COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Directive of the European Parliament and of the Council on adequate minimum wages in the European Union
Date: 2020-10-28
Institutions: Directorate-General for Employment, Social Affairs and Inclusion, European Commission
Subjects: EU Member State, EU employment policy, collective agreement, collective bargaining, labour law, living conditions, minimum pay, standard of living, wage determination, working conditions

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  EN 

   EUROPEAN COMMISSION  Brussels, 28.10.2020  SWD(2020) 246 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Directive of the European Parliament and of the Council on adequate minimum wages in the European Union          {COM(2020) 682 final} - {SEC(2020) 362 final} - {SWD(2020) 245 final}  
 
 
Impact assessment on a Commission proposal on Adequate Minimum Wages in the EU 

Executive Summary Sheet 

A. Need for action 

Why? What is the problem being addressed?  
Ensuring that EU workers earn adequate wages is essential for guaranteeing fair working and living conditions, 
as well as for building fair and resilient economies and societies. However, in recent decades, low wages have 
not  kept  up  with  other  wages  in many  Member  States,  thus  aggravating  in-work  poverty,  wage  inequality,  and 
the capacity of low-wage earners to cope with economic distress.  
Minimum  wages  play  an  important  role  in  this  overall  context.  Minimum  wage  protection  can  be  provided  by 
collective agreements (as is the case in 6 Member States) or by statutory minimum wages set by legislation (as 
is the case in 21 Member States). When set at adequate levels, they ensure a decent living for workers, sustain 
domestic demand, strengthen incentives to work, and reduce in-work poverty and inequality at the lower end of 
the wage distribution. They also support gender equality, since more women than men are earning wages at or 
around the minimum wage. 
However, many  workers in the EU are currently not protected by adequate minimum wages. In the majority  of 
Member  States  with  national  statutory  minimum  wages,  minimum  wages  are  too  low  vis-à-vis  other  wages 
and/or  to  provide  a  decent  living.  This  can  be  illustrated  on  the  basis  of  commonly  used  reference  values:  (i) 
national  statutory  minimum  wages  are  lower  than  60%  of  the  median  wage  or  50%  of  the  average  wage  in 
almost  all  Member  States.  In  addition,  specific  groups  of  workers  are  excluded  from  the  protection  of  national 
statutory minimum wages. In Member States relying on collective bargaining, some workers are not covered by 
minimum wage protection provided by collective agreements. The share of workers not covered is between 10% 
and 20% in four countries, and 55% in one country.  
Some  drivers  behind  this  problem  are  common  for  both  systems,  namely:  the  declining  trends  in  collective 
bargaining  and  lack  of  compliance  with  existing  national  provisions.  In  addition,  some  drivers  are  specific  to 
statutory minimum wage setting systems, namely: the lack of clear and stable criteria to set and update minimum 
wages, the insufficient involvement of social partners, the use of lower rates for specific groups (variations), the 
application  of  reductions  based  on  the  value  of  equipment  or  other  costs  (deductions),  and  the  use  of 
exemptions. 

What is this initiative expected to achieve?  
This  initiative  aims  at  improving  working  conditions  by  ensuring  that  workers  in  the  Union  have  access  to 
minimum wage protection provided by adequate statutory minimum wages or agreements, and thus allowing for 
a decent living wherever they work. This objective is to be achieved while taking into account the effects on job 
creation and competitiveness, including for SMEs. The initiative does not interfere with the freedom of Member 
States  to either  set  statutory  minimum  wages  or  promote  access  to  collective  agreements,  according  to  the 
traditions  and  specificities  of  each  country  and  in  full  respect  of  national  competences  and  social  partners’ 
contractual freedom. In order to reach this general objective, the specific objectives of the EU initiative would be 
to improve the adequacy and increase the coverage of minimum wages.  

What is the value added of action at the EU level?  
EU  action  aims  at  providing  the  necessary  momentum  for  reforming  minimum  wage  setting  systems.  While 
setting minimum wages is a national competence, an EU framework would ensure that progress is not partial or 
uneven,  supporting  the  process  of  upward  social  convergence  to  the  benefit  of  the  EU  economy  as  a  whole. 
Existing EU instruments, in particular the European Semester, have not been sufficient to address the existing 
shortcomings  in  national  minimum  wage  setting  systems.  Without  further  policy  action  at  EU  level,  more 
countries are likely to be affected by the problem. At the same time, 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 will ensure a level playing field for businesses and workers in the Single Market 
by  supporting  and  enabling  fair  competition  based  on  innovation  and  productivity  while  respecting  adequate 
social standards. This cannot be achieved by Member States alone.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Alongside the baseline scenario, three policy packages are considered, each combining measures in five areas:  
Collective  bargaining  in  wage  setting  as  well  as  enforcement  and  monitoring  affect  both  countries  relying  on 
collective  bargaining  to  provide  minimum  wage  protection  and  those  with  statutory  minimum  wage  setting 
systems. National frameworks to set and update statutory minimum wages, the involvement of social partners in 

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statutory minimum wage setting and variations in, and deductions and exemptions from minimum wages affect 
only  statutory  systems.  The  policy  packages  differ  in  terms  of  the  role  played  by  social  partners  in  the 
governance  of  the  minimum  wage  setting  system  and,  in  the  specific  case  of  Member  States  with  national 
statutory minimum wages, the degree of discretion of governments in setting and updating minimum wages.  
Package  A  asks  all  Member  States  to  actively  support  collective  bargaining  on  wage  setting,  with  a  view  to 
strengthening  the  role  of  social  partners,  including  by  administrative  extensions  of  the  coverage  of  collective 
agreements.  For  Member  States  with  national  statutory  minimum  wages,  it  foresees  a  strong  involvement  of 
social  partners  in  the  setting  of  minimum  wages  and  requires  exemptions,  variations  and  deductions  to  be 
banned. The  adequacy of statutory minimum wages  would be assessed against a national measure of decent 
living  standards.  Package  B  asks  all  Member  States  to  support  collective  bargaining  on  wage  setting,  in 
particular  when  collective  bargaining  coverage  is  low.  In  addition,  for  Member  States  with  national  statutory 
minimum wages, it foresees that national frameworks include explicit criteria for minimum wage adequacy and 
indicative reference values, such as 60% of the gross median wage or 50% of the gross average wage, with an 
enhanced role for social partners as compared to the baseline. It also requires variations and deductions to be 
objectively justified and proportionate. Package C also asks all Member States to support collective bargaining 
on  wage  setting,  in  particular  when  collective  bargaining  coverage  is  low.  In  addition,  for  Member  States  with 
national  statutory  minimum  wages,  national  frameworks  are  expected  to  mainly  rely  on  automatic  indexation, 
together with the use of reference values, to reach the objectives of the initiative while variations and deductions 
are  required  to  be  objectively  justified  and  proportionate.  All  packages  include  the  following  provisions  on 
enforcement  and  monitoring,  but  differentiating  between  the  two  types  of  systems:  strengthening  the 
enforcement of wages clauses in collective agreements and strengthening the enforcement of statutory minimum 
wages  where they  exist, ensuring compliance  with collectively  agreed  wages and statutory minimum wages in 
public procurement, and enhancing monitoring and data collection mechanisms. 
B is the preferred package because it best balances the achievement of the policy objectives with the related 
costs, and allows reaching the policy objectives in a proportionate manner. It respects well-established national 
arrangements and leaves room for discretion of Member States and social partners.  
A Directive, Council Recommendation and a combination of the two were considered as legal instruments. The 
preferred instrument would be a Directive, as it provides enforceable minimum requirements, while leaving room 
for the Member States to define the method and form of intervention to achieve the objectives. 

Who supports which option?  
There was general agreement amongst stakeholders on the importance of protecting workers with fair minimum 
wages.  Respecting national traditions, social partners’ autonomy and respect of  collective bargaining  were  the 
leitmotif of consultations. All social partners, a majority  of Member States’  delegates from the relevant  Council 
Committees,  and  the  members  of  the  European  Parliament,  favoured  strengthening  collective  bargaining  and 
the involvement of social partners in statutory minimum wage setting. Trade unions called for stable and clear 
criteria for setting minimum wages, with some Member States’ delegates in favour. Most employers considered 
this  a  national  competence.  Trade  unions  were  in  favour  of  banning/limiting  exemptions/variations,  but 
employers were against.  Member States’ delegates had a divided opinion on this. There was broad support to 
enhance  compliance,  but  some  employers  considered  this  a  national  responsibility.  On  the  legal  instrument,  a 
large  number  of  employers  and  several  Member  States’  delegates  were  in  favour  of  a  non-binding  instrument 
that could take the form of a Council Recommendation, while trade unions, some Member States’ delegates, as 
well as one leading social NGO, supported a Directive.  

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                       
The preferred package will lead to higher minimum wages in about half of the Member States. About 25 million 
workers could benefit from these  increases if Member States  with statutory minimum wages increase  these to 
60% of the median wage or 50% of the average wage. The increases of statutory minimum wages could exceed 
20% in a number of Member States. Minimum wage increases would result in a reduction of wage inequality and 
in-work poverty of 10% and a reduction in the gender pay gap by about 5% on average if if Member States with 
statutory minimum wages increase these  to 60% of the median  wage  or 50%  of the average  wage. Increased 
minimum wages are expected to improve work incentives.   
Strengthening  and  increasing  the  coverage  of  collective  bargaining  on  wage  setting  will  benefit  workers  by 
fostering wage growth in all Member States. Moreover, strengthening enforcement  and monitoring of minimum 
wages  will  help  ensure  that  workers  benefit  from  actual  access  to  minimum  wage  protection  and  are  paid  the 
wages they are entitled to. In Member States relying on collective bargaining, support to collective bargaining on 
wage  setting  will  increase  the  number  of  protected  workers,  as  well  improve  adequacy  where  it  is  low.  In 
countries with statutory minimum wages, the use of clear and stable criteria to guide the setting and updating of 
minimum  wages,  as  well  as  the  stronger  role  of  social  partners  will  improve  the  adequacy  of  minimum  wages 
and  the  business  environment.  In  addition,  limiting  variations  and  deductions  implies  that  fewer  workers  will 

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receive sub-minimum wages. 

What are the costs of the preferred option (if any, otherwise main ones)?   
Economic  impacts  include  increased  labour  costs  for  firms,  increased  prices  and,  to  a  lesser  extent,  lower 
profits. Estimates suggest that about ¾ of the economic cost of higher minimum wages is borne by consumers, 
while about ¼ is borne by firms. The impact on firms is mitigated by the fact that the consumption of low-wage 
earners increases, thus supporting domestic demand. The increase of the total EU wage bill is expected to be 
moderate,  about  1%  (EUR  51-53  billion  per  year),  if  Member  States  with  statutory  minimum  wages  increase 
these to 60% of the median wage or 50% of the average wage. Impacts on aggregate competitiveness are also 
expected  to  be  small.  In  addition,  the  improved  minimum-wage  setting  mechanisms  should  dampen  possible 
negative  impacts  on  firms.  The  package  provides  sufficient  flexibility  for  Member  States  to  take  into  account 
economic conditions and impacts on particular sectors, regions and SMEs.  
The  possible  negative  impact  on  employment  is  expected  to  be  limited.  It would  be  about  0.5%  of  total 
employment, if Member States with statutory minimum wages increase these to 60% of the median wage or 50% 
of the average wage. The benefits of the minimum wage increases to concerned workers would greatly outweigh 
the possible negative employment impact on these workers. 

How will businesses, SMEs and micro-enterprises be affected?  
SMEs employ about 87% of minimum-wage earners (as compared to about two-thirds of all workers). They are 
expected to be affected by a similar proportion of direct costs for firms. The magnitude of impact on SMEs will be 
determined by the national criteria established to determine the levels of statutory minimum wages. An increase 
of statutory minimum wages to 60% of the median wage or 50% of the average wage in all countries with a 
statutory national minimum wage would imply an increase in net costs of around EUR 12 billion.  Yet, possible 
negative impacts on SMEs are expected to be limited. Firstly, they are likely to be able to pass on increased 
labour costs to consumers by increasing prices. Secondly, increased minimum wages may also increase 
demand for their services. Potential negative impacts of increased labour costs for SMEs would be partly 
counterbalanced by more gradual and predictable minimum-wage increases, which would improve the business 
environment. 

Will there be significant impacts on national budgets and administrations?  
Minimum  wage  increases  determined  by  the  national  criteria  set  in  line  with  this  initiative,  are  expected  to 
improve the balance of public budgets (below 0.1% of GDP). The effects on administrative burden are expected 
to be limited since it aims to strengthen institutions and procedures that are already in place.  

Will there be other significant impacts?  
Yes, all packages will have an impact on fundamental rights. They are expected to support gender equality and 
help reduce the gender pay gap as the majority of minimum wage earners (about 60% in the EU) are women. 

D. Follow up 

When will the policy be reviewed?  
The  Commission  will  evaluate  the  initiative  5  years  after  it  enters  into  force  in  line  with  the  Better  Regulation 
Guidelines. Progress towards achieving the objectives of the initiative will be monitored by a series of  indicators 
related to the objectives of the initiative. 

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