% in 2007 to 9.4% in 2018 in the EU ( Graph 
22).51 At the Member State level, in -work poverty has been on the rise in all but seven 
EU Member States (i.e. Croatia,52 Finland, Greece, Ireland, Latvia, Poland,  and 
Romania) showing that, increasingly, work does not always protect against poverty.   
                                                           
48 See, e.g., Tonin, Mirco (2011), “Minimum wage and tax evasion: Theory and evidence.” Journal of 
Public Economics , vol. 9 5, no 11 -12, p. 1635 -1651.  
49 This is reported, for instance, by Harasztosi and Lindner (2019) related to Hungary, the country analysed 
by Tonin (2011, see previous footnote). See Harasztosi, Peter, and Attila Lindner. 2019. “Who Pays for the 
Minimum Wage?” American Economic Review , 109 (8): 2693 -2727.  
50 European Commission (2007): “Stepping up the fight against undeclared work”, COM(2007)628, 
Brussels; and Williams, Colin C. (2010), “Tackling undeclared work in southeast Europe:  
lessons from a 2007 Eurobarometer survey”, Southeast Eur opean and Black Sea Studies , 10:2,  
123-145. 
51 This average refers to the 27 Member States of the EU between 2007 and 2013. In the average of the 
current 27 Member States of the EU as of 2020, in -work poverty increased from 8.5% in 2010 (earliest 
available data) to 9.3% in 2018.  
52 For Croatia the comparison is made between 2010 and 2018 for reasons of data availability.  
 
41 Graph 22: In-work poverty in the EU, 2007 and 2018 (%)  
 
Notes: Employed persons, aged 18 -64. For Croatia, the first observation is from 2010 instead of 2007.  
Source:  Eurostat, in -work at -risk-of-poverty rate by age and sex - EU-SILC survey [ilc_iw01].  
Moreover, major gaps in minimum wage adequacy or coverage may lead to labour 
market segmentation and weak work incentives.  Labour market segmentation is a 
concern especi ally if low -wage workers are not able to move quickly to higher -paying 
jobs (i.e. if earnings mobility is low) and the incidence of informal employment, 
including due to the lack of enforcement of regulations, is high. In addition, a low 
adequacy of minimu m wages means that work does not pay, as compared being 
unemployed or inactive. In this case, people out of work will not have sufficient 
incentives to take up work, which may have negative consequences for them as well as 
for firms and the wider economy.  
The lack of a clear framework for minimum wage setting, and an insufficient 
involvement of social partners, may harm workers in multiple ways.  A low 
frequency of updates and an unclear framework may result in periods of non -adjustment 
alternating with larg e increases in the minimum wage. In addition, a too limited 
involvement of social partners increases the risk that relevant information is not taken 
into account. As a result, the minimum wage may not keep pace with developments in 
prices, wages or product ivity for several years. European Commission analysis suggests 
that less clear and stable frameworks for statutory minimum wage setting and a less close 
involvement of social partners in the process are associated with overall lower levels of 
the minimum w age relative to the median.53 Less predictable minimum wage increases 
also appear to have a more significant negative employment effect.54  
 
                                                           
53 European Commission (2016): “Labour Market and Wage Developments in Europe 2016”, Directorate -
General for Employment, Social Affairs and  Inclusion, p. 81.  
54 European Commission (2016): “Labour Market and Wage Developments in Europe 2016”, Directorate -
General for Employment, Social Affairs and Inclusion, p. 94.  

 
42 3.4.2.  For businesses, economy and society  
For firms, inadequate minimum wages may reduce the pool of workers from which 
recruitment can be made. Inadequate minimum wages may lead to reduced work 
incentives.  This is because unemployed or inactive people may not look for a job if the 
income attainable in work is not high enough.  In addition, low minimum wages may 
contribute to a n increased turnover of staff and reduced staff engagement.55 At the same 
time, the level of minimum wages needs to take into account potential effects on 
competitiveness.  
Unpredictable minimum wage developments can have negative consequences for 
firms and  for the economy. Systems characterised by an insuficient involvement of 
social partners and an insufficiently clear framework to set statutory minimum wages 
result in unpredictable changes in the minimum wage. Under such circumstances, 
minimum wage settin g is not based on a full set of information, reflecting all relevant 
economic and sectoral conditions, nor sufficiently articulated with collective bargaining 
processes. This results in less frequent but larger increases in the minimum wage with 
more signi ficant effects on the decisions of firms. Evidence suggests that in such 
systems, minimum wage increases are also more correlated to the political cycle.56 Such 
developments may have a negative effect on the business environment for firms and thus, 
on the l ong run, for investment, productivity, and growth.  
Low wages and minimum wages may trigger labour mobility flows between 
Member States, which raise concerns for sending countries.  The free movement of 
workers has been one of the founding principles of the  EU. Labour mobility can be 
instrumental in promoting labour market adjustment and support the deepening of the 
single market. Large wage differentials (between regions and between countries) can 
promote outward mobility from poorer regions, particularly a mong young individuals, 
exacerbating ongoing demographic trends of ageing and population decline. Minimum 
wages can counteract these trends by supporting general wage developments and 
earnings, in particular of young workers. At the same time, outward labo ur mobility may 
trigger an increase in the wages in the sending country of the non -mobile workers with 
similar skills to the mobile workers and raise average wages in the short term.57 
  
                                                           
55 For instance, past research on increased minimum wages for young workers has s uggested that workers 
affected by minimum wage increases have an increased probability to stay at their jobs. This effect was 
counterbalanced by a reduced rate of accessions to new jobs by affected workers. See: Portugal P. and A. 
R. Cardoso (2006): “Disen tangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and 
Separations”, Journal of the European Economic Association , Vol. 4(5), pp. 988 -1013. More generally, 
theories of “efficiency wages” suggest that engagement and productivity of individua l workers can increase 
if they are paid more than the market -clearing wage. As another channel for increased individual 
productivity, it has been suggested that firms may invest more in their workers if they have to pay an 
increased minimum wage.    
56 Europ ean Commission (2016): “Labour Market and Wage Developments in Europe 2016”, Directorate -
General for Employment, Social Affairs and Inclusion, Chapter II.1.  
57 On the possible negative effects of structurally large mobility flows on sending countries, see, e.g., 
Center for Policy Studies (CEPS), 2019: “EU mobile workers. A challenge to public finances?” 
Contribution prepared at the request of the Romanian Presidency of the Council of the European Union, 
presented at the informal ECOFIN meeting in Bucharest, 5-6 April, 2019.  
 
43 Inadequate minimum wages may contribute to the gender pay gap. Given their over -
representation among minimum wage workers, women are mostly affected by inadequate 
minimum wage policies. Moreover, since national minimum wage policies tend to 
compress the bottom of the wage distribution, where women are over -represented, 
inadequate minimum wage policy could also lead to higher gender pay gap among low 
paid working women.58 
 
                                                           
58 A recent study on the introduction of the minimum wage in Ireland and the UK found a large reduction 
of the gender wage gap at the bottom of the distribution in Ireland while there is hardly any change in the 
UK. A counter -factual simula tion suggests that these contrasted results between the two countries may be 
due to the degree of non -compliance with the UK national minimum wage legislation. See: Bargain, O., K. 
Doorley and P. van Kerm (2018), “Minimum wages and gender gap in pay: New e vidence for the UK and 
Ireland” IZA Discussion Paper Series.  
 
44 
 3.5.  Problem tree  
Graph 23: A diagrammatic presentation of the problem  
 
 

 
 4. EU COMPETENCE AND EU ADDED VALUE  
4.1. Foundations of the right to act  
According to Article 3 TEU, the Union aims at promoting the well -being of its 
people and works in particular for the sustainable development of Europe based on 
balanced economic growth and price stability, a highly competitive social market 
economy, aiming at full employment and social progress.   
Title X ‘Social Policy’ contains the legal bases at the disposal of the Uni on for 
pursuing these objectives, commensurate with the competences conferred upon it by the 
Treaties (Article 5(2) TEU). The use of these competences is governed by the principles 
of subsidiarity and proportionality (Article 5(3) and 5(4) TEU).  
In Title X TFEU, Article 153(1)  has a wide personal and material scope, providing the 
legal basis for the EU “to support and complement the activities of the Member States” in 
a number of fields both inside and outside the labour market. The objective is to improve  
working conditions, social security and social protection, workers' health and safety, 
information and consultation of workers, and the integration of persons excluded from 
the labour market.  
Over the years the European Union has built a floor of rights for workers,  
encompassing both individual rights (information about working conditions; health and 
safety; working time; discrimination and abuse of non -standard employment; equal 
treatment at workplace; posting of workers), and collective right (European Works 
Councils; information and consultation in relation to company changes, collective 
redundancies, transfers of undertakings).  
Similarly, Article 153 is the appropriate legal basis for an EU initiative on fair 
minimum wages.  Insofar as wages, including  minimum wages, are a key component of 
working conditions, the initiative could be based on Article 153 (1) (b) TFEU on 
‘working conditions’.59  
Article 153 TFEU (5) nevertheless contains limitations to the EU competence. This 
paragraph establishes that ‘th e provisions of this Article shall not apply to pay’. Article 
153(5) has been interpreted by the Court of Justice of the European Union (CJEU) in 
such a way that the exclusion on ‘pay’ “ must be construed as covering measures  - such 
as the equivalence of al l or some of the constituent parts of pay and/or the level of pay in 
the Member States, or the setting of a minimum guaranteed wage  - that amount to direct 
interference by EU law in the determination of pay within the European Union”. “It 
cannot, however, be extended to any question involving any sort of link with pay; 
otherwise some of the areas referred to in Article  153(1) TFEU would be  deprived of 
much of their substance.”60 In line with this interpretation, recent initiatives using Article 
                                                           
59 Art 153.1 TFEU states that: “ 1. With a view to achieving the objectives of Article 151, the Union shall 
support and complement the activities of the Member States in the following fields: (…) (b) working 
conditions; (…) ”. 
60 See Case C -268/06, Impact, point 124 -125; Case C -307/05, Del Cerro Alonso, point 41.  
 
46 
 153 TFEU as l egal basis (e.g. the 2019 Directive on work -life balance for parents and 
carers and the 2019 Directive on transparent and predictable working conditions) already 
touch indirectly on different aspects of pay, whereby remuneration is regarded as part of 
work ing conditions, as referred to in Article 153 (1) (b).61  
It follows that in view of Article 153(5) TFEU and constant case law of the ECJ any 
EU action in the field of minimum wages would not seek to harmonise the level of 
minimum wages across the EU, nor would it seek to establish a uniform mechanism 
for setting minimum wages .62 The future instrument would not establish the level of 
pay, which falls within the contractual freedom of the social partners at a national level 
and within the relevant competence of Member States. Minimum wages would continue 
to be set through collective agreements or legislative provisions, according to the 
traditions and specificities of each country and in full respect of national competencies 
and social partners’ contractual fr eedom.   
4.2. Necessity and EU added value  
Member States are confronted with common challenges, linked to the structural 
trends reshaping their labour markets . These include job polarisation driven by 
technological change and increasingly integrated global va lue chains, as well as an 
increasing share of non -standard and precarious work driven by the growing weight of 
the service sector in the economy, as well as the emergence of new forms of work 
organisation and business models. While these new forms of work bring opportunities for 
businesses and individuals, in many cases, non -standard workers may earn lower hourly 
wages than full -time permanent employees. In addition, they may also work shorter 
hours. This results in an increased risk of in -work poverty. Tra ditional collective 
bargaining structures, which contributed to a more equal wage distribution in the past, are 
also eroding, in part due to the economic shift from manufacturing industries towards 
services.  
About one in six workers in the EU earns a low wage and this share has increased, 
as has in -work poverty.  While strong average wage growth in Central and Eastern 
Europe in recent decades has overall reduced the differences in the level of wages across 
countries, in many Member States the purchasing pow er of low wages has not kept up 
with other wages.  
While the adequacy of statutory minimum wages has improved in several countries 
in recent years, it appears insufficient in several others . This contributes to precarious 
working conditions, wage inequalit y and in -work poverty. Gaps in minimum wage 
coverage, including due to non -compliance, also contribute to precarious working 
conditions and inadequate workers’ protection. Furthermore, the effectiveness of 
statutory minimum wage setting mechanisms, notably  as concerns the involvement of 
                                                           
61 E.g. for the purpose of Directive 1999/70/EC on fixed -term work, of Directive 97/81  on part -time work 
or of Directive 2008/104/EC on temporary agency work.  
62 See e.g. Case C -268/06, Impact, point 123 -124. 
 
47 
 social partners and the existence of clear guiding frameworks, is insufficient in some 
countries (see Section 3).  
EU action on fair minimum wages would improve the fairness of the EU labour 
market, promote economic and socia l progress and cohesion, help reduce the 
gender pay gap, and contribute to upward social convergence. These objectives are 
clearly set in the EU Treaties and reflected in the European Pillar of Social Rights. By 
supporting the process of upward convergence  in the field of minimum wages while 
taking into account economic conditions, EU action would contribute to paving the way 
for better working conditions in the Union  and to improving the business environment. 
Such a framework would send a clear signal to citizens about the role played by the EU 
for protecting their working conditions and living standards, against the background of 
current and future challenges, while demonstrating awareness of the firms’ needs, 
notably SMEs’.  
EU action on minimum wages can  provide the necessary momentum for reforming 
minimum wage setting mechanisms . While the EU already issued policy guidance on 
minimum wage policies to selected Member States within the European Semester, an EU 
framework on minimum wages would provide targe ted and effective leverage to reach 
the objective of ensuring fair minimum wages, thus contributing to fair working 
conditions in the EU. A common, coordinated framework at EU level would reinforce 
trust among both Member States and social partners. Withou t it, individual countries may 
be little inclined to improve their minimum wage settings because of the perception that 
this could negatively affect their external cost competitiveness.  
EU action would also contribute to ensuring a better level playing fie ld in the Single 
Market . Coordinated EU action can help address large differences in the coverage and 
adequacy of minimum wages that are not justified by underlying economic conditions. 
Workers and businesses must have the assurance that the Single Market protects and 
empowers them. They need to be confident that competition is based on innovation and 
productivity and that adequate social standards are promoted. A common framework 
would thus increase public trust in the fundamentals of the Single Market.  
EU action would bring particular value added in Member States where many 
workers are not (at all or adequately) covered by minimum wages . In these Member 
States, EU action leading to reinforced national minimum wage setting frameworks 
would help increase the  purchasing power of low -wage earners, strengthen incentives to 
work, and contribute to stimulating domestic demand, with due attention to employment 
and competitiveness. This may in turn lead to higher productivity and growth.  
In line with the proportiona lity and subsidiarity principles, EU action would not 
exceed what is necessary  to achieve its objectives and would respect the competence of 
Member States and social partners with respect to wage setting.   
 
 
48 
 5. OBJECTIVES : WHAT IS TO BE ACHIEVE D? 
On 14 January 2020, the Commission adopted a Communication on a Strong Social 
Europe for Just Transitions  to deliver on the objectives of the European Pillar of 
Social Rights . Principle 6 of the Pillar on Wages (the implementation of which is a 
shared responsibility of Member States and EU institutions) states that “ (a.) Workers 
have the right to fair wages that provide for a decent standard of living. (b.) Adequate 
minimum wages shall be ensured, in a way that provide for the satisfaction of the needs 
of the worker and his/ her family in the light of national economic and social conditions, 
whilst safeguarding access to employment and incentives to seek work. In -work poverty 
shall be prevented. (c.) All wages shall be set in a transparent and predictabl e way 
according to national practices and respecting the autonomy of the social partners ”.  
As shown in this document, common challenges exist in relation to minimum wage 
protection in the EU.  Yet, adequate wages are an important component of fair working 
conditions. Minimum wages, in particular, ensure adequate protection for low -wage 
workers. Since more women than men earn wages at or around the minimum wage, 
minimum wages set at adequate level also support gender equality. Moreover, adequate 
minimum wage s enhance the incentives to work, thus also leading to higher investment 
and higher contributions to social protection systems.  By contrast, gaps in minimum 
wage adequacy or coverage weaken work incentives and contribute to labour market 
segmentation. As m inimum wages tend to reduce wage inequality and in -work poverty, 
gaps in minimum wage adequacy and coverage hamper these improvements.  
In light of these challenges, the initiative would have the  general objective to ensure 
that all workers in the Union ar e protected by fair minimum wages allowing for a 
decent living wherever they work .  
All Member States would be required to achieve the objectives of the i nitiative. They 
could do so through different means, in full respect of national competencies and social 
partners’ contractual freedom. More specifically, it would aim at  ensuring that:  
 Minimum wages are set by the national legislator and/or social partner s at 
adequate levels:  by supporting their labour income, this initiative would help to 
ensure decent living standards for workers across the EU. It would help reduce 
wage inequality and in -work poverty. Since more women than men earn wages at 
or around the  minimum wage, minimum wages set at adequate level would also 
support gender equality and help reduce the gender pay gap. Moreover, adequate 
minimum wages contribute to enhancing the incentives to work, thus also leading 
to increased labour market particip ation, and hence stronger growth and higher 
contributions to social protection systems.  
Minimum wages protect all workers: the initiative would help ensure that all 
workers can benefit from the protection provided by minimum wages. Specific 
groups of work ers, in particular vulnerable workers, would be adequately 
protected.  
 
49 
 The initiative would aim at achieving these objectives, while safeguarding access to 
employment and taking into account the effects on job creation and competitiveness, 
including for SME s. 
In order to reach these general objectives, the specific objectives of the EU initiative 
would be to ensure that:  
1. Well -functioning collective bargaining in wage -setting is in place , as it can 
ensures that all workers, particularly the most vulnerable on es, are protected by 
adequate minimum wage floors, both in the systems where minimum wages are 
only determined by collective agreements and in those where they are set by law . 
Well-functioning collective bargaining implies that all types of employers and 
employees are duly represented and ensures that wage conditions are consistent 
with workers’ and employers’ needs and are responsive to changing economic 
circumstances.  By shaping general wage developments, collective bargaining also 
influences developments  in statutory minimum wages where they exist. The 
structure and functioning of collective bargaining thus play a key role for 
achieving fair minimum wages.  
2. The national legislator and/or the social partners provide for national 
frameworks allowing for statutory minimum wages to be set and regularly 
updated according to  clear and stable criteria , leading to adequate minimum 
wages. The use of such criteria, referring to adequacy goals and reflecting 
economic and social conditions in a country as well as g uiding the adjustment of 
minimum wages at regular intervals, allows workers to rely steadily on an 
adequate income from work. A clear and stable framework to set statutory 
minimum wages also contributes to a stable economic environment, which in turn 
is co nducive to good working conditions. At the same time, minimum wage 
setting systems must provide sufficient flexibility to account for changing 
economic conditions and adjustment needs.  
3. Social partners are effectively involved  in statutory minimum wage sett ing to 
support minimum wage adequacy . A timely and effective involvement of the 
social partners in statutory minimum wage setting and updating, fully taking into 
account the views of economic actors , is key for  minimum wage developments to 
achieve adequacy  goals, to keep up with price, wage and productivity 
developments and account for socio -economic developments. Taking into account 
their views, guided by  the above -mentioned criteria, can have positive effects on 
the rights and entitlements of employees an d on the investment decisions of firms. 
An effective involvement of social partners in minimum wage setting also allows 
for an informed and inclusive decision -making process.  
4. The national legislator and/or the social partners limit minimum wage  
variations and exemptions so as not to unduly harm minimum wage 
adequacy or preclude certain groups from benefiting from minimum wage 
protection . In many Member States, exemptions exist for specific groups of 
workers.  Reduced minimum wage rates also apply to specific  groups of workers 
 
50 
 in many Member States, e.g. in the case of sub -minimum wages for youth.. These 
are clear limitations to minimum wage adequacy and coverage, in particular 
wherever they are used in a disproportionate or unjustified manner. These 
exemption s and variations should be removed or their use should be justified, 
proportionate, and limited in time..  
5. Effective compliance  with national minimum wage frameworks and  
monitoring mechanisms  are in place.  Well -established mechanisms and 
procedures to ensure proper implementation of minimum wage rules and 
frameworks, as well as reliable data collection and monitoring, are key to ensure 
an effective protection of concerned workers on the ground. This is an i mportant 
component of the strengthening of minimum -wage systems as, in some cases, 
increasing minimum wage levels may lead to a higher risk of non -compliance, 
including undeclared work (see section 3.3.5 above).  
The initiative would thus contribute to the Treaty -based goals of promoting 
employment and improved living and working conditions (Article 151 TFEU),  and 
to the implementation of European Pillar of Social Rights, notably of the principles on 
wages (Principle 6), on social dialogue and involvement of  workers (Principle 8), as well 
as on gender equality (Principle 2). It would also address the rights set out in the Charter 
of Fundamental Rights of the EU in relation to workers’ right to fair and just working 
conditions (Article 31).  
As a result, the in itiative would also foster upward social convergence and help 
overcome existing disparities among EU countries , thus also contributing to a better 
level playing field for businesses within a Single Market and reducing the pressure for 
competition based on social standards.  
  
 
51 
  
6. WHAT ARE THE AVAILABL E POLICY OPTIONS ? 
6.1. Baseline against which the options are assessed  
In the baseline scenario, minimum wage policies would evolve without a common 
policy framework at the EU level. Wage policies (including those rel ated to minimum 
wages) are subject to multilateral surveillance within the European Semester, the annual 
cycle of economic policy coordination in the EU. In addition, in September 2019 the 
European Commission presented to Member States a draft discussion p aper on 
benchmarking minimum wages. This work stream follows up the Commission 
Communication on “Establishing a European Pillar of Social Rights”, from April 2017, 
which indicated that benchmarking and the exchange of best practice would be 
conducted for a  number of policies in the employment and social area, including 
minimum wages. The analytical framework proposes indicators to monitor outcomes, 
policy performance and policy levers related to minimum wage policies, but does not 
establish quantitative thr esholds for good performance.  
The analysis is based on the assumption of stability of institutions and policies in 
Member States.  This means that, in the baseline scenario, the coverage of minimum 
wages is assumed to follow a trajectory of stability. As l aid out in Section 3, drivers of 
minimum -wage coverage differ across groups of Member States. In particular, minimum -
wage coverage is largely driven by the existence of possible exemptions as well as 
enforcement in Member States with a statutory minimum wa ge. In these Member States, 
the assumption of institutional stability implies the stability of minimum -wage coverage. 
In turn, minimum -wage coverage is driven by collective bargaining in Member States 
without a statutory minimum wage. While collective barg aining coverage followed a 
downward trend on average in the EU in the last decades, this trend was not observed in 
Member States without a statutory minimum wage (see Section 3.3.1 for detail). The 
assumption of continued stability of collective bargaining  coverage is therefore 
reasonable.63 
Similarly, in the baseline scenario, minimum wage levels are assumed to develop in 
a way to remain stable as compared to other wages in the same country.  This is in 
line with the assumption of no policy change along the baseline. In particular, 
simulations to assess the impacts of hypothetical policy changes (in Section 7 below) 
take the latest available comparable data as baseline (in most cases reflecting the 
situation in 2018). This assumption is prudent despite the fa ct that, in certain countries, 
the minimum wage may have increased or decreased as compared to other wages in 
recent years. This assumption of unchanged policies is nevertheless consistent with a 
                                                           
63 As part of the assumption of stability of institutions, the analysis also does not pre -judge any discussions 
in Member States about institutional reforms. For instance, in Cyprus, th e government declared its 
intention to introduce a statutory national minimum wage when the labour market reaches conditions of 
full employment (unemployment rate below 5%).  In Italy, there has been a political debate about the 
possibility of introducing a  statutory minimum wage, among other possible reforms.  
 
52 
 gradual continuation of minimum -wage convergence across Memb er States, in euro or 
purchasing power standard, driven by the expected continuation of the trend of wage 
convergence, especially between Eastern and Western European Member States.64   
  
6.2. Possible avenues for EU action  
The initiative can be based on Articl e 153 (1) (b) TFEU on working conditions . 
Wages, including minimum wages, are a key component of working conditions. 
However, in relation to this legal basis, the initiative must respect the limitations imposed 
by Article 153(5) TFEU, which forbids the EU to intervene directly on the level of pay, 
so as not to interfere with the competence of Member States and the autonomy of social 
partners in this field.  
As a result, the initiative would leave Member States the freedom to keep their 
current minimum wage system . It would also not include any provisions aimed at 
imposing an obligation to provide for a statutory minimum wage in Member States with 
collectively bargained minimum wages, nor at imposing administrative extensions on 
collectively agreed minimum wa ges. EU action on minimum wages would fully respect 
Member States’ competence and collective bargaining traditions, and will not interfere 
with social partners’ autonomy and freedom to negotiate.   
Both binding (e.g. Directive) and non -binding instruments (e.g. Council 
Recommendation) are possible  under Article 153 TFEU, to address the challenges of 
fair minimum wages.  
The sub -section below presents the main elements of an EU initiative on fair minimum 
wages, and possible legal instruments at play.  
  
                                                           
64 On the past development of the gap between minimum wages in the EU, see Section 3.1.1. Trends in 
wage convergence have been analysed by the European Commission (2018): “Labour market and wage 
develop ments in Europe: Annual Review 2018”, Directorate -General for Employment, Social Affairs and 
Inclusion, especially Chapter II.2.  
 
53 
 6.2.1.  Polic y options  
This subsection provides an overview of the measures that could be considered for 
addressing the problem and meeting the objectives outlined above. These measures can 
be combined and are not mutually exclusive, unless otherwise specified. Any possible 
measure would be applied differently depending on the minimum wage setting system, in 
full respect of national competencies and social partners’ contractual freedom.  
The initiative would be addressed to all Member States. It would cover  all those 
qualifying as workers  according to EU and national law, regardless of the type of 
contract or form of employment relationship with their employer, and including those in 
the public sector.  
The initiative would be built around the stated  general objective of achieving fair 
minimum wages for all workers in the EU  and would provide for specific policy 
actions to support it. In line with the results of the first stage of social partners’ 
consultation, collective bargaining has been identified as the best means  to achieve  the 
general aim of the initiative, provided its coverage is high enough to ensure that the 
agreed wage floors effectively protect vulnerable workers . To this end, a number of  
provisions would aim at supporting and promoting collective bargainin g on wage setting . 
Other provisions would aim at ensuring that in countries with statutory minimum wages, 
these are set in such a way to support fair working conditions, through their capacity to 
deliver on adequate minimum wages, regularly updated accordi ng to stable criteria and in 
consultation with the social partners, while preserving employment and competitiveness. 
Third, elements are provided so as to aim at the elimination or limitation of exemptions 
and/or variations. Finally, provisions to ensure c ompliance with and monitoring of 
national minimum wage frameworks are included.  
The impacts of these policy options are analysed in Section 7.  
Table 2: Overview of policy options  
Policy field  Policy options  
Collective bargaining   Call on all Member States  to take measures, in 
cooperation with social partners, to promote collective 
bargaining with a view to supporting fair minimum 
wages;  
 Call on Member States where wages are set exclusively 
through collective bargaining to take action to ensure that 
all wor kers are covered . This can be achieved for 
example if all workers potentially can be covered by a 
collective agreement and/or indirectly benefit from the 
pay levels established by collective agreements;  
 Provide specific guidance to promote collective 
barga ining in all Member States, especially where it is 
less developed, including a non -exhaustive list of possible 
actions;  
 Provide for mapping in all Member States the 
implementation of the social clause contained in the 
 
54 
 Public Procurement  Directive 2014/24/E U.65 Such a 
mapping would focus on aspects of the clause related to 
minimum wages and collective bargaining . 
National frameworks 
to set and update 
statutory minimum 
wages   Call on Member States to provide for statutory minimum 
wages setting mechanisms to be  guided by clear and 
stable criteria;  
 Call on Member States to provide for updates of statutory 
minimum wages being conducted at reasonably frequent 
and regular intervals;  
 Specify a number of elements to be taken into account for 
statutory minimum wage set ting and updating, such as the 
cost of living and the level and distribution of wages, 
together with other economic and social conditions;  
 Define a set of indicators to guide the assessment of 
minimum wage adequacy, while considering economic 
conditions, such as: (1) the gross median wage, (2) the 
gross average wage; (3) the net median wage; (4) the net 
average wage; or (5) a criterion to ensure decent living 
standards, in particular by defining a reference basket of 
goods (so -called living -wage approach);66    
 Set non -binding reference values for the above adequacy 
criteria to guide the assessment of minimum wage 
adequacy. Non -binding reference values could be 
developed for those criteria, reflecting high (intermediate ) 
current minimum wages in the EU. Various approaches 
are possible, such as: (a) comparing the gross minimum 
wage to thresholds such as 60% (50%) of the median 
wage, or 50% (40%) of the average wage; (b) comparing 
the net minimum wage to 60% (50%) of the n et average 
wage or 70% (60%) of net median wage.  
 Alternatively, using an indicator framework or the 
development of national definitions of adequacy, 
accounting for the interplay with tax -benefit systems and 
the broader wage setting system.  
Involvement o f 
social partners in 
statutory minimum 
wage setting   Call on Member States to involve social partners in an 
effective and timely manner when setting and updating 
statutory minimum wages;  
 Define specific options for relevant institutional aspects 
of social p artner involvement (e.g. existence of regular, 
formal consultation mechanisms, of specialised minimum 
wage committees, attributing to social partners a 
decision -making role, etc.).  
Involvement of  Call on Member States to associate independent experts 
                                                           
65 Art 18 of Directive 2014/24/EU requires Member States to take measures to ensure that employers acting 
as contractor for the public administration comply with applicable obligations in the fields of social and 
labour law established by national or EU social and labour rules, applicable collective agreements and/or 
international law.  
66 Criteria defined in terms of gross wages sho uld be compared to the gross minimum wage, while criteria 
defined in net terms should be compared to the net minimum wage (i.e., the net income of a single 
minimum wage earner working full time).  
 
55 
 independent experts 
in statutory minimum 
wage setting  with statutory minimum wage setting and updating.  
Exemptions and 
variations   Provide elements so as to aim at the elimination of 
exemptions and/or variations in the countries where they 
exist. (Alternativel y) define criteria and conditions for 
allowing exemptions and/or variations, so as to limit them 
to a minimum. In particular, it could be required that 
exemptions and/or variations to be non -discriminatory, 
proportionate, limited in time, and duly justifie d. 
Compliance and 
monitoring   Call on all Member States to ensure effective 
implementation and compliance with national minimum 
wage frameworks, and give the social partners a key role 
in that respect.  
 Call on all Member States to reinforce existing data 
collection tools and monitoring frameworks on minimum 
wage adequacy and coverage.  
 
 
6.2.2.  EU legal basis and instruments  
The initiative would be based on Article 153 (1) (b) TFEU on working conditions . It 
would respect the limitations imposed by Article 153(5) TFEU, which forbids the EU to 
intervene directly on the level of pay, so as not to interfere with the competence of 
Member States and autonomy of social partners in this field.  
Both binding and non-binding instruments are possible under this Article. The EU 
instruments under consideration are as follows.  
EU Directive  
Article 153 (2) TFEU provides the possibility of adopting a Directive in the area of 
‘working conditions’ involving minimum requir ements for implementation  by Member 
States.  67  
In line with Article 288 TFEU, a Directive would give certainty about the obligatory 
requirements to be applied by Member States. To this end, the proposal would contain a 
set of minimum requirements and proce dural obligations to be necessarily complied with. 
The Directive would leave room for Member States to decide on the way to implement 
them, and would not take away the freedom of Member States and social partners to set 
the level of minimum wages .  
A Membe r State could entrust social partners, at their joint request, with the 
implementation of the Directive, in line with Article 153(3) TFEU. In this case, the 
                                                           
67 Art 153(2) (b) also states that “ Such directives shall av oid imposing administrative, financial and legal 
constraints in a way which would hold back the creation and development of small and medium -sized 
undertakings ”. 
 
56 
 Member State would need to ensure that social partners introduce the necessary measures 
by the tran sposition date that would be indicated in the Directive. The Directive would 
foresee a framework for monitoring its implementation.  
 
Council Recommendation  
A Council Recommendation  may be proposed, inviting Member States to set the 
conditions for ensuring fair minimum wages. A Recommendation would provide for 
policy guidance and a common policy framework at EU level, while not setting specific 
obligatory requirements. As in the case of a Directive, it would not take away the 
freedom of Member States and soc ial partners to set the level of minimum wages. The 
common set of principles and criteria contained in the Recommendation would therefore 
provide a basis for action by all Member States with a view to achieving fair minimum 
wages across the EU.  
Envisaged tools for monitoring implementation of this non -binding instrument might 
include the use of benchmarking, even if no reference values are set, the exchange of 
good practices, and joint work with Member States and social partners on the 
development of appro priate statistical and monitoring tools. A dedicated benchmarking 
framework, integrated in the European Semester, could be a privileged tool for the 
operationalisation of some elements of the initiative.  
  
 
57 
 7. WHAT ARE THE IMPACTS OF THE POLICY OPTION S? 
7.1. Social  impacts  
7.1.1.  General social impacts  
In general, options improving minimum wage adequacy improve wage inequality 
and in -work poverty. This is underpinned by past studies and assessment (See Section 
2.1). Most of the beneficiaries of improved minimum wage adequacy are women, adult 
workers, medium -skilled workers and workers living in households with more than one 
adults (see Section 2.2). Young workers, low -qualified workers and single parents are an 
important minority among the beneficiaries, as they are o ver-represented among 
minimum -wage workers as compared to their share in the workforce (see Section 2.2).  
The possible avenues of action for the initiative can contribute to more adequate 
minimum wages in a number of ways.  Strengthened collective bargainin g can 
contribute to increased wage levels, and lower wage inequality, which means that 
collective bargaining supports especially wages in the lower half of the wage distribution 
(see Section 3.3.1). A clear and stable framework for setting statutory minimu m wages, 
including the effective involvement of social partners, allows minimum wage 
developments to keep up with prices and general wage developments, taking into account 
all the information available (see Section 3.4.1). Limiting exemptions, variations, and 
improving compliance strengthen the rights and increase the wages of workers affected.  
Taking into account the adequacy of minimum wages is an important element of 
national frameworks to set statutory minimum wages.  Various indicators (criteria) of 
minimum wage adequacy come with different advantages and disadvantages. Annex 2 
summarises these advantages and disadvantages, as well as data issues.  
If Member States increased their minimum wages to 50% of the gross median wage,  
it would affect some Membe r States (Belgium, Czechia, Germany, Greece, Estonia, 
Ireland, Malta, the Netherlands, Slovakia and Spain) while others already have minimum 
wages above this level. In the concerned Member States, this increase would reduce both 
wage inequality and in -work  poverty according to a microsimulation exercise conducted 
with the Euromod model (for more details, see Box 2). Wage inequality at the lower end 
of the distribution would decline in particular in those countries where the adequacy of 
the minimum wage is l ow relative to the median wage. According to these simulations,  
higher thresholds would have larger social impacts and have an impact on more 
countries.  If Member States set their minimum wages to reach a reference value for 
minimum wages at 40% of average  wages, this would affect broadly the same group of 
countries as a minimum wage based on 50% of the median wage.68 The precise effects on 
each country would differ somewhat, since the difference between the median wage and 
the average wage is not the same a cross all countries.   
                                                           
68 In 2018, according to OECD data, the countries with statutory minimum wages below 50% of the  
median wage were: Belgium, Czechia, Estonia, Germany, Greece, Ireland, the Netherlands, Malta, 
Slovakia, and Spain. The group of countries with minimum wages below 40% of the average wage 
included also Hungary and excluded Germany, both countries with min imum wages close to the threshold. 
See also Graph 9 in Section 3.1.  
 
58 
 If thresholds are defined by the net income of minimum wage earners a different set 
of countries would be affected. Setting the minimum wage at the level to make sure that 
a single full -time worker who earns the minimum wage is not at  risk of poverty (i.e., his 
or her income reaches 60% of median net equivalised income) would have an impact on 
Czechia, Malta, Germany, Estonia, Latvia and Luxembourg. When the minimum wage is 
set at the level that the net minimum wage reaches 50% of the net average wage (for 
single childless workers), the set of countries affected include the countries above, but 
also Bulgaria, Croatia, Greece, Hungary, Romania, Poland, and Spain.  
The set of countries affected by various types of criteria of adequacy dep ends on 
aspects of earnings inequality and on tax and benefits policy. In particular, on the one 
hand, aspects of earnings inequality influence the difference between the average and 
median wage, since top earnings count towards the average wage but not th e median. On 
the other hand, tax -benefit policy has an impact on indicators such as the net minimum 
wage as a ratio of the net average wage. For instance, in -work benefits affect the take -
home pay of minimum wage earners.  
Box 2: Results from a microsimula tion exercise to assess social impacts of some 
hypothetical scenarios  
To estimate the magnitude of social impacts of increasing minimum wage adequacy, 
a microsimulation exercise has been conducted using the Euromod model.69 The 
hypothetical scenarios simula ted correspond to situations in which Member States with 
statutory minimum wages below a certain threshold raise it to this level.  
The following results show, as an example, the estimated effects of hypothetical 
scenarios in which Member States increase t heir minimum wages to 50%, 55% or 
60% of the median wage.  In the 50% scenario, wage inequalities at the bottom of the 
wage distribution would most significantly decrease in Germany, Estonia and Spain (by 
more than 10%; see Graph 24). The results for in -work poverty broadly reflect those for 
wage inequality, with biggest impacts in Germany, Estonia and Spain ( Graph 25). It 
would increase the wage income of those affected especially in countries like Germany 
and Estonia (by more than 20%). Higher thresholds have larger social impacts and affect 
more countr ies.  
  
                                                           
69 For a description of the methodology, see Annex 4.  
 
59 
 Graph 24: Reduction in wage inequality in simulated hypothetical minimum -wage  
scenarios, D5/D1 indicator (%)  
 
Notes:  European Commission (JRC) calculations based on simulations with the Euromod microsimulation 
model.  Countries sorted alphabetically. Countries with minimum wages above 60% of the median wage 
were excluded. The D5/D1 indicator is calculated as the gross wage earned by the median earner (D5) 
divided by the gross wage of the worker who earns more than 10% o f all workers (D1).  
Graph 25: Reduction in in -work poverty in simulated hypothetical minimum -wage 
scenarios (%)  
 
Notes:  European Commission (JRC) calculations based on simulations with the Euromod microsimulation 
model.  Countries sorted alphabetically. Countries with minimum wages above 60% of the median wage 
were excluded.  
  

 
60 
 Most beneficiaries of improved minimum wage policies are women, adult workers, 
the medium skilled, working in standard jobs. In addition, as Section 2.2 prese nts, 
most minimum -wage earners live in households with multiple adults, work in the 
services industry, and in micro or small enterprises. Young workers, low -skilled workers, 
and lone parents constitute a relatively small share of the labour force, which ma kes them 
a minority among minimum -wage earners, even though they have a higher propensity to 
earn the minimum wage than other groups. In a similar vein, although workers in thinly 
populated regions have a higher propensity to earn the minimum wage than wor kers in 
other regions, these differences are not large. Where the majority of minimum wage 
earners reside depends largely on the distribution of the labour force in the given country 
across thinly and densely populated regions.  
 
7.1.2.  Impacts on incentives to wo rk 
More adequate minimum wages improve incentives to work by increasing the take -
home pay with an unchanged out -of-work income.  The strength of this effect depends 
on the taxes and benefits applying to minimum -wage earners. The improvements in work 
incenti ves are weaker (or in extreme cases non -existent) if the increased income from 
work is partly lost due to higher taxes or benefits withdrawn (including unemployment 
benefits or last resort benefits such as minimum income schemes). In this case, taking up 
a job at the minimum wage raises income to a small extent relative to being out of work, 
which results in weak incentives to work. Therefore, the income gain from a certain 
increase in the minimum wage is likely to be the highest when taxes and benefits pai d by 
minimum wage earners is low or when benefits are not withdrawn (including because 
minimum wage earners are not entitled to benefits at all).  
Simulations show that, in all Member States, work incentives would improve when 
minimum wages are increased.70 When the gross minimum wage is increased, this 
increases the net income of minimum wage earners, but it also increases the taxes they 
pay and may reduce the benefits they are entitled to. In a majority of Member States with 
a statutory minimum wage, the w orker keeps 50% or more of a hypothetical minimum 
wage increase ( Graph 26 ). In some countries where benefits have an important role in 
supplementing the  income of low -earning workers the net gains from a hypothetical 
minimum wage increase is lower (below 30% in Luxembourg, and the Netherlands. In 
contrast, the net gain is highest in systems where taxes and benefits paid by minimum 
wage earners is low, and  when benefits are not withdrawn (often because minimum wage 
earners are not entitled to benefits at all). The progressivity of the personal income tax 
system has a similar effect: lower progressivity at the minimum wage implies a higher 
net gain, from a h ypothetical minimum wage increase, and vice versa. In particular, the 
                                                           
70 Ad-hoc simulations done by th e OECD, and based on the TaxBEN model show the impact of a 10% 
increase in the minimum wage on net family incomes among four household types: single working -age 
person, single working -age parent with a child, childless working -age couple and working -age co uple with 
two children. For more details on the model, see: http://www.oecd.org/els/soc/OECD -Tax-benefit -model -
Overview.pdf . 
 
 
61 
 net gain is above 70% in Bulgaria, Croatia, Estonia, Greece, Hungary, Malta, Portugal, 
and Spain.  
Graph 26: Net income gains as a share of net household income b y components in 
the case of a 10% increase of the statutory minimum wage, 2019  
 
Source:  OECD simulations for the European Commission, based on the OECD TaxBen model.  
 
7.2.  Economic impacts  
7.2.1.  Impacts on economic activity, employment and consumption  
Options improving minimum wage adequacy  
Academic studies since the 1990s suggest that moderate minimum wage increases, 
while they contribute to reducing wage inequality, have a relatively low impact on 
employment. The effect of the minimum wage on the labour marke t has long been 
debated by academics and policy makers.  The consensus among academics until the early 
1990s was that in a fully competitive labour market minimum wages are detrimental to 
employment and GDP. This view was challenged when a series of studies  applied novel 
and more credible theoretical models and empirical methods.71 These new studies often 
found that minimum wages do not destroy jobs and in some cases even that they can 
increase employment.72 Although almost three decades have passed since this  “new 
minimum wage research” emerged, consensus on the right model of the labour market 
has so far not been reached.73 More recent evidence suggests that moderate levels of 
                                                           
71 Card D. and A. B. Kruger (1995), “Myth and Measurement: The New Economics of the Minimum 
Wage” , Princeton University Press.  
72 Card, D. and Krueger, A.B., ‘Minimum Wages and Employment: A Case Study of the New Jersey and 
Pennsylvania Fast Food Industries’, American Economic Review , No 84(4), 1994, p p. 772 -793. 
73 Neumark, D., Salas, J. I., & Wascher, W. (2014), ‘Revisiting the minimum wage —Employment debate: 
Throwing out the baby with the bathwater?’, ILR Review No 67(3_suppl) 2014, pp. 608 -648.; Allegretto, 

 
62 
 minimum wage increases have only a relatively low impact on the affected workers.74 
The more benign scenario appears to correspond to Germany’s experience (see Box 3) 
with introducing a statutory minimum wage, i.e. a reduction of wage inequality without 
strong negative effects on total employment and economic activity. On the other hand, 
the implications of minimum -wage introductions or increases that are more substantial 
remain unclear. More specifically, there are currently no insights as to whether there is a 
threshold up to which the minimum wage can be increased without causing a loss in 
employment,75 while high unemployment may constrain possibilities to raise the 
minimum wage in the short term.76 
  
                                                                                                                                                                            
S., Dube, A., Reich, M., & Zipperer, B., ‘C redible research designs for minimum wage studies: A response 
to Neumark, Salas, and Wascher’ , ILR Review  No 70(3), 2017, 559 -592. 
74 See, e.g., European Commission (2016): “Labour market and wage developments in Europe: Annual 
Review 2016”, Directorate -General for Employment, Social Affairs and Inclusion; as well as  Belman, D., 
& Wolfson, P. J., 15 years of research on US employment a nd the minimum wage.  Tuck School of 
Business Working Paper, 2016; and Dube, A. (2019): “Impacts of minimum wages: review of the 
international evidence”, Report prepared for the UK Low -Pay Commission.  
75 Reich, M., Allegretto, S., & Godoey, A., Seattle's Min imum Wage Experience 2015 -16, 2017; Jardim, E., 
& Van Inwegen, E., Payroll, revenue, and labor demand effects of the minimum wage , W.E. Upjohn 
Institute for Employment Research, Kalamazoo, 2019.  
76 See e.g.  Dolton and Rosazza -Bondibene (2012): “ The interna tional experience of minimum wages in an 
economic downturn ” Economic Policy, and Addison, Blackburn, Cotti (2013): “Minimum wage increases 
in a recessionary environment ”, Labour Economics   
 
63 
 Box 3: The impacts of the introduction of the statutory minimum wage in Germany 
in 2015 – a survey of first assessments  
In 2015, a statutory minimum wage was introduced in Germany. This event offered a 
rare opportunity to evaluate the effects of a new minimum wage policy on workers, firms 
and an economy.77 
Hourly wages of employees earning less than the 2015 minimum wage inc reased by 14 
percent on average between 2014 and 2016. This increase affected around 15% of the 
German workforce.78 This, however, was not translated into an effect on monthly gross 
wages, possibly due to a lowering of contractually agreed working hours.  
At the macro level, employment developed positively after the introduction of the 
minimum wage, increasing more in 2016 and 2017 than in 2014. Regular jobs were not 
affected by the minimum wage introduction, but a substantial decline in marginal part -
time em ployment (so -called ‘Minijobs’) could be observed.79  
No negative effects for businesses could be observed in terms of overall company profits, 
increased competition or market exits.80 At the level of firms directly affected by the 
minimum wage, however, lab our costs increased on average by 6 percent more than the 
labour costs of non -affected firms.81 Reactions of employers have included increasing 
qualification and proficiency requirements, reducing working hours, increasing work 
intensity and increasing pric es. There does not seem to have been an impact on 
productivity.82 
 
Options affecting coverage, exemptions and variations, and enforcement  
Limiting exemptions or variations, increased coverage and improved compliance 
increase the wages of workers affected. For this reason, their impacts may be similar in 
nature to those of increased minimum wages in general: while the wages of those 
affected are increased, wage costs for firms are increased as well. However, since these 
changes are targeted to some groups, th eir magnitude and thus their impacts are smaller 
as well.  
The most often used exemptions or variations are targeted to young workers or in 
particular to those in education or training.  (For a description of existing exemptions 
and limitations in Member Sta tes, see Section 3.4.2.) Limiting these exemptions or 
variations increases the wages of affected workers, while at the same time increasing the 
                                                           
77 For an overview of findings, see: Bruttel, O., ‘The effec ts of the new statutory minimum wage in 
Germany: a first assessment of the evidence.’ Journal for Labour Market Research , 53(1), 10, 2019.  
78 Dustmann, C., Lindner, A., Schönberg, U., Umkehrer, M., & Vom Berge, P., Reallocation Effects of the 
Minimum Wage: Evidence From Germany , Mimeo , 2019.  
79 See Bruttel (2019), cited above.  
80 Mindestlohnkommission, ‘Zweiter Bericht zu den Auswirkungen des gesetzlichen Mindestlohns’, 2018.  
81 Bossler, M., Gürtzgen, N., Lochner, B., Betzl, U., Feist, L., Wegmann, J., ‘Auswir kungen des 
gesetzlichen Mindestlohns auf Betriebe und Unternehmen’, IAB-Forschungsbericht , No. 4/2018, Institut 
für Arbeitsmarktund Berufsforschung (IAB), Nürnberg, 2018.  
82 See Bruttel (2019), cited above, and the references therein.  
 
64 
 wage costs of firms employing them. As a result, employment of young workers may be 
negatively affected. Box 4 s ummarises recent findings of youth minimum wages.  
Box 4: Evidence of the impact of youth minimum wages on youth employment  
Cross -country evidence has been presented in the academic literature to suggest that sub -
minimum wages for young workers have some effect in increasing youth employment. 
Using a sample of 17 OECD countries for the period 1975 -2000, Neumark and Wascher 
(2004) find that the apparent disemployment effects of minimum wages are smaller in the 
countries that have a sub -minimum wage for young workers.83  
Recent studies of policy episodes in specific EU Member States countries find a variety 
of results but, in contr ast to the cross -country evidence, most do not support significantly 
negative employment effects of youth minimum wages.84 Studies focusing on one 
particular country have typically exploited reform episodes or differences in rules 
applying to workers with a  small age difference (so -called “discontinuities” in policy 
design).  
Sharp increases in the youth minimum wage in the late 1980s Portugal were found not to 
have negative employment effects by Portugal and Cardoso (2006).85 The study finds 
that, after the minimum wage increase, teenagers were more likely to stay on their jobs 
than before. This was compensated by a reduction in newly created jobs for young 
workers.  
More recently, in Belgium, the European Commission (2017) and Lopez -Novella (2018) 
estimated the effect of the gradual elimination of youth sub -minima for those between 18 
and 20 years old.86 Despite the significant increase in the youth minimum wage, they find 
no significant impact on youth employment (European Commission) and only a limited 
effec t on labour flows (Lopez -Novella, 2018): like in the case of Portugal previously, 
young workers were more likely to stay in their jobs after the minimum wage increase, 
while the hiring of new young workers slowed down.  
                                                           
83 Neumark D. and W. Wascher (2004), “Minimum wages, labor market institutions and youth 
employment: a cross -national analysis”, Industrial Labor Relations Review 57: 223 –248. More recently, 
Marimpi and Koning (2018) find support for these findings based on cross -national data from 30 OECD 
countries for the time period 2000 –2014. See: Marimpi, M. and P. Koning (2018), “Youth minimum wages 
and youth employment”, IZA Journal of Labor Policy 7(5).  
84 See also the summary by Boeri, T. and J. van Ours (2013): “The Economics of Imperfect Labour 
Markets”, second edition, pp. 52 -56,  Princeton University Press.   
85 P. Portugal, A.R. Cardoso (2006): “Disentangling the Minimum Wage Puzzle: An Analysis of Worker 
Accessions and Separations”, Journal of the European Economi c Association , Vol. 4, No. 5 (Sep., 2006), 
pp. 988 -1013.  
86 European Commission (2017), “Labour market and wage developments in Europe: Annual review 
2017”, DG Employment, Social Affairs and Inclusion: https://op.europa.eu/en/publication -detail/ -
/publication/2df2eaca -b3b0 -11e7 -837e -01aa75ed71a1/language -en; Lopez -Novella, M. (2018), “Removing 
youth sub -minimum wage rates in Belgium: did it affect youth employment? Federal Planning Bureau 
Working Paper 04 -18, Federal Planning Bureau, Brussel.  
 
65 
 In the Netherlands, Van der Werff and co -authors have estimated the impact of the 2017 
increase in the sub -minimum wage of young workers between 18 and 22 years old.87 
They find only a very small effect on employment (0.3 to 0.4 pps), which they relate to 
the fact that employers are partial ly compensated for the increase in the wage costs. The 
increase in the number of hours worked per week is more significant (between 0.2% and 
1.2%) as well as the increase in the average wage (2% to 3%), although it remains 
smaller than the increase in the minimum wage.  
 
Economic impacts related to the mechanism setting statutory minimum wages  
A clear minimum wage setting mechanism can lead to better outcomes for workers, 
firms and the economy.88 Regular and frequent updates of the minimum wage, based on 
stable crieria, prevent an erosion of its value and ensure a minimum wage policy 
consistent with its main objective and with the need of safeguarding employment and 
competitiveness. A clear policy framework eliminates uncertainties and volatility and is 
unde rstandable by workers and firms. It will enable employers to antcipate and plan 
ahead. It makes minimum wage changes relatively predictable and allows for gradual 
increases every year, avoiding large jumps unjustified by underlying economic 
fundamentals. I ncremental adjustments of the minimum wage can generate good results 
in terms of rising wages in the lower part of the wage distribution, with little or no effect 
on employment and competitiveness.  
A clear framework for minimum wage setting allows also fo r more accountability 
by the policy makers . With regular and frequent minimum wage updates, the value of 
the minimum wage is less at the mercy of the whims of the political cycle. Moreover, 
being gradual, these increases are less likely to have negative im pact on employment, in 
particular for low -wage groups. In contrast, the lack of an adequate mechanism may lead 
to greater instability and uncertainty for low -paying firms, and to unfairness regarding 
those on or near minimum wages.  
The involvement of socia l partners is a key element of setting statutory minimum 
wages.  It may provide relevant information for the process of updating the minimum 
wages, thereby contributing to fulfill the objective of the minimum wage policy, while 
preserving employment and com petitivneess. Reduced uncertainty may also positively 
affect the business environment and firms’ competitiveness, and thereby ultimately have 
positive effects for the macro -economic performance.  
 
                                                           
87 Van der Werff, S., Zwetsloot, J. and B. ter Weel (2018), “Verkenning effecten aanpassing 
minimum(jeugd)loon: De invloed van de verhoging van het we ttelijk minimumloon voor 18 - tot en met 22 -
jarigen op de werkgelegenheid en bbl -instroom”,  SEO Economisch Onderzoek, Amsterdam.  
88 European Commission (2016): “Labour Market and Wage Developments in Europe 2016”, Directorate -
General for Employment, Social Affairs and Inclusion.  
 
66 
 7.2.2.  Sectoral economic impacts and impacts on competitiveness  
Various sectors are likely to be affected differently by changes in minimum wage 
policy. This is due to two reasons. First, sectors differ in their propensity to employ 
workers at the minimum wage (or low wages more generally). Second, sectors differ in 
the extent to which they are able to transmit higher wage costs into their prices.  
The effect of minimum wages on firms active in sectors that are sensitive to 
domestic demand are expected to be dampened for two reasons.  First, their main 
competitors are also  affected by the same policy change, so it is more likely that this 
increase in labour costs will be passed on to the consumers. Second, the minimum wage 
increase raises the purchasing power of low -wage workers, which may increase the 
output demand.  
Agriculture and industry employ a relatively small share of minimum wage earners 
in most countries, although the patterns are not uniform across Member States. In 
particular, this share is higher in some Central and Eastern European Member States (see 
Section 2.3 for details). This suggests that minimum wage policy has a limited impact on 
external economic competitiveness, but it may have some impact in a limited number of 
Member States where the share of minimum wage earners is high and many of them are 
employed in agriculture and industry. In these cases, the minimum -wage setting 
framework can take this into account as part of the relevant economic circumstances 
when informing the setting and update of the statutory minimum wage.  
Fair minimum wages and sou nd minimum wage setting mechanisms could also help 
macroeconomic stability, in particular  within the Economic and Monetary Union . 
They can contribute to ensuring a better alignment between productivity growth and 
wages, and notably reduce the risk of exces sively low wage growth in countries with 
large and persistent current account surpluses, while avoiding excessive wage growth in 
those countries where large current account deficits or external debt may put at risk the 
broad economic situation. This could ensure that economic and social convergence go 
hand in hand.  
 
7.2.3.  Impacts on SMEs  
Minimum -wage policy affects small and medium -sized firms more than other firms. 
SMEs comprise three different categories of enterprises, namely micro -enterprises (less 
than 10 em ployees), small enterprises (between 10 and 49 employees) and medium -sized 
enterprises (between 50 and 250 employees).89 In 2016, SMEs represented 99 % of all 
enterprises in the EU. They accounted for around two -thirds of total employment in the 
EU, ranging  from 47 % in the United Kingdom to 85 % in Malta. Micro and small 
enterprises employ a majority of minimum -wage earners although the patterns are not 
                                                           
89  Commission Recommendation of 6 May 2003 concerning the definition of micro, small, and medium -
sized enterprises. (2003/361/EC), Official Journal of the European Union , L 124/36, 20 May 2003.  
 
67 
 uniform across the EU (see Section 2.3 for details).  This is partly because, generally, 
larger firms tend  to pay higher wages.  
Many small firms are active in sectors which are sensitive to domestic demand, 
which may reverse possible negative effects of minimum wage policies on them. This 
is suggested by the academic literature on restaurants, which suggests that, in most cases, 
enterprises in this sector may benefit from minimum wage increases.90  
The 2015 introduction of the minimum wage in Germany has not reduced 
employment, but appears to have shifted employment from smaller to larger firms.  
A recent study suggests that the introduction of the minimum wage increased the exit rate 
of small, low -paying firms, while larger, higher -paying and potentially more productive 
firms increased employment.91 The findings suggest that, for firms with less than 50 
workers, a 1% increase in wages (as induced by the minimum wage increase) is 
associated with employment decreasing by 0.2% to 0.4%. The results suggest that some 
of the workers of smaller firms moved to better -paying jobs, in some cases offered by 
larger companies.   
A minimum wage increase is likely to have a greater impact on companies that 
export; it is therefore less likely that it would affect small firms more than larger 
ones. This is suggested by a recent study of an episode of a large and persistent minimum 
wage increase in Hungary between 2000 and 2002.92 The study finds that highly exposed 
firms in Hungary responded to the minimum wage by displacing some workers, although 
this effect is counterbalanced by a large wage gain for low -wage earners. The paper also  
finds that in Hungary larger firms displaced more workers than smaller firms (see Figure 
6 in the paper). The employment responses at firms with more than 50 employees are two 
times larger than the average response. The negative responses at the large fir ms are 
mainly driven by the fact that larger firms are more likely to serve export markets, where 
increased labour costs are harder to pass on into prices. Furthermore, many large firms 
had a relatively low profitability ratio around the year 2000.  
This s uggests that the impact of minimum wages on SMEs depend on the broader 
economic context, including their sectoral specialisation.  This implies that national 
frameworks and policies need to take into account the broader context, including the 
situation and sectoral specialisation of SMEs. A clear and stable framework setting 
                                                           
90 See, e.g. Card, David and Alan B. Kr ueger. 1994. “Minimum Wages and Employment: A Case Study of 
the New Jersey and Pennsylvania Fast Food Industries,” American Economic Review, 84(4): 772 -793; 
Dube, Arindrajit, Suresh Naidu, and Michael Reich. 2007. “The economic effects of a citywide minimu m 
wage,” ILR Review, 60(4): 522 -543; Hirsch, Barry T, Bruce E Kaufman, and Tetyana Zelenska. 2015. 
“Minimum wage channels of adjustment,” Industrial Relations: A Journal of Economy and Society, 54(2): 
199-239; Katz, Lawrence F and Alan B. Krueger. 1992. “T he effect of the minimum wage on the fast -food 
industry,” ILR Review, 46(1): 6 -21. 
91 Dustmann, Christian, Attila Lindner, Uta Schönberg, Matthias Umkehrer, and Philipp vom Berge. 2019. 
“Reallocation Effects of the Minimum Wage: Evidence From Germany”, CREAM Discussion Paper 07/20, 
University College London.  
92 A Lindner, P Harasztosi (2019): “Who Pays for the Minimum Wage?” American Economic Review, vol. 
109, no. 8, August 2019, pp . 2693 -2727.  
 
68 
 statutory minimum wages would help SMEs to anticipate developments in the minimum 
wage and mitigate any negative impacts.  
 
7.2.4.  Impacts on public budgets  
Minimum wages affect public budgets i n a number of ways. As direct costs, higher 
minimum wages may increase the public sector wage bill, due to possible links of public 
sector pay scales to the minimum wage, to spill -over effects on the (public) wage 
distribution or in case a share of public sector employees earn the minimum wage. 
Higher minimum wages may also increase the cost of some public procurements.93 This 
effect is, however, likely more than counterbalanced by indirect effects on public 
revenues.  
An increase in the minimum wage rises re venues from labour taxes and 
contributions.  This effect is indirect but larger in most cases than any negative effect on 
the public sector wage bill, since only few public employees earn wages close to the 
minimum wage. For instance, a recent study for the  Netherlands estimates that increased 
revenues from labour taxes and benefits exceed direct costs related to the public wage 
bill by a factor of between 4 and 5.94 Minimum wages also may have an effect on the 
expenditure on social benefits and on other tax revenues in a way that may vary across 
countries. In some countries, increased wages may imply a reduced expenditure on 
benefits aiming to support working families (e.g., in -work benefits, for instance in 
Ireland). On the other hand, benefits expenditure m ay increase in countries (e.g. in the 
Netherlands, Lithuania) where some social benefits are automatically linked to the 
minimum wage.  
Further impacts may accrue through taxes on corporations and consumption, as 
well as second -round effects.  Depending on t he extent to which corporations are able to 
pass through increased labour costs into prices, revenue from corporate income taxes 
may be negatively affected by minimum wage increases. In turn, higher household 
income may increase consumption and revenues fr om consumption taxes. Finally, 
second -round effects also play a role, in particular possible negative employment effects. 
In the case of very large increases in the minimum wage, significant negative 
employment effects may materialise. In this case, public  finances are negatively affected 
by lower revenues and higher spending on unemployment and other benefits.  
According to analysis done with the Euromod microsimulation model, minimum 
wage increases have a small but positive effect on public budgets.95 In scenarios in 
which Member States raise their minimum wages to 50%, 55% or 60% of the median 
wage, these fiscal effects are estimated to be positive driven by increases in tax revenues 
and reduction of benefit expenditure ( Graph 27 ). Possible second -round effects are not 
                                                           
93 See, for an explanation of these effects in the case of the US: Congressional Budget Office (2019): “The 
Effects on Employment and Family Income of Increasing the Federal Minimum Wage”.  
94 K. Zandvliet, E. de Vleeschouwer, R. van Oostenbrug ge, R. Rey (2019): “Budgettaire effecten van 
verhoging van het minimumloon”, SEOR BV, Rotterdam.  
95 For a description of the methodology, see Annex 4.  
 
69 
 taken into account in the simulations, nor are impacts on company taxation. The 
magnitude of these effects is small, smaller or close to 0 .1% of GDP, except in a few 
cases. Effects are somewhat larger in the case of higher hypothetical scenarios in Estonia, 
Germany, and Greece. Results may be sensitive to modelling assumptions.96   
Graph 27: Impact of hypothetical mini mum -wage scenarios on public budgets, 
change in fiscal balance as % of GDP  
 
Notes:  European Commission (JRC) calculations based on simulations with the Euromod microsimulation 
model.  Positive numbers reflect improvements in the public fiscal balance.  Countries sorted alphabetically. 
Countries with minimum wages above 60% of the median wage were excluded.  
 
7.3.  Other  impacts  
Fundamental rights.  All options should reinforce the application of Article 31 (‘Fair 
and just working conditions’) of the EU Charter  of Fundamental Rights. As discussed 
under social impacts, improvements in minimum wage systems are expected to improve 
gender equality.  
Administrative burden.  The initiative is expected to have limited effects on 
administrative burden since it aims to strengthen institutions and procedures that are 
already in place. It may slightly increase administrative work related to the setting of 
statutory minimum wages i n some Member States, with the aim to better involve social 
partners in the decision -making and to reduce the uncertainty about minimum wage 
changes for workers and firms. It may also increase administrative work related to 
monitoring and collecting inform ation on minimum wage levels and coverage, as well as 
to ensuring compliance.    
                                                           
96 For instance, these simulations find that increases in the minimum wage have a positive effect on the 
fiscal position in the Netherlands, while Zandvliet et al. (2019; see reference in the previous footnote), find 
that increased benefits expenditure, linked to the increase in minimum wages, would outweigh positive 
effects from tax revenue and would result i n a negative overall effect on the public budget balance.  

 
70 
 ANNEX 1: AN OVERVIEW OF MINIMUM WAGE SETTING SYSTEMS  
A1.1. Minimum wage setting systems in Member States with collectively agreed 
minimum wages  
In Austria , minimum levels of  pay are set as part of social partners’ collective bargaining 
agreements (CBAs) at the sectoral/industry level. Wage floors stipulated by collective 
agreements are legally binding for all companies in a given sector or industry as, by law, 
employers hold a mandatory membership at the relevant employers’ association (WKO). 
In the public sector, de facto bargaining forms the basis for legal acts updating wages by 
common practice. The Federal Conciliation Office can also set legal wage floors for 
some groups not covered by CBAs. Moreover, social partners at the peak level have in 
recent years set framework agreements on raising wage floors across all sectors while 
pay-related bargaining between local trade unions and individual companies is confined 
to fringe benefits, incentives, etc. in most cases.  
Cyprus  has a mixed wage -setting system that combines collective bargaining with a 
statutory minimum wage for a few occupations. In the industrial relations system, 
collective bargaining levels alternate between in dustry/sector and company level. 
However, collective agreements are not legally binding and terms regulating pay and 
working conditions are only considered “gentlemen’s agreements”. By contrast, wage 
floors for selected occupations with “unreasonably low” salaries are regulated by 
ministerial decree, which had been introduced and was updated following non -binding 
social partner consultations until 2012. Since then, the complementary regulation of 
specific wage floors has remained unchanged.  
In Italy , minimum levels of pay are set by two -tier collective agreements at the sectoral 
and company/territorial levels, regulated by civil law. While no legal extension of 
collective agreements exists, case law based on the Italian Constitution and current 
practic es have led companies to apply collective agreements to non -unionised workers 
too. Wage setting occurs primarily at the multi -employer sectoral level, commonly 
between the most representative trade union organisations and employers’ associations 
while pay -related bargaining at the company or territorial level is commonly confined to 
marginal issues, such as benefits and incentives.  
In Denmark , wage floors are based on collective bargaining conducted voluntarily by 
the social partners with no legal extension  mechanism for non -covered workers in place. 
Collective agreements that include wage floors have a legally binding force for both 
workers and companies. There are three wage setting systems: In the “standard -wage 
system”, sectoral CBAs in the public and pa rts of the private sector determine wage 
levels with strict constraints on local bargaining. Other sectoral CBAs in the private 
sector allow workplace -level negotiations, either setting a wage floor for 
young/inexperienced workers and requiring individual supplements (“minimal wage 
system”) or without wage floors and only serving as safety net to local negotiations 
(“minimum wage system”).  
 
71 
 In Finland , collectively agreed sectoral wage floor are encompassing thanks to a legal 
“erga omnes” clause set by the g overnment. This extension mechanism extends CBAs 
from employer associations’ members, who directly implement the agreements signed by 
their respective confederations, to non -member companies within the same sector. In the 
few sectors without erga omnes app licability, law still requires wages to be “usual and 
reasonable”, which can be based on social partners’ recommendations.  
In Sweden , two -tier collective bargaining sets wage floors primarily at the 
industry/sectoral level, leaving company -level discretion  to varying degrees in practice. 
Industry/sectoral CBAs apply with binding force to both unionised and non -unionised 
workers of all member companies/organisations of a signatory employers’ association. 
There is no legal extension mechanism for non -covered workers in place, but unaffiliated 
employers can agree with company -level trade unions to abide by a sectoral CBA, which 
is observed in practice. The state’s function is to provide the legal basis for wage setting, 
assigning social partners broad rights, t o play a consultative role through the National 
Mediation Office and to enforce CBAs.  
 
 
 
  
 
72 
 A1.2. Summary of statutory national minimum wage setting systems  
 
  
MS Frequency of updatesTimeliness of 
updatesSP Involvement
BEAutomatic indexation 
(prices), by lawAutomatic indexation:  if pivot index + 2 % 
over last base level,  Δ MW based on the 
health index  
Discretional change  based on labour costs 
(wage norm)within the framework of 
CAB:                     
Automatic indexation : 
continuous through the 
year
Discretional changes : Bi-
annual In practice: entry 
into force (July) SPs negotiate MW in binding 
collective bargaining agreements 
(still Gov discretion to adapt 
rules)
BG Not specified by lawTarget  (in practice): MW level based on a 
fixed target level from Mid-Term Budget 
Forecast by the Ministry of FinanceNot specified Not specifiedSPs consulted in National Council 
for Tripartite Cooperation on 
non-binding basis
CZVariables by law and in 
practice plus targets in 
practiceVariables : wages and consumer price 
developments by law plus labour market 
developments in practice                                      
Targets : MW = 40% of average wagesAnnual, in practiceEntry into force 
(January) by lawNo involvement of SPs foreseen 
by law, unilateral decision by 
Gov possible
DE Variables, by lawWages and incomes (collective agreements), 
broad economic situation (competition, 
employment)Bi-annual, by lawStart of the process 
(June) and entry 
into force (usually 
January), by law SPs represented in MW Expert 
Body (MWC) making binding 
recommendation (still Gov 
discretion to implement)
EEVariables and criteria, in 
practiceVariables : Δ MW = 2* Δ labour productivity 
Target  (lower limit): 40% of the projected 
national average wage;                                 
Criteria  (upper limit ): Δ MW2* projected Δ 
real GDP growthAnnual, in practiceIn practice: entry 
into force (January) SPs negotiate MW in binding 
collective bargaining agreements 
(still discretion to increase)
IE Variables, by lawBroad economic situation (e.g. employment, 
competitiveness), prices (cost of living), wages 
and incomes (changes in earnings)Annual, in practiceDetailed calendar, 
by lawSPs represented in MW Expert 
Body (LPC) making non-binding 
recommendation (justification of 
deviation required)
EL Variables, by lawBroad economic situation (e.g. employment, 
competitiveness), prices, wages and incomesAnnual, by lawDetailed calendar, 
by lawSPs express views to MW Expert 
Body (KEPE) making non-binding 
recommendation
ES Variables, by lawBroad economic situation (e.g. productivity), 
prices (CPI), wages and incomes (e.g. labour 
share)Annual, by lawIn practice: entry 
into force (January) SPs are directly consulted by Gov 
on no-binding basis
FRAutomatic indexation 
(prices and wages), by 
lawAutomatic indexation:  if CPI growth >2%  
since last MW update,  Δ MW = 1/2 of Δ 
average hourly wage in pp;                   Criteria : 
MW growth (in PP) cannot be <50% of 
average wage growth (in PP)
Discretional change  based on expert opinion 
and social partners agreementAnnual, by law 
(automatic indexation + 
discretional change)Entry into force 
(January), by lawSPs express views to MW Expert 
Body (GoE) making non-binding 
recommendation (justification 
for deviation required, discretion 
to increase)
HRVariables and criteria, by 
lawVariables:  Broad economic conditions (e.g. 
unemployment and employment), prices 
(inflation), wages and incomes
Target:  MW level cannot be lower than 
previous yearAnnual, by lawDetailed calendar, 
by lawSPs consulted directly by Gov on 
non-binding basis
LV Variables, by lawBroad economic and labour market situation 
(e.g. labour productivity, unemployment), 
prices (e.g. labour costs), wages and incomes 
(e.g. labour income)Annual, by lawDetailed calendar, 
by lawSPs consulted in National 
Tripartite Cooperation Council 
on non-binding basisUpdate mechanism
 
73 
  
 
 
  
MS Frequency of updatesTimeliness of 
updatesSP Involvement
LTVariables by law plus 
targets in practiceVariables : Broad economic situation 
Targets : MW= 45-50% of average wagesAnnual, by lawStart of the process 
(June) and entry 
into force (usualy 
January), by law SPs make binding 
recommendations in Tripartite 
Council, but unilateral Gov 
decision if no agreement
LUAutomatic indexation 
(prices), by practice plus 
discretional changes, by 
lawAutomatic indexation : if CPI  + or -2.5% over 
last 6m
Discretional change  based on economic 
conditions and wage developmentsIn practice: Automatic 
indexation every 6m
By law: Discretional 
changes: Bi-annualStart of process 
(Gov report to 
Chamber of 
Deputies every 2 
years), by lawNo involvement of SPs foreseen 
by law, unilateral decision by Gov
HU Variables, by law Broad economic and labour market situation Annual, by lawIn practice: start of 
the process (second 
half of the year) SPs consulted in National 
Economic and Social Council on 
non-binding basis
MTAutomatic indexation 
(prices) plus discretional 
changes, by lawAutomatic indexation:  Cost of Living Allowance 
(retail price index)
Discretional change: broad economic situation 
(e.g. productivity), prices (labour costs), wages 
and incomes (e.g. collective agreements)Annual, by lawEntry into force 
(January), by lawSPs consulted in tripartite 
Employment Relations Board on 
non-binding basis
NLAutomatic indexation 
(wages)  plus discretional 
changes, by lawAutomatic indexation : 50% of wage growth 
(collectively bargained) + Δ predicted wage 
growth
Discretional change : broad economic situation 
(employment, social security costs)Twice per year (Jan & 
July), by lawEntry into force  
(Jan & July), by lawNo involvement of SPs foreseen 
by law, unilateral Gov decision 
(discretion to adapt indexation 
rules)
PLVariables and target, by 
lawVariable:  Broad economic and labour market 
situation (e.g. labour productivity), prices, 
wages and incomes
Target level:  MW = not less than 50% of 
average wages                                              Target 
change :  if MW < 50% of average wages, 
ΔMW= at least 2/3 of the forecasted nominal 
GDP growthAnnual (if inflation below 
5%) or twice a year (Jan 
& July), by lawDetailed calendar, 
by lawSPs negotiate binding 
recommendation in tripartite 
Social Dialogue Council, but 
unilateral Gov decision if no 
agreement
PT Variables, by lawBroad economic situation (productivity), prices 
(cost of living), wages and incomes (income 
and price policy)Annual, by lawIn practice: Entry 
into force (January) SPs consulted in tripartite 
Permanent Commission for 
Social Concertation on non-
binding basis
RO Not specified by law Not specified Not specified Not specifiedSPs consulted in National 
Tripartite Council for Social 
Dialogue on non-binding basis
SIAutomatic indexation 
(prices)  plus discretional 
changes, by lawAutomatic indexation:  to costs of living; 
Criteria: min +20 % / max +40% [+taxes and 
social security]
Discretional change : Broad economic and 
labour market situation (e.g. economic growth, 
employment), prices, wages and incomesAnnual, by law 
(automatic indexation + 
discretional change)Entry into force 
(January), by lawSPs consulted directly by Gov on 
non-binding basis
SKVariables and criteria, by 
lawVariables:  Broad economic and labour market 
situation (e.g. employment), prices, wages and 
incomes
Criteria:  MW growth by at least by the year-on-
year growth index of average nominal wagesAnnual, by lawDetailed calendar, 
by lawSPs negotiate binding 
recommendations in triparte 
Economic and Social Council (+ 
bilaterally), but unilateral Gov 
decision if no agreementUpdate mechanism
 
74 
 A1.3. Summary of exemptions from and variations in statutory national 
minimum wages  
 
MS
Education/ 
training 
related Students in part-time learning schemes.                                                                              
Young people in dual training with a contract other 
than an employment contract.Education/ 
experience 
basedStudent contracts (variations by age): 94% for 20 
years old; 88% for 19 years old; 82% for 18 years 
old; 76% for 17 years old; 70% for 16 years old and 
below.
Labour 
Market 
relatedEmployment embedded in a re-employment 
programme (local employment contract for long-
term unemployed and regional re-employment 
programs).
Public 
SectorCivil Servants (pay covered by royal decree).
Family 
businessWorkers, under supervision of guardian, in family 
business where normally relatives work.
OtherWorkers employed for less than 1 month (e.g. 
seasonal labour in agriculture and horticulture).                                                                                                                                               
Peer-to-peer work (services to the local community 
and work for recognized digital platforms, local 
employment contracts).OtherWorkers in flexi-jobs (in catering and 
accommodation and retail firms): paid an hourly 
rate below the MW (9.27 EUR vs 9,68 EUR).
BG NA NA NA NA
Education/ 
training 
related Internships on a voluntary basis.
Apprenticeships not based on a work contract.
Public 
SectorCivil servants whose pay is based on "tariff tables".
Education/ 
training 
related Interns in specific types of internships: (1) 
mandatory internships as part of secondary or 
tertiary education, such as vocational training or 
higher education; (2) short-term internships (< 3 
months); (3) introductory training for "orientation".     
Young people under 18 years of age without a 
vocational certificate.                                                
Apprentices (governed by separate law).
Labour 
Market 
relatedYoung people (below 25 years old) participating in 
subsidized work-based training programmes.                                                                                                                                                  
Previous long-term unemployed (12+months 
unemployed) during the first six months after 
getting back to work).
Voluntary 
workForms of work are understood as serving the 
common good.                                      Quasi 
volunteers (mini jobs).
OtherSome "employee-like relationships" for people with 
disabilities (e.g. in dedicated workshops).                                                                                                                                                      
Home-workers (e.g. tele-working).
EEPublic 
SectorCivil servants (pay not regulated by Employment 
Contracts Act).NA NA
Education/ 
training 
related People taking part in a statutory apprenticeship 
(except hairdressing apprentices).
Family 
businessWorkers who are close relatives of the employer.
Other Non-commercial activity or work by prisoners .
Education/ 
experience 
basedApprentices: (1) vocational higher education : 80 % 
of the national craftsmen minimum wage; (2)  post-
secondary, non-tertiary programmes 75% of the 
national craftsmen minimum wage,(3)  hotels and 
other firms in tourism: 60 % for the duration of the 
season.
Seasonal and 
domestic 
workersLive-in domestic workers can be legally paid below 
the minimum wage (on the grounds that they 
receive food and lodging from their employer).
OtherVariations between employees (skilled workers) and 
craftsmen (unskilled workers).NABEYoung peopleExemptions
EL NACZ NA
DE
IE
NAVariations
NA NA76 % for 17 years old; 70 % for 16 years old and 
below.
Young people76 % for 17 years old; 70 % for 16 year olds and 
below.
 
75 
  
 
MS
Education/ 
training 
related Internships on "non-labour" contracts.Education/ 
experience 
basedApprentices: 75 % during the first year of the 
contract and 85 % for the second and the third year 
for apprenticeships where a CBA does not exist.
Public 
Sector Civil servants (public official are excluded from the 
statute of workers).Seasonal and 
domestic 
workersTemporary/seasonal workers (max. 120 days) and 
domestic workers: Daily/Hourly rates, respectively, 
set below the general MW level.
Voluntary 
work Work carried out in friendship, benevolence or good 
neighbourliness .
OtherRegional exemptions are set for the autonomous 
cities of Ceuta and Melilla Commercial or mercantile 
agents (governed by commercial law).
Experienced-based:  if less than 6 months 
experience in a sector: 80% for 15 or 16 yrs old; 
90% for 17 yrs old. 
Apprentices: (1) initial education (contract 
d’apprentissage), 25%-78% (depending on age and 
experience); (2) continuous training “contrat de 
professionalization” and less than 26 years old, 55%-
85% (depending on age and experience).
OtherMayotte overseas department: specific (lower) MW 
rate applies (EUR 7.57 per hour vs EUR 10.03 in FR).
Labour 
Market 
relatedParticipants in the ALMPs measure “Traineeship for 
work without employment (SOR)” (no employment 
contract).
OtherMicro-employers (Solo self-employed, who are the 
sole employee).
LVPublic 
SectorEmployees of State and local government 
authorities (covered by a separate law).NA NA
LTPublic 
SectorCivil servants (remuneration is regulated by 
separate laws).NA NA
LU NA NA Young people70% for under 18 years old; 80% for 18 years old  
90% for 19 years old.
HU NA NA OtherWorkers in the Public Works Scheme (59.1% of 
MW).
MT NA NA Young people 95% for below 17  years old; 96% for 17 years old.
NLPublic 
SectorCertain civil servants (military, police, judiciary). Young people30-40% for 15-17  years old; 50% for 18 years old; 
60% for 19 years old; 80% for 20 years old.
PL OtherPeople providing certain care services (foster / 
family home activities and family assistance home, 
home care services,  during leisure activities or 
excursions).NA NA
Education/ 
experience 
basedApprentices, trainees or workers in training (length 
of variation depends on qualification): 80% for up to 
1 year.
People with 
disabilities50 - 90 % depending on coefficient of capacity to 
work.
RO NA NA NA NA
SI NA NA NA NA
SK NA NA NA NASales representatives: their working time cannot be 
controlled. Other provisions apply.ES
Persons with disabilities working on “low 
performance contracts”: minimum 75% of the MW.
Other
PT NAFR
OtherBy way of derogation, a collective agreement may 
set a minimum wage below the one stipulated by 
the government decree. These wages cannot be 
below 95 % of the prescribed minimum wage.Education/ 
experience 
basedPeople with 
disabilitiesExemptions Variations
HR
NA
 
 ANNEX 2: INDICATORS OF MINIMUM  WAGE ADEQUACY  
Table A2.1: Indicators of minimum wage adequacy: advantages, disadvantages and data issues  
Indicator  Advantages  Disadvantages  Data issues  
The gross minimum 
wage as a ratio to the 
gross median wage  Widely used indicator to compare 
minimum wages across countries. It is 
preferred by some analysts (including 
the OECD) to the average wage. In 
addition, one social partner organisation 
(ETUC) included it as part of its 
preferred framework to monitor the 
adequacy of minimum wages.  
As opposed to the average wage, the 
median wage is not affected by top 
incomes. For this reason this is a more 
direct indicator of wage inequality (and 
wage compression) in the botto m half of 
the wage distribution which may be 
driven by other factors than inequality at 
the top. For this reason, this indicator 
may also be more directly linked with 
possible effects on employment and 
competitiveness than others.    
Is not affected by the  tax and benefit 
system.  Does not take into account wage 
inequality in the top half of the wage 
distribution. Therefore, policy based on 
this indicator (as opposed to the 
comparison with the average wage) may 
allow the minimum wage to lag behind 
aggregate  wage developments when 
wage inequality at the top increases.  
Does not take into account the take -
home pay of minimum wage earners.  Eurostat data on this ratio are 
incomplete, while OECD Statistics does 
not include all EU Member States.  
The median wage c an be estimated from 
earnings surveys. The Structure of 
Earnings Survey, commonly used for 
this purpose, excludes firms with fewer 
than 10 employees and is conducted 
every four years. A common definition 
needs to clarify whether the median is 
calculated fo r monthly or hourly wages, 
of all or only full -time workers, and over 
which sectors.  
 
 
77 
 The gross minimum 
wage as a ratio to the 
gross average wage  Widely used indicator to compare 
minimum wages across countries.  
In four Member States (Czechia, 
Estonia, L ithuania and Poland), targets 
have been formulated in terms of the 
average wage.  
Since the average takes into account 
wage developments of all workers, it 
may provide a stronger protection of 
low-wage earners than comparing 
minimum wages to the median, 
especially in countries with high (or 
increasing) wage inequality.  
Is not affected by taxes and benefits.  As it is affected by wage developments 
at the top, it may be less sensitive an 
indicator of possible effects on 
employment and competitiveness than 
the comparison to the median wage.  
Does not take into account the take -
home pay of minimum wage earners.  Eurostat data on this ratio are slightly 
incomplete, while OECD Statistics does 
not include all EU Member States.  
The average wage can be estimated in a  
number of ways, including from 
National Accounts data or from earnings 
surveys. For a common definition, this 
basic approach needs to be decided; If 
the common definition is based on 
survey data, the same data issues apply 
as in the case of the comparison  of the 
median.  
  
 
78 
 The net minimum 
wage97 as a ratio to net 
median household 
income  Takes into account the take -home pay of 
workers.  
Has a clear link with preventing in -work 
poverty (for single workers).  The indicator is significantly affected by 
labour taxation and (especially in -work)  
benefits.  
Does not allow to assess whether other 
household types are protected against in -
work poverty (e.g. single parents).  
Avoiding in -work poverty is seen by 
some stakeholders as not ambitious.  Calculating this indic ator relies on 
commonly agreed tax -benefit models 
(e.g. the OECD tax -benefit model or 
Euromod).  
The net minimum wage 
as a ratio to the net 
average wage  Is used by the Council of Europe to 
monitor the right to a “ fair remuneration 
sufficient for a decent standard of 
living”.  
Takes into account the take -home pay of 
workers.  The indicator is significantly affected by 
labour taxation and (especially in -work)  
benefits.  
The focus on the single worker means 
that the situation of other workers in 
other situati ons is disregarded.   
  
                                                           
97 The “net minimum wage” is statistically more precisely defined as the net income of a single full -time worker, without children, earning the minimum wage.  
 
79 
 A common definition 
of a “living wage”  May support a stronger convergence of 
minimum wages in nominal terms than 
other indicators.  
Takes into account take -home pay of 
workers.  Has not been developed for the EU, for 
significant dat a issues.  
A socially acceptable minimum decent 
living standard in one country may be 
above or below what is socially 
acceptable in another country.   
Since the living wage is about net 
income, the indicator would 
significantly be affected by labour 
taxation and (especially in -work)  
benefits.  
May not sufficiently take into account 
the level of development of each 
economy. A “living wage” which is 
meaningful in higher -wage countries 
would likely be translated to a very high 
wage in lower -wage countrie s, despite 
the lower prices in these countries. Thus, 
this approach would likely not safeguard 
“access to employment” in some low -
wage Member States.  Any definition would need to be based 
on a typical household type, or a mix of 
these.  
Defining a common c oncept for a living 
wage requires a common (or nearly 
common) basket of goods necessary for 
a decent living in various countries. This 
has not been done to date and may be 
challenging due to the differences across 
countries in terms of needs (including 
climate, customs, etc.) .  
 
  
 
80 
 National definitions of 
a decent wage or living 
wage  Would take into account take -home pay 
of workers.  
May allow to take into account national 
specificities and the level of economic 
development.  National definitions would be different, 
not fully comparable.  
Since the living wage is about net 
income, the indicator would 
significantly be affected by labour 
taxation and (especially in -work)  
benefits.  Would require work to define these at 
the national level.  
 
    
 
 ANNEX 3: STATUTORY MINIMUM WA GES AND LABOUR PRODU CTIVITY , 1999 -2018  
Graph A3.1: Statutory minimum wages and labour productivity in EU Member 
States, 1999 -2018, 1999=100  
 
Note: Both variables express ed as index numbers:  1999 = 100, except for Estonia and Ireland 
(2000=100), Croatia (2008=100) and Germany (2015=100). Both indices were created based on 
variables expressed in current euro.  
Source: European Commission calculations based on Eurostat and A MECO data.   

 
82 
 ANNEX 4: METHODOLOGY OF SIMULA TIONS PRESENTED   
Results presented in Box 2 have been obtained by microsimulation analysis using 
the Euromod model.  Euromod is a unique microsimulation model for the European 
Union that allows to: assess th e distributional, inequality and poverty effects of real or 
hypothetical reforms in a comparative way across EU countries.  
Euromod allows to account for the interactions between minimum wages and the 
tax-benefit system.  For each individual in the data, ta x liabilities and social benefit 
entitlements are simulated according to the laws of each country. Disposable income is 
calculated by adding benefits and detracting taxes from gross income of each individual. 
The tax -benefit systems simulated in this resea rch refers to those in place as of 30 June 
2019, while the underlying data come from EU -SILC 2017 (reference income of 2016). 
In some countries, data are enriched by country -specific data sources. Wages (and all 
other monetary variables) are uprated to acc ount for changes between the date of input 
data (2017) and 2019. EU -SILC is representative for the national population.  
For computational reasons, the assignment of hypothetical minimum wages is done 
on an hourly basis. For that, observed wages and hypothe tical minimum wages (HMW) 
are converted to hourly levels. To this end, monthly HMW are divided by the average 
number of weeks in a calendar month and the median hours of work by full -time workers 
(which differ by country). Furthermore, to obtain gross hour ly wages based on observed 
data, yearly earnings of employees are divided by the number of months and hours of 
work. To simulate the hypothetical scenarios, hourly earnings thus computed are 
increased to the HMW when they are lower than the hourly HMW. The  income of all 
non-employees, or employees identified as outliers, remains unchanged.  
Possible measurement error in working hours is addressed by an outlier detection 
technique. The working time considered in the calculation of observed hourly wages 
contai ns two elements: weekly working hours and months worked per year. These two 
elements are measured in EU -SILC based on a different time period: the number of 
months in work are reported for the year preceding the survey (which is the income 
reference year; in this case 2016) while weekly working hours refer to regular working 
hours reported in the week the survey was taken (in this case, in 2017). This may cause a 
measurement error in calculating hourly wages if individuals change the amount of 
working hours  from one year to the other. In general, the presence of measurement error 
in the calculation of hourly wages increases the variance of the wage distribution and 
therefore the incidence of low wages. As a consequence, the data might overestimate the 
presen ce of low -wage earners, which in turn can lead to an overestimation of the 
potential effect of a minimum wage policy. For this reason, to identify the outliers among 
hourly wages, we use the inter -quantile range technique.  
In some cases, information about the actual working time needs to be corrected or 
imputed because of data issues.  For some individuals, there is information on earnings 
and months of work but not on working hours. For this missing information, we impute 
 
83 
 the working hours by using informat ion on gender -specific median hours and workers' 
history of full -time and part -time employment.98 In addition, following EU's Working 
Time Directive, we cap the working time for which a HMW is assigned to 48 hours per 
week.  
 
 
 
                                                           
98 This methodology has been proposed by  Brandolini, A., Rosolia, A. and Torrini, R. (2010), ‘The 
distribution of employees’ labour earnings in the European union: Data, concepts and first results’, in 
Atkinson, A. B. and Marlier, E. (eds.), Income and Living conditions in Europe, Eurostat Stati stical Books, 
Publications Office of the European Union, Luxembourg.