Opinion of the European Economic and Social Committee on ‘Decent minimum wages across Europe’

(exploratory opinion requested by the European Parliament/Council)

(2020/C 429/22)

Rapporteurs: Stefano MALLIA and Oliver RÖPKE

Referral European Parliament, 30.1.2020 Legal basis Article 304(1) of the Treaty on the Functioning of the European Union Section responsible Section for Employment, Social Affairs and Citizenship Adopted in section 9.7.2020 Adopted at plenary 18.9.2020 Plenary session No 554 Outcome of vote (for/against/abstentions) 209/0/8

1. Conclusions and recommendations

1.1 The COVID-19 pandemic has hit Europe hard. The European Union and its Member States are facing an economic recession of historic proportions with dramatic consequences for people and businesses. Coordinated and decisive short and medium-term policies are needed to safeguard employment and income as well as to ensure a rapid and sustainable relaunch of economic activities, competitiveness and a well-functioning social and economic model. Quality jobs, with fair wages — including decent minimum wages across Europe — are needed as part of the solution. Economic factors, including productivity and the sustainability of enterprises, must also be taken into consideration. Effective civil dialogue is key to securing a successful outcome and maintaining citizens’ trust. Strong and effective social dialogue and collective bargaining are also essential for dealing with economic and labour market challenges, and securing the recovery.

1.2 This exploratory opinion was requested by the European Parliament with a view to a forthcoming Commission initiative on fair minimum wages. The EESC Workers’ Group and the Diversity Europe Group support the view that all workers in the EU should be protected by fair minimum wages which allow a decent standard of living wherever they work. This is a fundamental right. The Employers’ Group is of the view that setting minimum wages is a matter for the national level, done in accordance with the specific features of respective national systems.

1.3 Important disparities remain in the statutory minimum wage levels in the Member States, reflecting different levels of economic and social development, and, in some, the level is significantly below the ‘at risk of poverty’ wage threshold. The EESC has previously stated its belief that further efforts are needed regarding convergence of wages and establishing minimum wages in the Member States, whilst also stressing that the competence and autonomy of the national social partners regarding wage-setting processes must be fully respected in accordance with national practices ( 1 ) . These efforts should also aim at strengthening collective bargaining, which would also contribute to fairer wages in general.

1.4 Wages, including minimum wages, are an important aspect of the European Union’s social market economy model. Ensuring decent minimum wages in all the Member States would help in achieving a number of EU objectives including upward wage convergence, improving social and economic cohesion, eliminating the gender pay gap, improving living and working conditions in general and ensuring a level playing field in the Single Market. Wages represent payment for work done, and are one of the factors that ensure mutual benefits for companies and workers. They are linked to the economic situation in a country, region or sector. Changes may have an impact on employment, competitiveness and macro-economic demand.

1.5 Minimum wages should be fair in relation to the wage distribution in the different countries and their level should also be adequate in real price terms, so that they allow for a decent standard of living whilst at the same time safeguarding the sustainability of those companies that provide quality jobs.

1.6 The EESC remains concerned that poverty in general and in-work poverty are still a significant problem in many Member States. A comprehensive approach is needed at EU and Member State level to tackle these concerns, including support for effective active inclusion schemes, accompanied by essential and enabling social services. Well-functioning labour markets, public employment services, and active labour market policies are also required. The Committee has also proposed a gradual approach to common minimum standards in the field of unemployment insurance in the Member States ( 2 ) . The EESC has previously called for the introduction of a binding European framework for a decent minimum income ( 3 ) . While the Workers’ Group and the Diversity Europe Group supported the opinion, the Employers’ Group did not share the opinion’s vision of a binding instrument for a minimum income at European level.

1.7 The European Commission has stated its intention to propose a legal instrument to ensure that every worker in the European Union has a fair minimum wage. For the Workers’ Group and the Diversity Europe Group this Commission initiative is a key aspect of the implementation of Principle 6 of the European Pillar of Social Rights. The Commission has clarified that the intention is not to establish a single ‘European minimum wage’, directly harmonise the level of minimum wages across the EU, or introduce statutory minimum wages in Member States with high collective bargaining coverage and where wages are exclusively set through collective agreements. It has also underlined that it will fully respect national competences, national traditions and specificities of each country and social partners’ contractual freedom and autonomy and that any action will not undermine well-functioning collective bargaining systems.

1.8 In its second-phase consultation document on a possible action addressing the challenges related to fair minimum wages addressed to the European social partners, the Commission has indicated that it believes that there is scope for legislative and non-legislative action at EU level under Article 153(1)(b) TFEU, within the boundaries of the principles of subsidiarity and proportionality, and the limits imposed by Article 153(5) TFEU. It refers to a Directive and a Recommendation as the legal instruments under consideration. There are, however, divergent views within the EESC on whether any EU legal initiative under Article 153, especially a directive, would be legitimate. The EESC also notes that the European social partners have the possibility to negotiate and reach agreements under Article 155 TFEU.

1.9 The EESC, therefore, recognises that there are concerns regarding possible EU action in this area. Among the key concerns are that the EU has no competence to act on ‘pay’, including pay levels, and that such action could interfere with the social partners’ autonomy and undermine collective bargaining systems, particularly in Member States where minimum wage floors are set through collective agreements. Furthermore, there are divergent views as to the added value of EU action, including within the Committee itself: while a majority of EESC constituents believe that such action could provide an added value, others disagree.

1.10 The Workers’ Group and Diversity Europe Group consider that action is needed as there are workers in the EU, notably vulnerable workers, who are excluded from statutory minimum wages and/or situations where the level of the minimum wage is not adequate to ensure a decent standard of living. Agreeing common EU thresholds to determine what amounts to ‘a decent standard of living’ would therefore be beneficial. The Employers’ Group considers that this issue of thresholds must not be addressed by means of EU action as the EU has no competence in the field of pay levels.

1.11 The EESC does not underestimate the complexities of the issues involved. It is important that any EU action is based on accurate analysis and understanding of the situation and sensitivities in the Member States and fully respects the social partners’ role and autonomy, as well as the different industrial relations models. It is also essential that any EU initiative safeguards the models in those Member States where the social partners do not consider statutory minimum wages to be necessary.

1.12 According to the choice made at national level, social partners, in full respect of their autonomy and at the level of their choice, are the best placed actors when it comes to determining wages. As regards statutory minimum wage-setting systems, timely and appropriate consultation with the social partners is important to ensure that the needs of both sides of industry are taken into account. The EESC regrets that, in some Member States, the social partners are not adequately involved or consulted in statutory wage-setting systems or the adjustment mechanisms. The EESC welcomes the Commission’s recognition that there is scope for EU action to promote the role of collective bargaining in supporting minimum wage adequacy and coverage. Measures to support collective bargaining could be included in the EU action on minimum wages whilst respecting different national industrial relations systems. This goes in the direction of previous EESC recommendations calling for the strengthening of collective bargaining and social dialogue and support for capacity-building of the social partners. Public procurement contracts could also be used as a complementary way of supporting collective bargaining across the EU.

2. Background and context

2.1 The European Parliament has requested this exploratory opinion in view of the forthcoming Commission legal initiative on fair minimum wages. The German Presidency, beginning in July 2020, has also indicated that minimum wages will be among its priorities. The EESC welcomes the opportunity to further contribute to the discussion on what action could be taken at European level, taking into account the different realities in Member States and division of competences between the EU and national level.

2.2 The COVID-19 pandemic represents the biggest health, social and economic emergency for a generation. In addition to the urgent action taken, large-scale, coordinated and decisive policy action is required in the short and medium term, to avoid long-lasting negative impacts on society, the economy and the world of work.

2.3 The EU and its Member States are facing an economic recession of historic proportions. According to the European Commission’s Spring Economic Forecast, EU total GDP could fall by 7,5 % in 2020 and grow by about 6 % in 2021, although with large differences between Member States ( 4 ) . Businesses, particularly SMEs and micro enterprises, are faced with unprecedented economic consequences and difficult decisions regarding their survival, including concerning retention or dismissal of staff. Many economic sectors have been hard hit by the lockdown measures and many companies fear looming bankruptcy, for example in the services, hotel, restaurant and catering, and cultural sectors.

2.4 Public services have been hard hit, notably health care and social protection systems which are under pressure to provide for people in need. Without strong public action and support, COVID-19 could also lead to increased unemployment, underemployment and poverty. More than a quarter of respondents to a Eurofound COVID-19 survey reported losing their job either temporarily (23 %) or permanently (5 %) ( 5 ) . The Commission forecasts ( 6 ) that the EU unemployment rate could rise from 6,7 % to 9 % in 2020 before falling to around 8 % in 2021, again with differences between the Member States.

2.5 The COVID-19 crisis has also starkly highlighted the particular vulnerability of self-employed, non-standard and precarious workers, who too often face exclusion from social protection safety nets that would cushion their loss of income or employment. Workers in essential services have been publicly praised for their contribution to society, often at great personal risk. Their jobs, for example in health care and social services, retail and delivery services, and cleaning have been important to the whole society but are often undervalued and need to be better esteemed.

2.6 Women, migrant workers and those from ethnic minorities — who are disproportionately represented in some of these essential sectors — need increased attention to guarantee that they receive the full range of labour rights and may also need better protection of social safety nets. Young people under 25 have been particularly hard hit by job losses (including apprenticeship schemes) and the disruption to their education and training. They now face even greater obstacles to entering the labour market, as do other vulnerable groups, such as people with disabilities and others suffering discrimination, who were already disadvantaged in accessing the labour market.

2.7 Europe cannot afford to lose another decade. The short-term focus must be on safeguarding businesses and protecting jobs. Lessons must be learnt from the responses to the economic and financial crisis of 2008, which had significant, long lasting consequences on the EU and its citizens. Measures must be taken to safeguard employment and income, as well as to enable a safe and rapid relaunch of economic activity, with a view to securing sustainable growth, a more stable recovery, competitiveness, and a fairer, productive and well-functioning social and economic model. Civil dialogue and the effective involvement of all stakeholders is essential in securing an effective response to COVID-19 and in maintaining citizens’ trust.

2.8 Quality job creation, fair wages — including minimum wages — allowing every worker to enjoy a decent standard of living and which take account of economic factors, including productivity, must be part of the solution. Collective bargaining and social dialogue play an essential role in these endeavours, and must be strengthened and/or supported at all levels, according to national industrial relations systems.

The European Pillar of Social Rights and the renewed commitment to fair wages and collective bargaining in the EU

2.9 By proclaiming the European Pillar of Social Rights (the Social Pillar/EPSR), at the Gothenburg Summit in November 2017, the European Parliament, Council and Commission reaffirmed their commitment to work towards a fairer and more equal Europe. The Pillar should serve as a compass for renewed upward convergence towards improved working and living conditions and to guide reforms in labour markets and social policies.

2.10 The EESC has consistently emphasised the need for concrete action to turn the Pillar’s principles into reality. In addition to increasing competitiveness and productivity, in line with Principle 6 of the Pillar, a key focus for convergence should be promoting adequate minimum wages which provide a decent standard of living for workers and their families, in light of the national economic and social conditions, and which are set in a transparent and predictable way according to national practices and respecting the autonomy of the social partners ( 7 )

3. General comments

3.1 General considerations

3.1.1 In her Political Guidelines for the European Commission 2019-2024 ( 8 ) , President Ursula von der Leyen set out her intention ‘to propose a legal instrument to ensure that every worker in our Union has a fair minimum wage’. On 14 January 2020, the European Commission launched the first phase consultation of social partners under Article 154 TFEU on possible action to address the challenges related to fair minimum wages. In the second phase consultation, published on 3 June, the EU Commission outlines the need for EU action and clarifies its objective to further work on a possible legal instrument, i.e. a Directive or a Recommendation.

3.1.2 The European Economic and Social Committee has previously stated its belief that further efforts are needed regarding convergence of wages and establishing minimum wages in the Member States, whilst also stressing that the competence and autonomy of the national social partners regarding wage-setting processes must be fully respected in accordance with national practices ( 9 ) . The objective should be to ensure that minimum wages in all EU Member States provide all workers with a decent standard of living while taking account of economic factors. This would contribute to the EU’s objective of improving the living and working conditions of its citizens and the Commission’s ambition of a ‘Union that strives for more’.

3.1.3 The EESC has also expressed its concern regarding the lack of effective coverage of social dialogue in some Member States and has therefore stated that it is necessary to promote social dialogue and collective bargaining at all appropriate levels, in line with national industrial relations systems.

3.2 The broader context

3.2.1 Broader important considerations, e.g. regarding how well labour markets work, the functioning of public employment services and active labour market policies, as well as the functioning of taxation, social security (including unemployment benefits), welfare, education and training systems, and of the single market have an impact on upward economic and social convergence and fighting poverty.

3.2.2 Wages are linked to the economic situation in a country, region or sector. Changes may have an impact on employment, competitiveness and macro-economic demand. Productivity is an important consideration for labour market functioning and employment prospects — in particular of low-skilled workers and labour market entrants, as well as opportunities for career progression for those on minimum wage. All workers should benefit from productivity developments and growth, including the lowest paid. At the same time, where overall costs for employing a worker rise, increasing productivity is also very important to ensure the competitiveness of the EU economy. Taxes and non-wage labour costs, including social security contributions by employers and workers can sometimes lead to large differences between gross and net wages and also have an impact on workers’ take-home pay, as well as employers’ costs.

3.2.3 Minimum wages also have a spill-over effect on the whole wage structure. The percentage of workers paid at the minimum wage level, trends in wage development, price levels and purchasing power, and the level of minimum wages in relation to the overall wage distribution in the country are additional important factors to be considered. Minimum wages should be fair in relation to the wage distribution in the different countries and their level should also be adequate in real price terms, so that they allow for a decent standard of living whilst at the same time safeguarding the sustainability of those companies that provide quality jobs. Since 2010, national gross minimum wages in Purchasing Power Standards in the EU saw a pattern of upward convergence as the central and eastern European countries, in particular, converged towards the EU average ( 10 ) . However, the differences are still very significant and the pattern of convergence has slowed in recent years ( 11 )

3.3 The need for decent minimum wages in Europe

3.3.1 The right to fair and just working conditions and remuneration are fundamental rights enshrined in international and European human rights instruments. Wages, including minimum wages, are an important aspect of the European Union’s social market economy model. They represent payment for work done, are one of the factors that ensure mutual benefits for companies and workers as part of well-functioning labour markets and are often a key element of collective bargaining.

3.3.2 Minimum wages have other functions as well, e.g. protecting workers against disproportionately low pay and in-work poverty ( 12 ) . While quality employment continues to be the best route out of poverty, having a job is currently not an automatic guarantee against being poor, especially for those people not working full-time. In the EU, about one in ten workers earn ‘around’ or below the national statutory minimum wage ( 13 ) . In 2018, one in ten employed people aged 18 years or over was found to be at risk of poverty and workers in eight Member States earned less in real terms than they did at the onset of the crisis in 2008. Moreover, over the past ten years, the share of employed people at risk of poverty has risen in a majority of Member States, although in some it has stayed the same or decreased In some countries, the existing minimum wage floors are currently not adequate for workers to be lifted out of poverty by employment alone ( 14 )

3.3.3 There is a consensus that the European Union and Member States must do more to address poverty, including in-work poverty. In the consultation documents on fair minimum wages, the Commission recognises that decent minimum wages can play an important role in poverty reduction among the working poor. The EESC believes that the most effective way of reducing in-work poverty is by decent minimum wages and person-centred, integrated, active inclusion policies, which promote access to adequate minimum income, employment services and quality jobs, as well as to essential and enabling social services, in line with the 2008 Commission Recommendation.

3.3.4 There are multiple causes leading to in-work poverty and Eurofound ( 15 ) has concluded that while an adequate minimum wage is a core pillar of any model of social protection for the working poor, the link between minimum wages and in-work poverty is complex. An important factor to be taken into account is the composition of the household: while in some countries receipt of the minimum wage may be enough to protect a single adult against the risk of poverty, it is often not enough to support more than one person if there is no other earner in the household.

3.3.5 The level of living costs can also be a key element that forces households into poverty and should be taken into consideration, where relevant at the national level, in determining whether minimum wages are adequate. In-work benefits, welfare benefits, social transfers and family allocations can also play an important role in alleviating or preventing in-work poverty, depending on the household composition.

3.3.6 Many governments have also opted to reduce income tax and social security contributions, as a way of increasing the net incomes of statutory minimum and other low wage earners. However, this can have wider policy implications, including weakening public health and welfare systems, and public services in general. In addition to these direct measures, the Eurofound report also explores the deployment of indirect measures to combat in-work poverty ( 16 ) but their impact has not been easy to assess and more specific evaluation is needed.

3.3.7 More broadly regarding tackling poverty, the EESC has previously called for the introduction of a binding European framework for a decent minimum income, enabling minimum income schemes in the Member States to be extended across the board, supported and made ‘decent’ (adequate), as a significant initial European response to the serious and persistent problem of poverty in Europe ( 17 ) . While the Workers’ Group and the Diversity Europe Group supported the opinion, the Employers’ Group did not share the opinion’s vision of a binding instrument for a minimum income at European level, preferring the Open Method of Coordination instead ( 18 ) . The Committee has also proposed a gradual approach to common minimum standards in the field of unemployment insurance in the Member States, to provide adequate safety nets for workers who lose their jobs and as protection against poverty ( 19 ) . This would also function as an automatic stabiliser and foster upward convergence in the EU.

3.3.8 A comprehensive approach, which also includes effective minimum income schemes among other things, appropriate reforms in social security and more investment in public services, is also required. Crucially, in order to take people out of poverty, it is useful to continue discussing how to meet the EU-level at risk of poverty threshold (EU-level AROP indicator ( 20 ) ), combined with national reference budgets calculating the cost of necessary goods and services (including the different methodologies used). They should take into account social redistribution, taxation and standard of living factors in each EU Member State ( 21 ) and help contextualise the AROP threshold to the multi-dimensional reality of poverty.

3.3.9 In nearly all Member States, women are over-represented among minimum wage earners ( 22 ) . There is evidence to show that decent minimum wages can also have a positive impact on the gender pay gap at the lower end of wage distribution, if also accompanied by policy measures addressing structural gender inequalities in labour markets and society. Similarly, others who are disadvantaged such as migrant workers, people with disabilities, and ethnic minorities would also significantly benefit from decent minimum wages. Moreover, in order to improve employment levels of workers with a disability, wage subsidies or tax reliefs should be granted to employers by the competent public authorities, to cover additional costs linked to their employment.

3.3.10 Finally, in the context of decent wages in Europe, the EESC also stresses that well-functioning collective bargaining systems, particularly sectoral collective bargaining, play a crucial role in providing for fair and adequate wages across the whole wage structure, including statutory minimum wages, where they exist. They are also necessary to promote upward wage convergence amongst and within countries as well as ensuring a balanced approach between social and economic considerations.

3.4 The need for and feasibility of action at EU level

3.4.1 In its first phase consultation of the Social Partners, the Commission set out a number of ways in which EU action could bring added value: contributing to ensuring fair minimum wages, helping Member States to achieve upward convergence in working conditions, ensuring a level playing field in the Single Market and increasing purchasing power of low-wage earners.

3.4.2 In the second phase social partner consultation, the European Commission clarifies the goals of EU action and the policy objectives of a possible initiative ( 23 ) . According to the Commission the general objectives of such an initiative would be to ensure: that all workers in the EU are protected by a fair minimum wage, allowing for a decent standard of living wherever they work and that minimum wages are set at adequate levels, whilst safeguarding access to employment and taking account of the effects on job creation and competitiveness. A majority of the EESC welcomes the objectives identified by the Commission and considers that they should be addressed through EU action on fair minimum wages. A minority, however, believes that EU action on some of those objectives would not be appropriate.

3.4.3 The Commission has stressed that its intention is not to establish a single ‘European minimum wage’ or to harmonise directly the level of minimum wages across the EU and underlined that it will fully respect national competencies, national traditions and specificities of each country and social partners’ contractual freedom.

3.4.4 While a majority of Member States have a statutory or national minimum wage, there are significant disparities between the statutory/national minimum wage levels between them, reflecting different levels of economic and social development. As of January 2020, statutory minimum wages in the Member States ranged from EUR 312 to EUR 2 142 per month. Monthly minimum wages are generally below EUR 600 in the east and above EUR 1 500 in the northwest of the EU ( 24 ) . In the second phase consultation document, the Commission notes that minimum wage adequacy has improved in most Member States ( 25 ) . However, disparities remain and, in a significant number of Member States, the statutory minimum wage is at or below 50 % of the full-time gross median wage ( 26 ) and significantly below the ‘at-risk-of-poverty’ wage threshold of 60 % of the median wage, thus failing on its own to lift workers out of poverty.

3.4.5 Minimum wages should ensure a decent standard of living. The Workers’ Group and Diversity Europe Group consider that in a number of Member States the minimum wage levels are still not adequate and that the ‘reference’ net statutory minimum wage needs to be set significantly above the poverty threshold — set in the EU context by using the AROP indicator of 60 % of the national median equivalised disposable household income after social transfers — and to be fair in relation to overall wages in the labour market. Such a benchmark would ensure adequate benefit levels and prevent pushing workers into precarious employment with negative conditionalities linked to minimum income schemes. Raising the lower-wage segment by moving towards poverty-proofed minimum wages would also broaden the tax basis for governments, aiding the financing of adequate social protection systems. However, the Employers’ Group considers that this issue must not be addressed by means of EU action as the EU has no competence in the field of pay, and in particular on pay levels in line with ECJ rulings. According to the proponents of the latter view, what could be done, at most, is to discuss and exchange views through the Open Method of Coordination or European Semester process regarding how to ensure adequate benefit levels and adequate minimum income schemes and how, along with employment, this can support financing of adequate social protection systems.

3.4.6 The EESC acknowledges the various concerns raised regarding possible EU action in this area. In particular, there are strongly diverging views regarding the EU’s competence. Some argue that, given that Article 153(5) of the Treaty of the Functioning of the European Union excludes ‘pay’ from the EU’s legislative competence, there is no scope for action at EU level. On the other hand, others, including the Commission, argue that there are possibilities for action at EU level and that Article 153(5) would not prevent this.

3.4.7 Equally, there are fears, particularly in Member States where wage floors are solely or predominantly defined by collective bargaining, that such action would interfere with the autonomy of the social partners. It is therefore essential that any EU initiative safeguards the models in those Member States where the social partners do not consider statutory minimum wages to be necessary. In the same way, measures promoting collective bargaining, in particular sectoral bargaining, should fully respect the different national industrial relations systems and not push for a ‘one-size fits all’ approach.

3.4.8 Another source of concern is that a European statutory minimum wage policy could potentially have negative effects on employment, especially in the case of young people and low-skilled workers, and could aggravate non-compliance, which could also push a number of low-wage workers towards informality ( 27 ) . This can, however, be countered if the level of the minimum wage is defined appropriately, i.e. it supports workers’ earnings without undermining employment, depends on country-specific factors, including the behavioural response of employers, the degree of competition in product and labour markets and its interaction with other policies, in particular taxes and benefits ( 28 ) . Indeed, there are concrete examples of Member States where the introduction of minimum wages has not negatively impacted job creation and where even substantial increases in the minimum wage have had positive macro-economic effects, including increased job growth ( 29 )

3.4.9 The EESC fully appreciates the complexity of the issues involved in this debate and recognises that minimum wages are not the silver bullet that will solve all problems. However, a common EU approach with clear policy objectives for the Member States to achieve, through different means, and ensuring the involvement of the social partners, as part of well-functioning collective bargaining systems, could ensure that workers’ rights to fair remuneration and to freedom of association and employers’ needs in relation to productivity and competitiveness are safeguarded. If combined with broader measures, it could also contribute to upward convergence and social progress across the EU, by reducing income and wage differences among the Member States, reducing in-work poverty and achieving a level playing field in the Single Market.

3.4.10 Any European initiative in the area of fair minimum wages including aspects to promote and support well-functioning collective bargaining for wage-setting, must be shaped on the basis of the accurate analysis and understanding of the situation in the Member States, and fully respect the social partners’ role and autonomy, as well as the different industrial relations models.

4. Towards a European legal initiative for statutory minimum wages, including support for and promotion of social partner involvement

4.1 The concept of minimum wages

4.1.1 Wages are affected by a number of different factors such as sector and industry and their exposure to global competition, cost of living, market supply and demand, productivity, wage distribution, collective wage levels, individual competence and performance, and taking account of the way it is done and valued. They compensate the work performed in accordance with applicable laws, collective agreements and practice. The overall wage can be considered as covering different elements, depending on how this is determined in Member States, regions or according to different collective agreements.

4.1.2 Minimum wages are defined by the ILO as ‘the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract’ ( 30 ) . According to ILO Convention No 131 on Minimum Wage Fixing ( 31 ) , determining fair minimum wages means taking into consideration the needs of workers and their families, including the general level of wages in the country and the cost of living, as well as economic factors, including productivity and employment. It also provides that full consultation of social partners in minimum wage setting should be ensured. The ten EU Member States ( 32 ) that have ratified the Convention all have a statutory minimum wage system.

4.1.3 The effectiveness of statutory minimum wages depends on many factors, which apply to different degrees depending on the national context, such as the coverage of workers; whether they are set and adjusted at an adequate level, that covers the needs of workers and their families, while taking into account economic factors, such as productivity, and whether employers comply with minimum wage regulations ( 33 ) . It also depends on whether social partners’ involvement is supported and there is an effective collective bargaining system that complements the statutory minimum wage setting. The EU action should support the necessary improvements in these areas, amongst others.

4.1.4 In Member States where the social partners are responsible for setting wage floors, the share of workers who are not formally covered by such agreements varies from 2 % in Austria, to around 10 % in Sweden, Finland and Italy, and around 20 % in Denmark. In Sweden and Denmark, it should be borne in mind that the majority of those workers not formally covered by minimum wages are either highly paid white-collar workers, earning well above the collectively agreed wage-floors, or job-students or other young workers entering the labour market. Employers also often, in reality, apply the sector-based minimum wages to workers who are not formally covered by minimum wages, without being obliged to. In Italy, however, those who are not covered are either informal workers or autonomous workers who work under individually set conditions for occasional work, especially young workers.

4.1.5 The European Commission, Council and the European social partners have all emphasised the importance of promoting social dialogue and respecting the autonomy of social partners, and also called on Member States to support the improvement and functioning of the national social dialogue ( 34 ) . It is important that a possible minimum wage initiative does not weaken collective bargaining systems in any Member State, for example by reducing the social partners’ control over wages.

4.2 National wage setting systems/institutions in the European Union

4.2.1 Minimum wage setting systems and the role and capacity of the social partners differ considerably between the Member States due to differences in their national traditions, as well as different economic and social factors, and the political and constitutional framework of the country.

4.2.2 Some Member States have opted for a statutory minimum wage where wages have to at least correspond to a minimum level determined by law. In these countries, there may also be (higher) sectoral and cross-sectoral minimum wages set by the social partners. In other countries without a statutory minimum, wages are exclusively or predominantly defined by social partners as part of collective agreements at national, sectoral and/or company level.

4.2.3 In Member States with statutory minimum wages, most workers tend to be covered, however exclusions for specific categories may be allowed, meaning that these workers earn below the statutory minimum. Furthermore, special rates for certain groups of workers are applied in 11 Member States ( 35 ) . These rates mainly apply to younger or less experienced people and/or apprentices, but can also apply to unskilled workers and those with a disability, among other examples. Some countries also specify higher rates based on the employees’ skills ( 36 ) . As stated by the Commission, gaps in coverage may have negative consequences for those workers and for the economy as a whole. The implications of these exceptions and also of broader coverage of workers, must be assessed to understand the different national approaches and the possible reasons for exclusions as well as the implications.

4.2.4 In countries without statutory minimum wages, minimum wages apply only to workers covered by collective agreements. Although most of these countries have very high levels of collective bargaining coverage (above 80 %), in some cases some workers are left uncovered ( 37 )

4.2.5 Adequacy is a crucial element when considering if statutory minimum wages are ‘fair’ and if they are to provide a decent standard of living for workers and their families. Their level in relation to the overall wage distribution in the country should also be considered. The Workers’ Group and Diversity Europe Group take the view that common EU criteria for the minimum thresholds required for a ‘decent standard of living’ would be beneficial. There are various possibilities for establishing such thresholds, such as using a reference basket of goods that provide more than mere subsistence and/or setting these thresholds in relation to a percentage of full-time median or full-time gross average wage. Further discussion is warranted on what these thresholds could be and how they could be progressively reached. The Employers’ Group considers that the issue of thresholds must not be addressed by means of EU action as the EU has no competence in the field of pay levels in line with ECJ rulings ( 38 ) . It is important to ensure that when reviewing statutory minimum wages, their adequacy and the regularity of reviews are considered, and that there is a clear procedure which fully involves the social partners.

4.2.6 According to the Council of Europe European Committee of Social Rights (ECSR) ‘the concept of “decent standard of living” goes beyond merely material basic necessities such as food, clothing and housing, and includes resources necessary to participate in cultural, educational and social activities’. In its recent Conclusions ( 39 ) , the Committee found that the levels of minimum wages in different Member States did not ensure a decent standard of living for workers and their families.

4.2.7 Several Member States currently allow for deductions by employers to the statutory minimum wage (e.g. for breakages or the purchase of equipment) or including extra payments (e.g. overtime, bonuses) in the calculation of the wage. The ECSR as well as monitoring bodies at UN and ILO level have ruled that in some Member States this did not allow for workers’ right to a fair remuneration.

4.3 Role of social partners in statutory minimum wage setting systems

4.3.1 There are large differences in social partner involvement in statutory minimum wage setting systems. In some countries, unfortunately governments have taken unilateral decisions regarding minimum wages, without adequate involvement or consultation of social partners.

4.3.2 Mechanisms which allow for timely and appropriate consultation of social partners help to ensure that different economic and labour market situations are taken into account. They can also help to find agreements between relevant national authorities and social partners and a balanced outcome taking account of employers and workers’ needs.

4.3.3 Having transparent, clear and stable criteria for making adjustments to statutory minimum wages to ensure their adequacy while taking account of economic factors help to improve the understanding and predictability for employers, workers and their representatives. Unfortunately, these are lacking in some Member States.

4.3.4 The social partners should be involved in an appropriate way, according to the needs of the two sides of industry, in consultations on statutory minimum wages, including identifying the appropriate criteria for defining the adequate level and in the evaluation of any possible adaptations. In addition, support from the EU and Member States for capacity-building of national social partners can help them to engage in collective bargaining, including where appropriate for determining wages, as well as in discussions on statutory minimum wages.

4.4 Role of collective bargaining in setting minimum wages

4.4.1 Wages negotiated by social partners are based on a balanced agreement between them, which is important in making sure that wages are fair for both sides of industry. Five of the six countries where wage floors are defined by sectoral collective bargaining are among those with the highest rates of collective bargaining coverage.

4.4.2 The EESC welcomes the indication that any Commission initiative ‘would not seek to introduce statutory minimum wages in countries with high coverage of collective bargaining and where wage setting is exclusively organised through it’ ( 40 ) . This notion reflects the fact that according to the choice made at national level, social partners, in full respect of their autonomy and at the level of their choice, are the best-placed actors in shaping and conducting wage setting policies and mechanisms.

4.4.3 Collective bargaining is also of paramount importance in the definition of wage levels in many of the countries that have a statutory minimum wage and the agreements negotiated there often improve upon the rates set by the government.

4.5 The need to support and promote collective bargaining in the Member States

4.5.1 The effects and the magnitude of statutory minimum wages depend on how they interact with other policies and labour market institutions. One such interaction is between minimum wages and collective bargaining. The relative strength of collective bargaining in the different countries is one of the main determinants of the existence and scale of ripple effects ( 41 )

4.5.2 Where collective bargaining systems function well, they support higher employment and lower unemployment for all workers. Coordination across bargaining units helps the social partners to account for the business-cycle situation and the macroeconomic effects of wage agreements on competitiveness ( 42 )

4.5.3 The right to freedom of association, to organise and to bargain collectively are fundamental rights enshrined in international and European human rights instruments. All Member States have ratified ILO C087 Freedom of Association and Protection of the Right to Organise Convention and ILO C098 Right to Organise and Collective Bargaining Convention. The level and coverage of collective bargaining coverage varies significantly among the Member States from only 7 % in Lithuania to 98 % in Austria. Since 2000, collective bargaining coverage has fallen in 22 Member States and it is estimated that at least 3.3 million fewer workers are now covered by a collective bargaining agreement.

4.5.4 According to an OECD report, collective bargaining faces old challenges (such as declining collective bargaining coverage and falling union density) as well as new ones, such as the increasing prevalence of workers in non-standard employment (i.e. temporary part-time and self-employment) who might not have access to collective bargaining ( 43 ) . Almost all Member States have seen a drop in collective bargaining coverage since the start of the economic and social crisis ( 44 ) as it triggered changes in wage-bargaining regimes in a number of countries and further extended the existing trajectory towards decentralisation in others. This was due to different national conditions and on some occasions EU actions as a condition of economic bailouts.

4.5.5 The EESC has frequently highlighted the challenges posed by new and flexible forms of work, notably that many workers could be placed outside collective bargaining structures and trade union representation. It has also emphasised that the need to strengthen the role social dialogue and collective bargaining, including through EU support for capacity-building, enabling and supportive national frameworks, ensuring organisational strength of both sides of industry, as well as safeguarding well-functioning collective bargaining systems ( 45 )

4.5.6 Freedom of association and the right to organise must also be respected and promoted. It is important that discussions take place at national and EU level on how to ensure workers can have access to trade union representation, and exercise rights to collectively organise and take collective action.

4.5.7 The EESC welcomes the Commission’s recognition that there is scope for EU action to promote the role of collective bargaining in supporting minimum wage adequacy and coverage. Measures to support collective bargaining could be included in the EU action on minimum wages whilst respecting different national industrial relations systems. This goes in the direction of previous EESC recommendations calling for the strengthening of collective bargaining and social dialogue.

5. Input from stakeholders: virtual country visits and public hearing

5.1 Overview/background to the visits

5.1.1 In the preparation of the opinion, it was important for the EESC to obtain the views of relevant stakeholders at national and European level. To achieve this, a number of country visits were planned, as well as a public hearing with EU-level actors. For the country visits, five Member States (Germany, Poland, Romania, Spain and Sweden) were selected based on the criteria on minimum-wage setting institutions in EU Member States which the European Commission identified in the first phase social partners consultation. Discussions were planned with representatives from the government, national wage-setting bodies, the national social partners and anti-poverty organisations. Due to the outbreak of the COVID-19 pandemic, the visits could not take place and were replaced with a semi-structured questionnaire, as well as follow-up video conferences with the relevant stakeholders.

5.2 Summary of the video conferences

5.2.1 The greatest concerns and opposition to an EU legal initiative on minimum wages were expressed by the Swedish representatives, where there was a general consensus that the EU does not have competence to take action on wages. The common fear among the Swedish social partners is that an EU initiative would interfere with national wage bargaining traditions amongst others and infringe on the autonomy of the social partners. They instead proposed non-binding initiatives to promote social dialogue and collective bargaining, while highlighting that national systems are results of decades of development and cannot be transplanted from one country to another. In Sweden, the collective bargaining coverage is 90 % and less than 1 % of workers earn less than 60 % of the median wage ( 46 ) . The Swedish Government representative supported the social partners’ positions and stated that the EU has an important role to play in contributing to increasing employment and improving social developments. Addressing the social challenges is important for the cohesion of the Union and for the internal market. However, they did not see a legally binding initiative, including a directive, as the right way forward and said that an EU initiative must not lead to a requirement that Member States introduce universally applicable collective agreements or statutory minimum wages.

5.2.2 Trade unions and civil society organisations in the other four countries were in favour of action at EU level and some even mentioned that it could take the form of a Framework Directive. The arguments in support of such an initiative include the potential to coordinate international wage policies, fight social dumping, promote wage convergence, reduce in-work poverty, offer protection for workers not covered by collective agreements, avoid the exploitation of vulnerable groups of workers, such as migrants, and contribute to reducing the gender pay gap. Some representatives also referred to the possibility of common EU criteria on minimum thresholds for adequacy of minimum wages, for example by using a reference basket of goods and key services that everyone needs. Several representatives also mentioned that other measures should accompany an EU initiative on minimum wages, notably a Directive on adequate minimum income and an initiative to reinforce the role of social dialogue and the representation of the trade unions.

5.2.3 The employers’ organisations in three countries ( 47 ) expressed concerns about or opposition to binding measures. Some explicitly stated that, according to Article 153 TFEU, the EU had no competence on wages and that the discussion should focus on how to enhance the European Semester process. Employers’ organisations were opposed to a legal initiative, on the basis that this would interfere with national wage-setting systems, and adversely impact the competitiveness of the Member States and employment, as well as the labour market integration of the unemployed. They also pointed out that discussions on minimum wage could not be isolated from broader issues which affect the labour market, including social security systems. In some countries employers’ representatives expressed concerns about statutory minimum wage raises based on political decisions by government to raise minimum wages without economic factors being taken into account. In one country it was also mentioned that country-specific recommendations had pointed out the negative impact of minimum wage raises on competitiveness. In one country a non-binding recommendation was mentioned as a possible instrument and it was noted that reinforcing collective bargaining is a matter for national level and that EU support is needed for that, especially as regards capacity building of the social partners.

5.2.4 The government representatives did not express as direct a position as the social partners and civil society organisations did. While some welcomed the promotion of a framework initiative without qualifying it (Germany), others supported a Framework Directive (Spain). As regards the next steps, the German representatives confirmed that the German Presidency was keen to support the ongoing process during the second half of 2020.

5.3 Public Hearing

5.3.1 An online public hearing was held on 25 June, with the participation of the European Commissioner for Jobs and Social Rights Nicolas Schmit, the European Parliament rapporteur on Reducing inequalities with a special focus on in-work poverty and the Employment and Social Affairs Coordinators for the EPP and S&D Groups, the ETUC and BusinessEurope, and the Social Platform. The Commission reiterated the Commission’s intention to bring forward a legal instrument on fair minimum wages in Europe, which would respect the autonomy of the social partners, respect national systems of collective bargaining and not interfere with well-functioning collective bargaining systems. He also recognised that the topic of fair minimum wages is a difficult and controversial one. There was a political consensus among the three MEPs, that EU action is needed to work towards ensuring that workers in Europe have a decent standard of living and addressing in-work poverty. The European social partners were in the process of responding to the Commission’s second phase consultation, but it is apparent that they hold divergent views on the need for, feasibility of and legal basis for EU action. The Social Platform stressed the importance of having both adequate minimum incomes and minimum wages and that the minimum wage must be higher than the minimum income.

6. Scope for action at EU level

6.1 The EU acquis

6.1.1 The EESC notes that there is a large body of EU and international instruments that enshrine and support the concept of ‘fair’ remuneration that provides workers and their families with ‘a decent standard of living’ ( 48 ) . The EESC notes that an EU legal initiative on ‘fair minimum wages’ is suggested to be proposed under the Social Policy Title of the TFEU. This should be linked to the Union’s aims recognised in Article 3 of the Treaty: to promote a highly competitive social market economy, aiming at full employment, social progress, the well-being of its peoples and the sustainable development of Europe.

6.1.2 The Committee also recognises that the legal situation regarding an EU initiative on minimum wages is highly complex. The EU can adopt legal instruments on working conditions on the basis of Articles 151 and 153(1)(b) TFEU. The Treaty provides that the provisions of Article 153 shall not apply to ‘pay’. On the other hand, there is EU case law and existing directives that have treated the issue of pay as a key working condition. There are clearly divergent opinions on this matter and the EESC acknowledges that a balanced and cautious approach will have to be adopted by the Commission.

6.1.3 The European social partners also have competence to reach agreements in the Social Policy Title of the TFEU under Article 155.

6.2 Possible EU legal initiative on fair minimum wages: Directive or Council Recommendation

6.2.1 As regards minimum wages, the responsibility to deliver on the EPSR’s commitments falls primarily upon the individual Member States. The Commission has identified a need for and possible avenues for EU action on fair minimum wages. While a majority of EESC constituents believe that such action could provide an added value, others disagree. Any action taken at EU level must fully respect the autonomy of the social partners and the division of competences between the EU and national level.

6.2.2 In its second phase social partner consultation document, the Commission indicates that the EU instruments under consideration are a directive and Council recommendation. There are divergent views within the EESC on whether any EU legal initiative under Article 153, especially a directive, would be legitimate, as according to Article 153(5) TFEU, provisions of that Article do not apply to pay. Following the social partners’ consultation, and in the absence of a negotiation between the social partners, whatever instrument the Commission might consider using for an initiative on fair minimum wages, the aim should be to ensure that statutory minimum wages — where they exist — are fair vis-à-vis the wage distribution in the country and ensure the respect of workers’ right to a fair remuneration, thus providing for at least a decent standard of living for workers and their families. It should also take into account important economic aspects, such as productivity.

6.2.3 According to the Commission, both legislative and non-legislative instruments are possible. It indicates that a Directive in the area of ‘working conditions’ would leave it to the Member States to decide on how to implement minimum requirements and procedural obligations to be complied with. The Commission also indicates that if a Council Recommendation were proposed, the monitoring of its implementation could be done through a dedicated benchmarking framework integrated in the European Semester. Within this, principles regarding mechanisms for effective statutory wage-setting systems, social partner involvement and adequacy, among others, could be discussed and monitored.

6.3 The use of public procurement

6.3.1 Public procurement represents a means through which public institutions, at EU and national level, can promote decent wages, fair working conditions, and collective bargaining, while pursuing economic, quality service delivery and public interest objectives. This is possible in accordance with ILO C094 Labour Clauses (Public Contracts) Convention, through better use of social criteria in existing EU public procurement legislation.

6.3.2 Introducing collective bargaining clauses in EU rules on public procurement, which require that respect for the right to collective bargaining and collective agreements is a condition for the awarding of all public contracts, could be an effective complementary way to support collective bargaining across the EU.

6.4 Improved data collection

6.4.1 There are a number of areas in which the EU could assist the Member States by collecting data and assisting with developing, in consultation with the social partners, indicators and enforcement tools regarding the evolution of statutory minimum wages.

Brussels, 18 September 2020. The President of the European Economic and Social Committee Luca JAHIER

(1) OJ C 125, 21.4.2017, p. 10.

(2) OJ C 97, 24.3.2020, p. 32.

(3) OJ C 190, 5.6.2019, p. 1.

(4) https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts/spring-2020-economic-forecast-deep-and-uneven-recession-uncertain-recovery_en

(5) Eurofound (2020), Living, working and COVID-19: First findings — April 2020, Dublin.

(6) See footnote 5.

(7) Principle 6 — European Pillar of Social Rights.

(8) A Union that strives for more Political Guidelines for the next European Commission 2019-2024.

(9) See footnote 1.

(10) Eurofound: Minimum wages in 2019 — Annual review (2019).

(11) B. Galgóczi and J. Drahokoupil, Galgóczi, Condemned to be left behind? Can Central and Eastern Europe emerge from its low-wage model?, ETUI, 2017.

(12) Workers receiving minimum wages may, however, depending for example on household composition still need benefits from other social protection systems, in-work benefits and/or tax allowances or credits to reach an acceptable standard of living.

(13) Eurofound (2019) Minimum wage in 2019 — Annual review.

(14) Statutory Minimum Wages in the EU: Institutional Settings and Macroeconomic Implications, IZA Policy Paper No. 124, February 2017.

(15) Eurofound (2017), In work poverty in the EU.

(16) Five categories of indirect measures that can help address in-work poverty are identified: the provision of affordable childcare; flexible working time arrangements; measures that promote job advancement or improve people's skills; measures that help improve the living standards of low-income earners; measures that create inclusive work environments to improve opportunities for migrants, people with disabilities or other groups of disadvantaged workers (see page 41).

(17) OJ C 190, 5.6.2019, p. 1 (This opinion did not receive the support of the Employers' Group, see the counter opinion appended to the EESC opinion.)

(18) See the counter opinion appended to the EESC opinion (OJ C 190, 5.6.2019, p. 1).

(19) See footnote 2..

(20) Set at 60 % of the national median equivalised disposable income after social transfers.

(21) This is in line with the 2019 EESC ‘Opinion on a “European Framework Directive on a Minimum Income”’ (OJ C 190, 5.6.2019, p.1), see footnote 13.

(22) Eurofound (2019), Minimum wages in 2019: Annual review.

(23) Second phase consultation of Social Partners under Article 154 TFEU on a possible action addressing the challenges related to fair minimum wages.

(24) Disparities in minimum wages across Europe, Eurostat 03/02/2020 https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20200203-2

(25) EC second stage social partner consultation document.

(26) Information obtained from the first phase consultation of the social partners — p. 2, which refers to the Eurostat Structure of Earnings Survey and the EU-SILC survey (footnotes 6 and 7).

(27) Eurofound (2019) Upward convergence in employment and socioeconomic factors.

(28) Good Jobs for All in a Changing World of Work, The OECD Jobs Strategy.

(29) Dube, The impact of minimum wages — review of the international evidence, 2019, London: HM Treasury: https://www.gov.uk/government/publications/impacts-of-minimum-wages-review-of-the-international-evidence; A. Godøy, M. Reich, Minimum Wage Effects in Low-Wage Areas, IRLE Working Paper 106-19, June 2019.

(30) ILO Committee of Experts on the Application of Conventions and Recommendations (2014): General Survey on Minimum Wage Systems, paragraph 68.

(31) Minimum Wage Fixing Convention, 1970 (No 131) https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C131.

(32) Bulgaria, France, Latvia, Lithuania, Malta, the Netherlands, Portugal, Romania, Slovenia and Spain.

(33) ILO Minimum Wage Policy Guide.

(34) See: Council Conclusions: A new start for a strong Social Dialogue http://data.consilium.europa.eu/doc/document/ST-10449-2016-INIT/en/pdf.; Quadripartite statement by the Council presidency, the Commission and the social partners: https://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=2562

(35) Belgium, France, Hungary, Ireland, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Romania and Spain.

(36) See footnote 22.

(37) See footnote 22.

(38) ECJ case C-268/06, Impact.

(39) https://www.coe.int/en/web/european-social-charter/-/protection-of-workers-rights-in-europe-shortcomings-found-but-also-positive-developments-in-certain-areas.

(40) https://ec.europa.eu/commission/presscorner/detail/en/fs_20_51

(41) Grimshaw, D., Bosch, G. and Rubery, J. (2013), ‘Minimum wages and collective bargaining: what types of pay bargaining can foster positive pay equity outcomes?’‘ British Journal of Industrial Relations, D OI 10.1111 / bji r.12021.

(42) OECD: Negotiating our way up: Collective bargaining in a changing world of work.

(43) See footnote 42..

(44) Eurofound: Developments in collectively agreed pay 2000–2017 — Annex 1. https://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef18049en.pdf

(45) OJ C 303, 19.8.2016, p. 54, OJ C 434, 15.12.2017, p. 30, OJ C 13, 15.1.2016, p. 161, OJ C 125, 21.4.2017, p. 10.

(46) According to the written contribution by the anti-poverty civil society organisation EAPN SE, it was important for the EU to work towards the establishment of a system for regulating minimum wages in every Member State, but it was equally important to respect those countries that have a collective bargaining system for regulating minimum wages.

(47) The Spanish employers' organisation CEOE could not attend the country call, but expressed the same views in their written contribution.

(48) 1989 Community Charter of the Fundamental Social Rights of Workers http://aei.pitt.edu/4629/1/4629.pdf; Article 23(3) Universal Declaration of Human Rights https://www.ohchr.org/EN/UDHR/Documents/UDHR_Translations/eng.pdf; Article 7 International Covenant on Economic, Social and Cultural Rights, https://www.ohchr.org/en/professionalinterest/pages/cescr.aspx; Article 4(1) of the Council of Europe's European Social Charter (ESC) of 1961; UN Sustainable Goals, notably SDG1, SDG8, SDG 10; ILO Convention Protection of Wages Convention, 1949 (No 95); Article 4(5) ESC; ILO's Protection of Workers' Claims (Employer's Insolvency) Convention, 1992 (No 173); Article 25 of the Revised European Social Charter (RESC 1996) https://www.coe.int/en/web/conventions/full-list/-/conventions/rms/090000168007cf93