COMMISSION STAFF WORKING DOCUMENT 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.10.2020  SWD(2020) 245 final  COMMISSION STAFF WORKING DOCUMENT  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) 246 final}  
 
 
Table of contents 

1

2

INTRODUCTION: POLITICAL AND LEGAL CONTEXT .......................................................... 1 

PROBLEM DEFINITION ................................................................................................... 2 

2.1

  What is the problem? ................................................................................................... 3 
Insufficient adequacy ....................................................................................... 3 

2.1.1

2.1.2

  Gaps in coverage ............................................................................................. 6 

2.1.3

  Which groups, sectors and regions are most affected by the problem? ......... 7 

2.2
2.3
2.4

External drivers ............................................................................................................. 8 
Internal drivers.............................................................................................................. 9 
Internal  drivers  in  Member  States  where  minimum  wage  protection  is 
provided by collective agreements ............................................................................. 11 
2.4.1
  Declining trend in collective bargaining ........................................................ 11 

2.4.2

Issues in compliance, enforcement and monitoring ...................................... 11 

2.5

Internal drivers in Member States with a statutory national minimum wage ........... 12 
2.5.1
  Declining trend in collective bargaining ........................................................ 12 

2.5.2

Insufficiently clear frameworks to set statutory minimum wages ................ 13 

2.5.3
Insufficient  involvement  of  social  partners  in  statutory  minimum  wage 
setting ………………………………………………………………………………………………………………….14 

2.5.4

  Variations, deductions, and exemptions ....................................................... 15 

2.5.5

Issues in compliance, enforcement and monitoring ...................................... 17 

2.6

  Why is this a problem? What are the consequences? ............................................... 18 
  For workers .................................................................................................... 18 

2.6.1

2.6.2

  For businesses, economy and society ............................................................ 19 

2.7

  How will the problem evolve? .................................................................................... 20 

3

  WHY SHOULD THE EU ACT? .......................................................................................... 21 

3.1
3.2

Legal basis ................................................................................................................... 21 
Subsidiarity: Necessity and added value of EU action ................................................ 22 

4

OBJECTIVES: WHAT IS TO BE ACHIEVED? ...................................................................... 25 

4.1
4.2

  General objective ........................................................................................................ 25 
Specific objectives ....................................................................................................... 25 

5

  WHAT ARE THE POSSIBLE POLICY MEASURES?.............................................................. 26 

5.1
5.2
5.3

The baseline scenario ................................................................................................. 26 
  Description of the policy measures ............................................................................ 27 
  Measures  affecting  Member  States  relying  exclusively  on  collective 

bargaining ................................................................................................................... 30 
5.3.1
  Collective bargaining in wage setting ........................................................... 30 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.3.2

  Enforcement and monitoring ........................................................................ 31 

5.4

  Measures affecting only Member States with statutory minimum wages ................ 33 
  Collective bargaining in wage setting ........................................................... 33 

5.4.1

5.4.2

  National frameworks to set and update statutory minimum wages ............ 33 

5.4.3

Involvement of social partners in statutory minimum wage setting............. 35 

5.4.4

  Variations, deductions, and exemptions ....................................................... 36 

5.4.5

  Enforcement and monitoring ........................................................................ 37 

5.5
5.6

  Measures discarded at an early stage ........................................................................ 38 
  Description of alternative policy packages ................................................................. 39 
5.6.1
  Member  States  where  minimum  wage  protection  is  provided  by  collective 
agreements ............................................................................................................... 40 

5.6.2

  Member States with statutory minimum wages ........................................... 41 

6

  WHAT ARE THE EXPECTED IMPACTS OF THE VARIOUS POLICY PACKAGES? .................... 43 

6.1

Social impacts ............................................................................................................. 43 
6.1.1
Impacts of all packages on Member States where minimum wage protection 
is provided by collective agreements ........................................................................ 44 

6.1.2
Impacts  of  all  packages  on  Member  States  with  a  statutory  national 
minimum wage ......................................................................................................... 44 

6.1.3
Impacts of the individual packages on Member States where minimum wage 
protection is provided by collective agreements ...................................................... 48 

6.1.4
Impacts  of  the  individual  packages  on  Member  States  with  statutory 
minimum wages ........................................................................................................ 49 

6.2

Economic impacts ....................................................................................................... 55 
6.2.1
Impacts of all packages on Member States where minimum wage protection 
is provided by collective agreements ........................................................................ 55 

6.2.2
Impacts  of  all  packages  on  Member  States  with  a  statutory  national 
minimum wage ......................................................................................................... 55 

6.2.3
Impacts of the individual packages on Member States where minimum wage 
protection is provided by collective agreements ...................................................... 61 

6.2.4
Impacts  of  the  individual  packages  on  Member  States  with  statutory 
minimum wages ........................................................................................................ 62 

6.3

6.4

Impacts on fundamental rights ................................................................................... 65 
6.3.1
Impacts of all packages ................................................................................. 65 

6.3.2

Impacts of the individual packages ............................................................... 66 

Comparing the policy packages .................................................................................. 66 
6.4.1
  Effectiveness .................................................................................................. 67 

6.4.2

  Efficiency ........................................................................................................ 68 

6.4.3

  Coherence ...................................................................................................... 69 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.4.4

Impacts on stakeholders ................................................................................ 70 

6.4.5

Impacts on national industrial relations systems .......................................... 70 

7

8

THE PREFERRED PACKAGE ........................................................................................... 71 

THE CHOICE OF LEGAL INSTRUMENT ............................................................................ 73 

8.1
8.2

Legal options ............................................................................................................... 73 
Preferred option ......................................................................................................... 75 

9

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? ................................. 76 

Annex 1

Procedural information...................................................................................... 77 

A1.1. 

Lead DG, Decide Planning/CWP references ................................................ 77 

A1.2.  Organisation and timing.............................................................................. 77 

A1.3. 

Consultation of the RSB .............................................................................. 77 

A1.4. 

Evidence, sources, quality and external expertise ...................................... 85 

Annex 2

Stakeholder consultation ................................................................................... 86 

A2.1. 

Results of the first phase Social Partners consultation ............................... 86 

A2.2. 

Results of the second phase Social Partners consultation ......................... 90 

A2.3. 

Results of targeted consultations with Member States ............................. 95 

A2.4.  Other consultations .................................................................................... 99 

A2.5. 

Public consultations .................................................................................. 102 

Annex 3

  Who is affected and how? ............................................................................... 106 

A3.1. 

Practical implications of the initiative ....................................................... 106 

Annex 4

Analytical methods .......................................................................................... 113 

A4.1. 

Summary of studies prepared for this Impact Assessment ...................... 113 

A4.2. 

Identification of minimum (and low) wage earners ................................. 114 

A4.3. 

Simulations with the Euromod model: Methodological notes ................. 116 

A4.4. 

Estimation of possible employment effects: Methodology ...................... 117 

A4.5. 

The OECD Tax-Benefit model: Methodological notes .............................. 119 

A4.6. 

Collective bargaining coverage: data issues ............................................. 120 

A4.7. 

Average and median wages: statistical issues .......................................... 121 

A4.8. 

Dissemination of statistical data for the UK ............................................. 122 

Annex 5

Visualisation of the problem tree and the intervention logic ............................. 123 

Annex 6

  Minimum wage setting systems in the EU ........................................................ 125 

A6.1.  Minimum wage protection provided by collective agreements ............... 125 

A6.2.  Minimum wages set through legislative provisions.................................. 127 

Annex 7

The profile of minimum wage earners .............................................................. 131 

A7.1.  Who are the minimum wage earners? ..................................................... 131 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
A7.2.  Where do minimum wage earners live and work? ................................... 136 

Annex 8

Problem definition: Additional information ...................................................... 142 

A8.1. 

Adequate minimum wages protect low-wage earners ............................ 142 

A8.2. 

Adequacy of minimum wages: Additional indicators and analysis ........... 144 

Annex 9

Internal drivers: Additional information ........................................................... 153 

A9.1. 

Declining trend in collective bargaining .................................................... 153 

A9.2. 

Insufficiently clear frameworks to set statutory minimum wages ........... 156 

A9.3. 

Involvement of social partners in statutory minimum wage setting ........ 158 

A9.4. 

Variations and exemptions ....................................................................... 160 

A9.5. 

Lack of compliance with minimum wage provisions ................................ 161 

Annex 10

  Recent reforms in Member States: An overview ............................................... 172 

Annex 11

  Policy options: Additional information ............................................................. 177 

A11.1.  Options related to collective bargaining ................................................... 177 

A11.2.  Options related to adequacy indicators.................................................... 178 

A11.3.  Composition of policy packages: Overview .............................................. 179 

Annex 12

Impacts of policy measures and policy packages: Additional information .......... 182 

A12.1.  Statutory minimum wages, wages, and the share of workers affected ... 182 

A12.2.  Wage inequality, in-work poverty, gender pay gap .................................. 190 

A12.3.  Work incentives: Simulation results ......................................................... 195 

A12.4. 

Impacts on employment ........................................................................... 196 

A12.5. 

Impacts on consumption and prices ......................................................... 198 

A12.6. 

Introduction of the statutory minimum wage in Ireland and Germany ... 204 

A12.7.  Youth minimum wages and youth employment: A survey ....................... 205 

A12.8. 

Impacts on public budgets: Results from Euromod simulations .............. 207 

A12.9.  The choice between possible indicative reference values ....................... 209 

A12.10.  Capacity building actions .......................................................................... 214 

A12.11.  Coherence ................................................................................................. 216 

A12.12.  Costs for firms and SMEs .......................................................................... 218 

A12.13.  The SME Test – Summary of results.......................................................... 220 

A12.14.  Implication of the packages on Member States ....................................... 222 

Annex 13

  Monitoring and Evaluation .............................................................................. 233 

 
 
 
 
 
 
Abbreviations  

Acronym 

Meaning or definition 

CJEU  
CSR 
DG ECFIN  Directorate-General  for  Economic  and  Financial  Affairs,  European 

Court of Justice of the European Union  
Country Specific Recommendation  

Commission 

DG EMPL  Directorate-General  for  Employment,  Social  Affairs  and  Inclusion, 

ECB  
EMCO 
EPC 
ESDE  

European Commission  
European Central Bank  
Employment Committee  
Economic Policy Committee 
"Employment and Social Developments in Europe", Annual Report of the 
European Commission 

Eurofound   European  Foundation  for  the  Improvement  of  Living  and  Working 

EWCS  
IA  
ILO  
JRC 
LFS  
LMWD 

MS  
OECD  
REFIT  
RSB  
SES  
SMEs  
SPC 
SWD  
TFEU  

Conditions  
European Working Conditions Survey  
Impact Assessment  
International Labour Organization  
Joint Research Centre, European Commission 
Labour Force Survey  
Labour Market and Wage Developments in Europe”, Annual Review of the 
European Commission 
Member States  
Organisation for Economic Co-operation and Development  
European Commission's Regulatory Fitness and Performance programme  
Regulatory Scrutiny Board  
European Union Structure of Earnings Survey  
Small and medium-sized enterprises  
Social Protection Committee  
Staff Working Document  
Treaty on the Functioning of the European Union  

 
 
 
 
 
 
 
Country and region codes:  

EU   European Union 
EA   Euro area 
AT   Austria 
BE   Belgium 
BG   Bulgaria 
CY   Cyprus 
CZ   Czechia 
DE   Germany 
DK   Denmark 
EE    Estonia 
EL    Greece 
ES    Spain 
FI     Finland 
FR    France 
HR    Croatia 
HU    Hungary 
IE      Ireland 
IT      Italy 
LT     Lithuania 
LU    Luxembourg 
LV    Latvia 
MT   Malta 
NL    The Netherlands 
PL     Poland 
PT    Portugal 
RO    Romania 
SE   Sweden 
SI   Slovenia 
SK   Slovakia 
UK   United Kingdom 

 
 
 
 
 
1

INTRODUCTION: POLITICAL AND LEGAL CONTEXT  

In recent decades, low wages1 have not kept up with other wages in many Member 
States,  thus  affecting  in-work  poverty,  wage  inequality,  and  the  capacity  of  low-wage 
earners  to  cope  with  economic  distress.  Ensuring  that  all  EU  workers  earn  adequate 
wages  is  essential  for  their  wellbeing  and  for  supporting  sustainable  and  inclusive 
growth. Minimum wages play an important role in this context.  

The current crisis has bolstered the demand for EU action to ensure that minimum 
wages allow for a decent living. The EU has been hit hard by the  Covid-19 outbreak, 
with a significant loss of human lives and negative effects on Member States’ economies, 
businesses, and the income of workers and their families. The crisis has particularly hit 
sectors  with  a  higher  share  of  low-wage  workers  such  as  retail  and  tourism,  and  it  is 
likely to have a stronger impact on vulnerable workers. Ensuring a decent living for all 
workers  is  critical  for  supporting  a  sustainable  and  inclusive  recovery.  Therefore, 
minimum wages are key to ensure an inclusive recovery from the current crisis, as well 
as to make our economies fairer and more resilient. 

The right of workers  to fair and just working conditions is  outlined in several  EU 
political and strategic documents. The Charter of Fundamental Rights of the European 
Union (Article 31: 'Fair and just working conditions') recognises the right of all workers 
to working conditions which respect their health, safety and dignity. The European Pillar 
of Social Rights, proclaimed in November 2017 by the Council of the EU, the European 
Parliament and the Commission, as well as social partners, in its Principle 6 on ‘Wages’, 
calls for adequate minimum wages, and transparent and predictable wage setting. These 
objectives are reflected in the call for a fair and social Europe in the Strategic Agenda for 
2019-2024, agreed at the European Council in June 2019. In the Political Guidelines for 
the  new  Commission  (2019-2024),  President  Ursula  von  der  Leyen  stated:  “I  will 
propose a legal instrument to ensure that every worker in our Union has a fair minimum 
wage. This should allow for a decent living wherever they work. Minimum wages should 
be  set  according  to  national  traditions,  through  collective  agreements  or  legal 
provisions.”2  

In  line  with  Article  154  TFEU,  the  Commission  has  carried  out  a  two-stage 
consultation of social partners on possible EU action in the area of minimum wages. 
During  the  first-stage  consultation,  between  14  January  and  25  February  2020,  social 
partners  were  consulted  on  the  need  and  possible  direction  of  EU  action.3  This  was 

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 European Commission 2019-24. 
3 Consultation Document of 14.1.2020, First phase consultation of social partners on possible EU action addressing the 
challenges related to fair minimum wages, C(2020) 83 final. 

1 

 
 
 
                                                           
followed by a second phase between 3 June and 4 September 2020.4 The social partners 
decided not to launch the negotiations foreseen in Article 155 TFEU. 

This initiative aims at improving working conditions by ensuring that workers in the 
Union  have  access  to  adequate  statutory  minimum  wages,  where  they  exist,  or 
wages set by collective agreements, thus allowing for a decent living wherever they 
work. Therefore, the specific objectives of the initiative are to improve the adequacy and 
to  increase  the  coverage  of  minimum  wages.  Thus  it  forms  part  of  the  European 
Commission’s social policy and is coherent with and supports other actions implemented 
in this field over the last years.5  

In her Political  Guidelines, President Ursula  von der Leyen has also committed to 
fully  implement  the  European  Pillar  of  Social Rights.  To  this  end,  in  January  2020, 
the Commission presented a Communication on building a strong social Europe for just 
transitions, which set out the road towards an Action Plan to implement the Social Pillar 
including  the  initiative  on  minimum  wages  among  the  key  actions  to  be  pursued.  The 
minimum wage initiative is consistent with other actions foreseen within this framework, 
notably with the measure to introduce a European Gender Equality Strategy to advance in 
closing the gender pay gap, including through binding pay transparency measures.  

2

  PROBLEM DEFINITION 

Minimum wage protection can be provided by collective agreements or by statutory 
minimum wages set by legislation. There are six Member States where minimum wage 
protection  is  provided  by  collective  agreements:  Austria,  Cyprus,  Denmark,  Finland, 
Italy  and  Sweden.  Of  these  Member  States,  Cyprus  has  also  statutory  minimum  wages 
covering  some  low-wage  occupations.  The  other  21  Member  States  have  statutory 
national minimum wages, that is, statutory minimum wages that apply universally in the 
country (as opposed to applying only to some occupations as in Cyprus). In all Member 
States  with  statutory  national  minimum  wages,  collective  agreements  set  wages  above 
the statutory  minimum  wages in  a number of sectors. Annex 6 provides  more detail of 
minimum wage setting institutions by Member State.  

4  Consultation  Document  of  03.06.2020,  “Second  phase  consultation  of  social  partners  on  possible  EU  action 
addressing the challenges related to fair minimum wages” C(2020) 3570 final accompanied by an analytical document. 
5  In  particular:  Council  Decision (EU)  2018/1215  of  16  July  2018  on  guidelines  for  the  employment  policies  of  the 
Member States; Commission Recommendation of 3 October 2008 on the active inclusion of people excluded from the 
labour  market;  Directive  2019/1152/EU  on  transparent  and  predictable  working  conditions  in  the  European  Union; 
Directive  2000/78/EC  against  discrimination  on  grounds  of  religion or belief,  disability,  age  or  sexual  orientation  in 
employment and occupation; Directive 2006/54/EC on the implementation of the principle of equal opportunities and 
equal  treatment  of  men  and  women  in  matters  of  employment  and  occupation;  Directive  2014/67/EU  on  the 
enforcement of  Directive 96/71/EC concerning the posting of workers in the framework of the provision of services 
and amending Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information 
System; Directive 2014/23/EU on the award of concession contracts; Directive 2014/24/EU on public procurement and 
repealing Directive 2004/18/E; and Directive 2014/25/EU on procurement by entities operating in the water, energy, 
transport and postal services sectors and repealing Directive 2004/17/EC.  

2 

 
 
                                                           
During  the  social  partners’  and  the  targeted  consultation  process,  there  was  a 
general  agreement  amongst  stakeholders  on  the  importance  of  protecting  workers 
with adequate minimum wages. However, many workers are currently not protected by 
adequate minimum wages in the EU. In some cases, the level of minimum wages cannot 
be  considered  as  adequate.  In  others,  there  are  workers  who  do  not  have  access  to  the 
protection  of  minimum  wages.  The  rest  of  this  section  lays  out  various  aspects  of  this 
problem  (Section  2.1),  discusses  its  drivers  (Section  2.2  to  2.5),  its  consequences 
(Section 2.6) as well as how the problem may evolve (Section 2.5).  

The  stakeholders  generally  showed  support  for  most  of  the  objectives  of  the 
initiative.  Specifically,  the  workers’  organisations  considered  that  statutory  minimum 
wages  are  not  always  adequate  while  several  employers’  organisations  agreed  with  the 
importance  of  adequate  minimum  wages.  Along  the  same  lines,  there  was  a  general 
agreement among Member States’ representatives that ensuring adequate minimum wage 
levels and coverage for all forms of work can contribute to the achievement of upward 
social  convergence  and  to  the  fight  against  poverty,  including  in-work  poverty  (see 
Annex  2  for  more  details).  However,  views  on  the  need  of  EU  action  differed  and 
employer  organisations  and  Nordic  unions  did  not  agree  that  an  EU  action  in  this  area 
would be needed. 

2.1

  What is the problem? 

2.1.1

Insufficient adequacy 

Minimum wages can be considered adequate when they are fair vis-à-vis the wages of 
other  workers  and  when  they  provide  a  decent  standard  of  living,  taking  into  account 
general  economic  conditions  in  the  country.6  While  the  first  aspect  of  adequacy  is 
formulated in a “relative” way, i.e. including an element of comparison, and the other in 
an “absolute” way, both are closely related. This is because even the concept of a “decent 
standard of living” is usually defined in a relative way.  

This  section  (and  Annex  A8.2)  present  indicators  operationalising  both  aspects  of 
adequacy to allow for a complex assessment of adequacy of minimum wages. First, 
the aspect of fairness in comparison to other wages is operationalised by the ratio of the 
gross  minimum  wage  to  the  gross  median  wage  as  well  as  to  the  gross  average  wage. 
Second, adequacy as providing a decent living standard is operationalised by the ratio of 
the net income of minimum wage earners to the poverty (AROP) threshold as well as to 
the  net  average  wage.  All  these  adequacy  indicators  compare  minimum  wages  to  other 
people’s wages or incomes. Both aspects of minimum wage adequacy, and all indicators 

6 For a more detailed discussion of both aspects of adequacy, including indicators to measure them, see Annex A8.2. 

3 

 
 
 
                                                           
listed, are relevant independently of the wage distribution or the general level of wages. 
All are used in this section to assess problems of adequacy of statutory minimum wages7. 

While the adequacy of statutory minimum wages has improved in several countries 
in  recent  years,  it  is  still  low  in  a  number  of  Member  States,  based  on  all  main 
indicators.  In almost all Member States, the statutory minimum wage is below 60% of 
the  median  wage  and  50%  of  the  average  wage  (Graph  1).  In  2019,  only  the  statutory 
minimum wage of Portugal reached both values, while that of Bulgaria reached 60% of 
the median. Further, in  the same  year, the statutory minimum wage was below 50% of 
the  median  wage  in  nine  EU  countries  (Estonia,  Malta,  Ireland,  Czechia,  Latvia, 
Germany,  the  Netherlands,  Croatia  and  Greece).  In  three  of  these  countries  (Estonia, 
Malta and Ireland), it was even below 45%. Moreover, seven countries (Estonia, Malta, 
Ireland, Czechia, Latvia, Hungary and Romania) had minimum wages below 40% of the 
average  wage.  In  Member  States  where  minimum  wage  protection  is  provided  by 
collective agreements  (with the exception of  Italy8), wages set  in  collective agreements 
for low-paid occupations are generally high when compared to statutory minimum wages 
in other countries.9 

Graph  1:  Minimum  wages,  expressed  as  a  percentage  of  the  gross  median  and 

average wage of full-time workers, 2019 

Notes:  *  For  AT,  DK,  FI,  IT  and  SE,  information  on  collective  agreements  covering  low-paying  job  categories 
(average of 3 lowest rates; for CY information on occupational statutory minimum wages) was taken from Eurofound 
(2020): Minimum wages in 2020 - Annual review, while information on median and average wages was provided by 
Eurostat.  
Source: Commission calculations based on Eurostat data. 

7 A discussion of their relative merits for the purposes of setting reference values is included in Section 5 (on policy 
options) and Section 6 (on impacts) as well as the Annexes supporting these, in particular, Annex A12.9. 
8 Various data collection methodologies result in qualitatively different results about collectively agreed wages in Italy. 
Such a methodological change explains the difference between these updated data and those shown in the  analytical 
document accompanying the second-stage consultation of social partners.  
9 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. 

4 

0%10%20%30%40%50%60%70%EEMTIECZLVDENLHRELBESKHULTPLLUROESSIFRBGPTIT*FI*DK*AT*CY*SE*UKminimum wage / median wageminimum wage / average wage 
 
 
 
                                                           
In  nine  Member  States,  the  statutory  minimum  wage  did  not  protect  minimum 
wage  earners  against  the  risk  of  poverty  in  2018  (Graph  2).  Countries  where  the 
minimum wage was not  sufficient to help a single worker avoid the risk of poverty are 
Bulgaria,  Czechia,  Estonia,  Germany,  Hungary,  Latvia,  Luxembourg,  Malta  and 
Slovenia.10  In  ten  Member  States,  statutory  minimum  wages  also  fell  short  of  the 
standard of adequacy defined by the Council of Europe.11  

Graph 2: Net income of single minimum wage earners working full-time, relative to 

the at-risk-of poverty threshold, 2018  

Single working-age person

At-risk-of-poverty threshold

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

U
L

Z
C

E
E

V
L

I

T S
M

G
B

E
D

U
H

T
L

L
P

R
H

K
S

S
E

R
F

E
B

L
N

T
P

E
O I
R

L
E

*
T
I

*
Y
C

*
E
S

*
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A

*
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*
K
D

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U

Notes: An individual is at the risk of poverty if he or she lives in a household with an income below 60% of net median 
household  income,  adjusted  for  household  composition,  in  the  same  country.  This  is  the  standard  definition  of 
monetary poverty in EU social statistics. The single childless persons considered in this graph are not entitled to social 
assistance and housing benefits. 
Source:  European  Commission  calculations  based  on  OECD  TaxBen  model.  Comparable  wages  set  in  collective 
agreements  in  Member  States  without  statutory  minimum  wages  (marked  by  *)  were  taken  from  Eurofound  (2020): 
Minimum  wages  in  2020  –  Annual  Report.  The  at-risk-of  poverty  threshold  is  based on  Eurostat flash  estimates  for 
BE, DE, ES, FR, IE, LT, LU, MT, PT, SK, UK, CY and IT. For all other countries, official Eurostat data have been 
used. 

Taken  together,  14  Member  States  had  a  statutory  minimum  wage  below  either 
50%  of  the  median  wage  or  not  sufficient  to  reach  the  poverty  line  for  a  single 
individual.  While  there  are  differences  across  various  indicators  of  minimum  wage 
adequacy, their conclusions are consistent in the case of a number of Member States. In 
particular,  the  adequacy  of  the  statutory  minimum  wage  in  some  Member  States  ranks 
consistently among the lowest (e.g. Estonia, Czechia, Lithuania and Malta), or among the 
highest (e.g. France and Portugal) across the variety of indicators analysed.  

The  assessment  of  minimum  wage  adequacy  is  more  complex  in  countries  where 
minimum  wage  protection  is  provided  by  collective  agreements.  This  is  because 
comprehensive  data  on  wages  set  in  collective  agreements  are  not  available. 

10 The problem exists also for other household types, including single parents with a child (in even more countries than 
for single workers) and for dual-earner couples, where both earn the minimum wage and have two children. 
11 It compares the net minimum wage to the net average wage. See Graph A8.4 in Annex A8.2. 

5 

 
 
 
 
                                                           
Representative  samples  of  collective  agreements  for  low-paid  occupations  have  been 
collected in the past.12 The available information suggests that there are issues with the 
adequacy  of  some  minimum  wages  in  Cyprus  and  Italy  (see  Graphs  1  and  2  above), 
although  the  assessment  of  adequacy  is  sensitive  to  the  methodology  of  collecting 
representative collective agreements.13  

Insufficient  adequacy  affects  a  large  number  of  workers.  About  one  in  six  workers 
are low-wage earners in the EU according to the definition of Eurostat, earning less than 
two  thirds  of  the  median  wage,  and  their  share  has  increased  from  16.7%  in  2006  to 
17.2%  in  2014.14  Their  share  is  lowest  in  Sweden,  Belgium  and  Finland,  while  it  is 
highest  in  Latvia,  Romania  and  Lithuania.  In  addition,  a  significant  share  of  workers 
earns less than 60%, 50% or 40% of the median wage (Graph A8.2 in Annex 8.1). 

General  wages,  as  well  as  minimum  wages,  have  been  growing  faster  in  low-wage 
countries  (especially  in  Central  and  Eastern  European  Member  States)  than  in 
high-wage countries.15 Despite this trend towards convergence in the last two decades, a 
large  gap  remains  between  the  lowest  and  the  highest  nominal  minimum  wages  in  the 
EU. 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  lowest  and  highest  statutory  minimum  wages  is  about  one  to  three  (Graph  A8.8  in 
Annex A8.1), broadly reflecting differences in wage and productivity levels.  

2.1.2

  Gaps in coverage 

In Member States with a statutory national minimum wage, gaps in coverage arise 
from  specific  provisions  in  the  minimum  wage  legislation  which  allow  for 
exemptions  or  variations  for  specific  groups  of  workers.16  The  extent  of  these  gaps 

12  See,  e.g.  Kampelmann,  S,  A.  Garnero  and  F.  Rycx  (2013):  “Minimum  wages  in  Europe:  does  the  diversity  of 
systems lead to a diversity of outcomes?”, ETUI Report 128; Eurofound (2020): Minimum wages in 2020  – Annual 
Report, as well as the 2019 issue of the same report. 
13 Studies about the adequacy of wages set in collective agreements have come to various conclusions for Italy in the 
past.  While  Kampelmann  et  al  (2013;  see  references  in  previous  footnote)  as  well  as  Eurofound  (2019)  found 
comparatively high wages set in collective agreements, the collective agreements in low-wage occupations collected by 
Eurofound (2020) based on a new methodology, suggest lower wages. This information has been used in Graphs 1 and 
2 above.   
14 See Graph A8.1 in Annex A8.1. Based on latest data based on the 2014 wave of EU-SES. The  2018 wave of the 
survey is expected to be published at the end of 2020. This survey of firms is  conducted every four years in the EU, 
including firms with 10 employees or more. Other sources of information (e.g. the EU-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. On the 
development of this share over time, see Section 2.4.1. 
15  Statutory  minimum  wage  growth  was  also  faster  in  low-wage  countries,  even  as  compared  to  other  wages  or  to 
productivity  growth;  see  Graphs  A8.9-A8.11  in  Annex  A8.2.  Longer-term  trends  in  wage  convergence  have  been 
analysed  by  the  European  Commission  (2018):  “Labour  market  and  wage  developments  in  Europe:  Annual  Review 
2018”, DG EMPL, Chapter II.2.  
16  “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 referred to as “sub-minima”).    

6 

 
 
                                                           
appears small based on the regulations that exist in Member States, but exact data are not 
available.17 Compliance issues contribute to gaps in coverage (see Section 2.5.5). 

In Member States without a statutory national minimum wage, gaps arise because 
specific  groups  of  workers  are  not  covered  by  collective  agreements.18  There  are 
substantial differences: The share of workers not covered is  around 2% in Austria, 10% 
in Finland and Sweden, 20% in Denmark and Italy, and around 55% in Cyprus (see also 
Section 2.5.1 on collective bargaining). Given data issues (see Annex A4.6A4.4), precise 
information on the wage levels of those not covered by collective agreements is however 
limited. The share of low-wage workers is significantly higher among the non-covered in 
Cyprus, similar to those covered in Austria, Denmark and Finland, while information is 
not available for Italy and Sweden.19 Also for these countries, compliance issues play a 
role (see Section 2.4.2). 

2.1.3

  Which groups, sectors and regions are most affected by the problem?  

Women,  young  and  low-skilled  workers,  single  parents,  as  well  as  workers  with 
non-standard  contracts  are  more  likely  to  be  affected  by  the  problem  than  other 
groups.20 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 around 20% (in Portugal and Romania).21 
Women have a higher (almost double) probability to earn the minimum wage than men, 
but the gender differential varies among Member States. In Czechia, Germany, Malta, the 
Netherlands, and Slovakia women represent over 70% of minimum wage earners. Young 
people,  single  parents,  low-skilled  workers  and  those  with  temporary  or  part-time 
contracts  are  more  likely  to  earn  minimum  wages  than  other  groups.  They  do  not, 
however,  represent  the  majority  of  minimum  wage  earners  due  to  their  generally  small 
shares in the workforce. See Annex A7.1 for more detail on the profile of minimum wage 
earners. 

Workers  in  less  densely  populated  areas  have  a  somewhat  higher  chance  of  being 
minimum  wage  earners  but  the  differences  between  types  of  regions  are  small 
overall.22 On average across all 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 other things, to regional differences in the characteristics of 

17 For a discussion of exemptions, see Section 2.5.4. For a detailed description of regulations in Member States, see 
Annex  A9.4.  Estimates  based  on  income  surveys  such  as  SILC  do  not  permit  to  disentangle  the  effect  of  different 
causes such as exemptions, reporting errors (especially related to working time) and non-compliance. See also section 
2.5.5 below on data issues related to compliance.  
18 Collective agreements address many aspects of working conditions other than wages. Some collective agreements do 
not include provisions about wages at all. Nevertheless, collective bargaining coverage is a close proxy of the share of 
workers protected by minimum wages in countries without statutory minimum wages. 
19 Data extraction from the 2014 wave of the Structure of Earnings Survey, provided by Eurostat.  
20 See Annex A7.1 for detailed information by Member States. 
21 See Graph A7.1 in Annex A7.1. 
22 See Annex A7.2, and especially Graph A4.7, for more detail.  

7 

 
 
                                                           
workers as well as the location of various economic sectors (for instance, agriculture in 
rural areas and finance in dense ones).   

In  virtually  all  countries,  the  majority  of  minimum  wage  earners  works  in  the 
services  sectors.23  The  food  and  accommodation  (or  hospitality)  sector,  a  sector 
particularly  affected  by  the  Covid-19  pandemic,  has  a  high  share  of  minimum  wage 
earners.24  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 minimum wage earners 
in agriculture is less than 10% in all Member States. 

Micro and small enterprises employ a majority of minimum wage earners but there 
is a variety of patterns across the EU.25 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. 

2.2

  External drivers  

The  situation  of  low-wage  workers26  and  the  level  of  minimum  wages  are  also 
influenced  by  factors  beyond  the  scope  of  this  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).  

The proportion of low-wage workers is affected by changes in the structure of the 
economy  and  demographic  factors  related  to  skills.  Globalization  and  technological 
change  are  increasing  productivity  and  living  standards  on  average,  but  some  workers 
may be left behind. Increased automation, digitisation, and robotisation have 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  (or 
skilled) occupations.27 This has contributed to wage inequality.28  

23 See Annex A7.2, and especially Graph A7.6, for more detail. 
24 See Annex A7.2, and especially Graph A7.7, for more detail. 
25 See Annex A7.2, and especially Graph A7.8, for more detail. 
26 Increases in the share of low-wage earners exceeded one percentage point in Czechia, France, Germany, Greece, and 
Spain, as well as in the euro area as a whole. In percentage terms, this share also increased significantly in Finland and 
Sweden, albeit from very low levels. In contrast, in some Member States, including most Eastern European countries, 
the share of low-wage earners declined. 
27 See for example: Sebastian, R. and F. Biagi (2018), “The Routine Biased Technical Change hypothesis: A critical 
review”,  JRC  Technical  Reports,  Publications  Office  of  the  European  Union,  Luxembourg;  European  Commission 
(2019): LMWD 2019 Report, DG EMPL.  

8 

 
 
                                                           
The  share  of  non-standard  workers,  who  are  much  more  likely  to  receive  the 
minimum  wage,  has  increased.  The  proportion  of  permanent  full-time  employment 
(also called “standard” employment) has declined from 62% to 59% in the EU-28 over 
the  period  2002-2016.29  It  has  been  estimated  that  the  remuneration  of  employees  on 
open-ended contracts is (on average) at least 13% higher as compared to similar workers 
on temporary contracts. The gap is even larger for low-wage earners.  

Taxes  and  benefits  affect  the  living  standards  of  minimum  wage  earners.  Personal 
income taxes and social security contributions can significantly reduce the take-home pay 
of minimum wage earners (see Graph A8.5 in Annex 8.2).  

2.3

Internal drivers  

Internal drivers refer to the root causes of insufficient minimum wages and gaps in 
coverage that will be tackled by the initiative. This section discusses five main internal 
drivers:  (1)  Negative  trend  in  collective  bargaining  coverage,  affecting  adequacy  and 
coverage;  (2)  Insufficiently  clear  framework  for  setting  statutory  minimum  wages 
(including  criteria  for  adequacy,  frequency  and  regularity  of  updates);  (3)  Insufficient 
involvement  of  social  partners  in  MW  setting;  (4)  Exemptions  for  some  groups  in 
statutory systems; lower minima (variations) for other groups; (5) Imperfect compliance. 
A  summary  of  these  drivers  is  presented  in  this  section;  Annex  9  provides  more  detail 
and background and Table A9.5 presents a summary of the internal drivers per Member 
State, including observations on their potential impact on adequacy and coverage.   

Internal  drivers  affect  both  aspects  of  the  problem  (coverage  and  adequacy  of 
minimum  wages)  differently  according  to  whether  minimum  wages  are  set  via 
collective  bargaining  or  legal  provisions.  A  detailed  visualisation  of  how  they  affect 
both aspects of the problem in each system is provided by Graph 3. As panel (a) of Graph 
3  shows,  the  adequacy  and  coverage  of  minimum  wages  in  countries  solely  with 
collective  bargaining  systems  are  affected  by  declining  collective  bargaining  coverage 
and  imperfect  compliance.  In  countries  where  statutory  national  minimum  wages  also 
exist (panel b), adequacy and coverage of minimum wages are not only affected by those 
two factors but also by specific features of the systems such as the way minimum wages 
are updated or the existence of exemptions or variations. Internal drivers affect adequacy 
or  coverage  differently  across  both  systems.  For  instance,  collective  bargaining  is  an 
indirect  driver  of  the  adequacy  of  minimum  wages  in  statutory  systems,  but  it  directly 
drives  both  adequacy  and  coverage  in  systems  relying  on  collective  bargaining. 
Furthermore,  while  exemptions  from  statutory  minimum  wages  affect  coverage, 

28 For instance, Jensen et al. (2019) find that, between 1997 and 2007 in the EU-15, “[o]n average, the Gini of wage 
inequality has increased by 0,6 percentage points as a direct effect of  job  polarization”. See: Jensen, T.L., J. Nielsen, 
A.G. Christiansen (2019): “Job polarization has increased inequality across Western Europe”, Economic Council of the 
Labour Movement (ECLM).  
29 European Commission (2017): LMWD 2017 Report, DG EMPL (link).  

9 

 
 
 
                                                                                                                                                                            
variations and deductions affect adequacy. For this reason, they are depicted separately in 
Graph 3 even if discussed in the same internal driver (4).  

Graph 3: Links between internal drivers and aspects of the problem, by minimum 

wage setting system 

(a) Systems where minimum wage protection is provided by collective agreements 

(b) Systems with a statutory national minimum wage 

10 

 
 
 
 
 
 
2.4

Internal  drivers  in  Member  States  where  minimum  wage  protection  is 
provided by collective agreements 

2.4.1

  Declining trend in collective bargaining  

Well-functioning collective bargaining ensures that workers are protected by wages 
set in collective agreements and leads to higher wage levels. This is in particular the 
case  in  Member  States  where  minimum  wage  protection  is  provided  by  collective 
agreements  since,  in  these  countries,  collective  bargaining  directly  determines  both  the 
coverage and the adequacy of minimum wages.30 Member States with this type of system 
display  some  of  the  highest  wages  (see  Graph  1  and  Graph  2  above)  as  well  as  lower 
wage inequality.31 

Collective  bargaining  coverage  shows  a  decreasing  trend  in  many  countries  in 
recent  years.32  While  this  trend  was  most  pronounced  in  countries  with  statutory 
minimum  wages,  a  significant  decrease  can  also  be  seen  in  Cyprus  where  it  has  fallen 
from around 65% to around 45% in the last two decades, while small declines can also be 
seen in Denmark and Sweden. 

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  2014)  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.33 

2.4.2

Issues in compliance, enforcement and monitoring 

Studies  based  on  survey  data  have  found  that  non-compliance  appears  to  be  a 
significant  phenomenon  in  many  countries,  including  those  countries  where 
minimum wage protection is provided by collective agreements.34 Nevertheless, data 
issues  limit  the  possibility  of  precise  estimations.35  Evidence  also  suggests  that  higher 
wages  set  in  collective  agreements  may  lead  to  a  higher  risk  of  non-compliance, 
including undeclared work.36  

30 See Annex A6.1 for detail on the institutions in countries relying on collective bargaining to set minimum wages. 
31 See Annex A9.1 and, in particular, Graphs A9.1 and A9.2. 
32 For more detail, see Annex A9.1 and in particular Graph A9.3. 
33  See  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.;  as  well  as  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. 
34 See, in particular, Kampelmann, S, A. Garnero and F. Rycx (2013): “Minimum wages in Europe: does the diversity 
of systems lead to a diversity of outcomes?”, ETUI Report 128, p. 82; Garnero, A. (2018): “The dog that barks doesn’t 
bite: Coverage and compliance of sectoral minimum wages in Italy”, IZA Journal of Labor Policy 7 (1).  
35 In particular, in most economic and social survey data, such as SILC, it is hard to disentangle non-compliance from 
data issues related to measurement error.  
36  European  Commission  (2007):  “Stepping  up  the  fight  against  undeclared  work”,  COM(2007)628,  Brussels;  and 
Kampelmann et al. (op cit.). 

11 

 
 
 
 
                                                           
Systems relying on collective bargaining differ in terms of the extent to which wages 
set in collective agreements are enforceable. This appears to be a problem in particular 
in  Cyprus,  where  collectively  agreed  wages,  including  indicative  minimum  starting 
salaries  by  occupation,  are  not  legally  enforceable  because  collective  bargaining 
agreements  are  not  legally  binding.  In  2019,  Cyprus  made  legally  binding,  for  the  first 
time,  collectively  agreed  wages  in  the  tourism  sector  applying  to  selected  low-skilled 
occupations.37 

2.5

Internal drivers in Member States with a statutory national minimum wage 

2.5.1

  Declining trend in collective bargaining  

Collective  bargaining  coverage  has  been  on  a  downward  trend  in  many  Member 
States  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.38 
Moreover,  in  several  EU  countries,  collective  bargaining  shifted  from  national,  inter-
sectoral  or  industry  levels  to  individual  firms.  One  of  the  drivers  of  falling  collective 
bargaining  was  a  sharp  decline  in  trade  union  membership.  This  decrease  has  been 
particularly  sharp  in  Central  and  Eastern  European  countries.  The  increase  of  atypical 
and non-standard work has contributed to union density decline. This partly results from 
the practical difficulties in organising these workers that are inherent to their status. The 
shift of economic activity from manufacturing to private sector services is also harming 
unionisation. 

The decline in collective bargaining has created a downward pressure on wages and 
thereby  on  minimum  wages.  In  particular,  low  and  decreasing  collective  bargaining 
coverage has led to a high share of low-wage earners in a number of countries including 
Czechia, Estonia, and  Latvia, putting pressure on statutory minimum wages.  It has also 
contributed  to  increasing  wage  inequality  overall,  leading  to  a  lagging  median  wage  as 
compared to the average wage in countries such as Bulgaria, Hungary and Romania. This 
may also have put pressure on minimum wages. 

Collective bargaining coverage affects statutory minimum wages indirectly through 
its effect on general wage developments:  

  The first step of this relationship is that high collective bargaining coverage 
is associated with higher wages and a lower share of low-wage workers, i.e., a 
higher  share  of  income  going  to  labour  (see  Graph  A9.2  in  Annex  9.1)  and  a 
lower share of low-wage workers. All Member States with a share of low-wage 
earners  below  10%  have  a  collective  bargaining  coverage  rate  above  70%  (see 

37  See  Annex  A6.1  for  more  detail  on  the  minimum  wage  setting  institutions  in  countries  relying  on  collective 
bargaining to set minimum wages.  
38 For more detail, see Annex A9.1 and in particular Graph A9.3. 

12 

 
 
 
                                                           
Graph  A9.1  in  Annex  9.1).  While  a  number  of  these  Member  States  rely  on 
collective  bargaining  to  set  minimum  wages,  this  group  also  includes  countries 
with  statutory  minimum  wages,  such  as  Belgium  and  France. Decreases  in 
collective  bargaining  coverage  have  been  found  to  have  a  negative,  although 
transitory, effect on wage growth.39 

  The  second  step 

is  that  general  wage  developments  are 

important 
determinants  of  decisions  setting  statutory  minimum  wages.  Wage  setting 
through  collective  bargaining  has  an  institutionalised  impact  on  statutory 
minimum  wage  updates  (i.e.,  linked  to  the  dynamics  of  wages  set  in  collective 
agreements)  in  countries  such  as  Germany  and  the  Netherlands.  Accordingly, 
wage moderation in collective bargaining has been a driver of modest minimum 
wage  increases  at  various  times  in  these  countries.40  In  addition,  general  wage 
developments  automatically  affect  minimum  wage  adjustments  in  Belgium, 
France,  Luxembourg,  and  Slovenia,  through  automatic  indexation  formulas.  In 
other  Member  States  with  statutory  minimum  wages,  minimum  wage  setting  is 
informed, by law or by custom, by general wage developments.41  Moreover, the 
decline in collective bargaining on wage setting therefore leads to increased wage 
inequality.  By  strengthening  the  bargaining  power  of  low-wage  workers, 
collective bargaining supports higher wages at the bottom end of the wage scale 
and thus contributes to limiting wage inequality. 

2.5.2

Insufficiently clear frameworks to set statutory minimum wages 

The lack of a clear framework for setting and updating statutory minimum wages 
may  harm  minimum  wage  adequacy.  A  low  frequency  of  updates  and  an  unclear 
framework  (e.g.  the  lack  of  criteria  to  guide  the  updates  of  statutory  minimum  wages) 
may result in periods of non-adjustment alternating with large increases in the minimum 
wage.  As  a  result,  statutory  minimum  wages  may  not  keep  pace  with  developments  in 
prices, wages or productivity for several years and thus does not reach a sufficient level 
of  purchasing  power  to  ensure  a  decent  living.  Consequently,  clear  and  stable 
frameworks  for  updating  minimum  wage  are  associated  with  more  adequate  minimum 
wages.42  

In many Member States, statutory minimum wage setting is not based on clear and 
stable  criteria.43  Member  States  where  criteria  for  minimum  wage  setting  are  not 
defined  by  law  (Bulgaria,  Estonia,  and  Romania)  often  lack  an  adequate  level  of 

39 See European Commission (2018): “Labour market and wage developments in Europe, Annual Review 2018” DG 
EMPL, Chapter II.1.   
40 See, e.g., European Commission (2018): “Country Report: The Netherlands 2018”, page 33; European Commission 
(2020): “Country Report: Germany 2020”, page 39. 
41 For instance, in Czechia, Croatia, Ireland, Greece, Latvia, Malta, Poland and Slovakia the law defines either 
formulas, variables or targets to update the statutory minimum wage that take into account wages. 
42 See European Commission (2016): LMWD Report 2016, DG EMPL, Chapter II.1 (link).  
43 See Table A9.1 in Annex A9.2.  

13 

 
 
 
                                                           
minimum  wages  (in  particular  Estonia  and  Romania).  Moreover,  in  several  Member 
States,  the  minimum  wage  legislation  only  makes  a  general  reference  to  the  need  for 
minimum  wage  setting  to  take  into  account  broad  economic  conditions44,  or  a  list  of 
variables or factors (including among others exchange rates, hours worked, tax burden, 
household expenditure) is defined but without guidance on the use of these variables or 
on their interaction.45 Among these  countries, the  majority do not  provide  for adequate 
minimum wage levels (Germany, Ireland, Greece, Croatia, Latvia, Hungary, Poland, and 
Slovakia).  

The  regularity  and  timeliness  of  statutory  minimum  wage  updates  are  not  always 
defined  by  law.46  In  many  Member  States,  an  established  practice  of  annual  updates 
exists  even  though  not  legislated,  while  in  some  Member  States  the  regularity  and 
timeliness  of  the  updates  are  neither  defined  in  legislation  nor  established  through  a 
regular practice (see Table A9.2 in Annex 9.2). This is the case e.g. for Romania, where 
the  regularity  and  timeliness  of  statutory  minimum  wage  updates  are  not  specified  and 
the  adequacy  of  minimum  wages  remains  low.  Furthermore,  in  three  Member  States 
(Czechia,  Estonia,  and  Ireland),  the  annual  updates  are  not  defined  by  law  but 
implemented  through  an  established  practice.  All  three  Member  States  are  among  the 
countries with the lowest adequacy of the statutory minimum wages.  

Clear  targets  for  minimum  wage  levels  can  contribute  to  ensuring  adequacy. 
However, if targets are set too low (e.g. at 40% of average wage) there is a higher risk 
that they do not provide for sufficient adequacy. Four Member States (Czechia, Estonia, 
Lithuania, and Poland) have set targets for minimum wage levels, which range from 40% 
to  50%  of  the  gross  average  wage.47  Particularly  in  Czechia  and  in  Estonia,  where  the 
target is set at 40% of the average wage, the adequacy of minimum wage remains among 
the lowest in the EU. 

2.5.3

Insufficient involvement of social partners in statutory minimum wage 
setting 

The  involvement  of  social  partners  in  setting  and  updating  statutory  minimum 
wages makes the minimum wage setting more informed and inclusive. Social partner 
consultation  can  enhance  the  capacity  of  minimum  wage  setting  systems  to  ensure 
adequacy  while  preserving  employment  and  competitiveness.  It  can  also  reduce 
uncertainty for employees and firms.  

44  These  Member  States  are  Germany,  Ireland,  Greece,  Spain,  Croatia,  Lithuania,  Hungary,  Poland,  Portugal  and 
Slovakia. 
45  These  Member  States  are  Germany,  Czechia,  Croatia,  Ireland,  Greece,  Latvia,  Lithuania,  Malta,  Netherlands, 
Poland, and Slovakia. 
46 These Member States are Germany, Greece, France, Croatia, Latvia, Lithuania, Malta, Netherlands, Poland, Slovenia 
and Slovakia. 
47  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. For more detail on targets and other mechanisms in place, see Annex A9.2. For a 
broad survey of minimum wage setting in statutory systems, see Annex A6.2. 

14 

 
 
 
                                                           
However, the involvement of social partners in statutory minimum  wage setting is 
limited. In several Member States  48 and considerable differences exist in their role in 
the decision-making process of statutory minimum wages across the Member States. In a 
number  of  Member  States  (Bulgaria,  Spain,  Croatia,  Latvia,  Hungary,  Portugal,  and 
Romania), although an institutionalised bilateral/tripartite consultation process is defined 
by law, this consultation is non-binding and governments can change the minimum wage 
levels  unilaterally.  The  majority  of  these  countries  (Croatia,  Latvia,  Hungary  and 
Romania)  does  not  provide  for  adequate  minimum  wage  levels.  The  adequacy  of 
minimum wages is also very low in Member States where an institutionalised tripartite or 
bipartite  setting  exists,  but  is  not  defined  by  law  (Estonia,  Lithuania,  Poland,  and 
Slovakia).  In  some  Member  States,  social  partners  often  play  only  an  advisory  role  in 
systems  where  the  minimum  wage  setting  is  led  by  expert  bodies.  This  is  the  case  for 
Greece  and  Ireland,  where  the  issued  non-binding  recommendations  do  not  help  to 
achieve  adequate  minimum  wage  levels,  as  the  adequacy  of  minimum  wages  in  both 
countries remains low. The role of social partners in the decision making process is also 
variable  in  Member  States  with  automatic  indexation.49  In  Malta,  for  instance,  the 
automatic indexation is complemented by a formal obligation to consult social partners, 
which  leads  to  non-binding  recommendations,  and  the  adequacy  of  minimum  wages  in 
the country is among the lowest in the Union. In other Member States, the involvement 
of  social  partners  is  not  institutionalised  at  all.50  Particularly  in  Czechia,  where  the 
adequacy of minimum wages is among the lowest in the EU, this could be a contributing 
factor. In a number of Member States, there are challenges related to the involvement of 
social partners in the policy process in general.51 

2.5.4

  Variations, deductions, and exemptions  

Reduced  rates  of  statutory  minimum  wages,  so-called  variations,  applying  to 
specific  groups  reduce  the  adequacy  of  statutory  minimum  wages.  They  can 
exacerbate  existing  inequalities  for  vulnerable  groups  of  workers  in  some  cases,  e.g.  if 
lower minimum wages are applied across the board to young workers, in specific sectors 
in which for instance women or migrant workers are over-represented, or if they are not 
limited in time leading to systemic underpayment of work. At the same time, they may be 
beneficial  for  facilitating  access  to  the  labour  market  of  vulnerable  groups  if  they  are 
non-discriminatory, proportionate and limited in time. They can have a positive effect on 
employment  if  they  aim  at  integrating  young  workers  in  the  labour  market,  providing 
training to apprentices or promoting the employment of workers with lower productivity.  

48  This  is  the  case  in  Bulgaria,  Czechia,  Spain,  Croatia,  Hungary,  Latvia,  Malta,  Poland,  Portugal,  Slovenia  and 
Romania. The situation has deteriorated in the case of Poland and Hungary in the context of the measures taken during 
the Covid-19 pandemic. For more detail, see Annex 9. 
49  While  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 social partners have only an advisory role. In 
Luxembourg and the Netherlands, there is no legislative clause for social partner consultation. 
50 E.g. in Czechia.  
51 Such challenges have been identified in the framework of the European Semester e.g. Hungary, Poland and Romania 
received in 2019 and 2020 Country-Specific Recommendations calling for the need to strengthen social dialogue. 

15 

 
 
                                                           
Variations  in  statutory  minimum  wages  exist  in  many  Member  States.52  In  several 
Member  States,53  there  are  purely  age-based  variations  while  in  some  others  they  are  
either education and/or experience-based.54 The available data suggest  that  the share of 
workers  affected  by  youth  variations  is  very  small,  except  in  the  Netherlands  and,  to  a 
lesser extent, Luxembourg. In particular, about 8% of workers earn less than 95% of the 
regular minimum wage in the Netherlands; about two-thirds of them are younger than 20 
years old and almost all younger than 30. About 2% of workers earn less than 95% of the 
regular  minimum  wage  in  Luxembourg;  60%  is  younger  than  30.55  A  number  of  other 
kinds of variations exist such as for seasonal and domestic workers and for workers with 
disabilities. 

In some cases, the effect of minimum wage regulation can be weakened by allowing 
deductions  from  the  minimum  wage.  For  instance,  deducting  the  value  of  the 
equipment  needed  to  perform  the  work  from  the  minimum  wage,  or  the  cost  of  travel, 
board  or  lodging  and  accommodation,  reduces  the  actual  financial  remuneration  of 
workers. Deductions from wages exist in all the Member States with statutory minimum 
wages. In many cases deductions are provided by law (e.g. in the case of taxes and social 
security  contributions).  In  other   cases  they  can  result  from  advance  payments, 
guarantees,  over-payments,  participation  in  strikes,  or  in  case  food  is  provided,  while 
they can also be agreed with the employee (e.g., to deduct loan instalment payments). In 
some  other  cases,  deductions  can  be  made  to  compensate,  among  others,  for  damages, 
missed  working  hours,  gross  misconduct  or  fines. In  some  Member  States  (Estonia, 
France,  Latvia,  Lithuania,  the  Netherlands  and  Poland),  specific  provisions  exist  which 
protect  minimum  wage  earners.  For  example,  in  Estonia,  there  is  a  provision  that  no 
deductions  can  be  made  for  minimum  wage  earners  (with  some  very  few  exceptions 
defined  by  law  where  20%  can  be  deducted),  while  in  the  Netherlands,  the  paid  salary 
cannot  fall  below  the  minimum  wage,  except  in  the  case  of  reductions  due  to  advance 
payments. In Lithuania, in the case of a minimum wage workers, deductions can be made 
up to 20% of wages for the compensation of damage (in some cases 50%) and in Poland, 
75% of the salary is free from deductions (or 90% after reductions due to penalties). In 
France,  the  amount  that  can  be  deducted  increases  progressively  with  increased  salary, 
and in the lowest tranche, a maximum of one twentieth of the salary can be deducted. In 
Latvia, in any case of compensation for damages, the resulting salary cannot fall below 
the minimum wage plus the state social security benefit for each dependent minor child. 
More information on deductions per Member State is available in Table A9.4 in Annex 9.  

52  These  Member  States  are  Belgium,  Greece,  Spain,  France,  Ireland,  Hungary,  Croatia,  Luxembourg,  Malta, 
Netherlands and Portugal. 
53 These countries are Belgium, Ireland, Luxembourg, Malta and Netherlands. 
54 These countries are Belgium, Greece, Spain, France and Portugal. 
55 Calculations are based on the EU Structure of Earnings Survey, from 2014 (latest available wave). The survey does 
not include firms with less than 10 employees.   

16 

 
 
                                                           
Besides variations and deductions, several Member States with statutory minimum 
wages have exemptions in their scope of application.56 In most cases, these are related 
either  to  up-  or  re-skilling  (e.g.  for  trainees)  or  to  labour  market  integration.  In  other 
cases, specific groups of workers are covered by separate provisions (e.g. public service). 
Their use leads to gaps in minimum wage coverage. 

2.5.5

Issues in compliance, enforcement and monitoring 

Gaps  in  coverage  and  insufficient  adequacy  may  also  emerge  if  existing  rules  are 
not  complied  with.  Studies  based  on  survey  data  have  found  that  non-compliance 
appears  to  be  a  significant  phenomenon  in  almost  all  countries,57  although  data  issues 
limit the possibility of precise estimations.58 In Member States with statutory minimum 
wages,  some  of  the  evidence  is  provided  by  the  institutions  in  charge  of  enforcing 
minimum wage rules, such as labour inspectorates or customs offices. Compliance may 
also  be  an  issue  in  some  of  the  Member  States  where  minimum  wage  protection  is 
provided by collective agreements. For instance, it has been estimated that, in Italy, more 
than 10% of workers are paid below the wage set by their reference collective agreement 
with  an  average  shortfall  of  20-23%  (see  Annex  A9.5  5)  Evidence  also  suggests  that 
young workers, women and agricultural workers are more likely to be paid less than the 
minimum  wage  floor  in  some  Member  States.59  Increasing  minimum  wage  levels  may 
lead to a higher risk of non-compliance, including undeclared work.60  

The lack of compliance can lead to unfair competition, as the reduced labour costs 
of  non-compliant  businesses  can  distort  competition.  This  risk  exists  also  in  the 
context  of  public  procurement  procedures  where  non-compliant  bidders  could  benefit 
from lower wage costs. Workers’ organisations have expressed their concerns that public 
contracts may be awarded to companies that do not comply with the applicable collective 
agreements and legal frameworks.61  

The  lack  of  reliable  monitoring  and  data  collection  mechanisms  affects  the 
evaluation  of  trends  in  the  adequacy  and  coverage  of  minimum  wages.  In  Member 
States with statutory minimum wages, data are not always available on the share of non-
covered workers or the share of workers affected by specific variations in or deductions 
from  minimum  wages.  In  the  Member  States  where  minimum  wage  protection  is 

56  These  countries  are  Belgium,  Czechia,  Germany,  Estonia,  Spain,  France,  Ireland,  Croatia,  Lithuania,  Latvia, 
Netherlands and Poland. 
57 See, in particular, Kampelmann, S, A. Garnero and F. Rycx (2013): “Minimum wages in Europe: does the diversity 
of systems lead to a diversity of outcomes?”, ETUI Report 128, p. 82; Garnero, A. (2018): “The dog that barks doesn’t 
bite: Coverage and compliance of sectoral minimum wages in Italy”, IZA Journal of Labor Policy 7 (1).  
58 In particular, in most economic and social survey data, such as SILC, it is hard to disentangle non-compliance from 
data issues related to measurement error.  
59  Eurofound  (2019):  “Minimum  wages  in  2019:  Annual  review”  and  Goraus-Tańska  and  Lewandowski  (2018): 
Minimum wage violations in central and eastern Europe, International Labour Review, Vol 158. 
60  European  Commission  (2007):  “Stepping  up  the  fight  against  undeclared  work”,  COM(2007)628,  Brussels;  and 
Kampelmann et al. (op cit.). 
61 See Annex 2 for a summary of the responses submitted to the consultation of social partners. 

17 

 
 
 
                                                           
provided by collective agreements, the incomplete information  on collective bargaining 
coverage (see Annex A4.6) and the level of wages set in collective agreements makes it 
difficult  to  appropriately  monitor  the  situation  of  low-wage  workers.  Moreover,  data  is 
scarce  on  the  level  and  adequacy  of  wages  for  workers  not  protected  collective 
agreements. 

2.6

  Why is this a problem? What are the consequences? 

2.6.1

  For workers  

Adequate  minimum  wages  improve  the  socio-economic  situation  of  the  families  of 
low-wage  earners,  and  contribute  to  reducing  wage  inequality  and  in-work 
poverty.62  Gaps  in  adequacy  and  coverage  of  minimum  wages  hamper  upward 
convergence in working and social conditions between EU Member States. Driven by a 
number  of  economic  factors,  but  also  affected  by  minimum  wages,  in-work  poverty 
increased from 8.3% in 2007 to 9.4% in 2018 in the EU.63 At the Member State level, in-
work  poverty  has  been  on  the  rise  in  all  but  seven  EU  Member  States  (i.e.  Croatia,64 
Finland, Greece, Ireland, Latvia, Poland, and Romania) showing that, increasingly, work 
does not always protect against poverty.  

Inadequate minimum wages may contribute to the gender pay gap. Given their over-
representation among minimum wage workers,65 women are more affected by inadequate 
minimum wage policies than men. 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 a higher gender pay gap.66 

Major  gaps  in  minimum  wage  adequacy  or  coverage  may  lead  to  labour  market 
segmentation. Labour market segmentation is a concern especially if low-wage workers 
are not able to move quickly to higher-paying jobs (i.e. if earnings mobility is low) or if 
the  incidence  of  informal  employment,  including  due  to  the  lack  of  enforcement  of 
regulations, is high.  

In addition, a low adequacy of minimum wages means that work does not pay, as 
compared to being unemployed or inactive.  In this case, people out of work will not 
have  sufficient  incentives  to  take  up  work  at  the  minimum  wage.  Work  incentives  are 

62 For a survey of these effects, see Annex A8.1. 
63 See Graph A8.3 in Annex A8.1. The 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.  
64 For Croatia, the comparison is made between 2010 and 2018 for reasons of data availability.  
65 The probability of women to be minimum wage earners is 14% against 8% for men (see Graph A7.2 in Annex 7.1). 
Annex 7.1 also shows detail about the share of women among minimum wage earners by Member States. 
66 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 was hardly any change in the UK. A counter-factual 
simulation  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 evidence for the UK and Ireland”, IZA Discussion Paper Series.  

18 

 
 
                                                           
also determined by the tax-benefit system, which in some countries reduces incentives to 
work for low-wage earners and second earners.67 In particular, adequate minimum wages 
and  tax  incentives  for  low-wage  earners  are  complementary  policies  to  maintain  high 
employment and support the income of low-wage workers.68 

2.6.2

  For businesses, economy and society 

Inadequate  minimum  wages  may  contribute  to  unfair  competition  in  the  labour 
market, which is a key concern for SMEs.69 In addition, inadequate minimum wages 
may  make  recruitment  more  difficult.  They  reduce  the  pool  of  workers  for  recruitment 
due  to  reduced  work  incentives.  They  increase  the  turnover  of  staff  and  reduce  staff 
engagement.70  These  impacts  may  affect  SMEs  more  as  they  employ  a  majority  of 
workers at the minimum wage level.  

Unpredictable  minimum  wage  developments  can  have  negative  consequences  for 
firms, especially SMEs, and for the economy as a whole. Under systems characterised 
by an insufficient involvement of social partners and an insufficiently clear framework to 
set  statutory  minimum  wages,  minimum  wage  setting  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 significant effects on the decisions of firms. 
Evidence  suggests  that  in  such  systems,  minimum  wage  increases  are  also  more 
correlated to the political cycle.71 Such developments may have a negative effect on the 
business  environment  for  firms  and  thus,  in  the  long  run,  for  investment,  productivity, 
and growth.  

Low wages may trigger labour mobility flows between Member States, which raise 
concerns for sending and receiving countries. The free movement of workers is 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 

67 For more information on the tax burden of minimum wages, see Graph A8.5 in Annex A8.2. 
68 “A binding minimum wage enhances the effectiveness of transfers to low-skilled workers as it prevents low-skilled 
wages  from  falling through incidence effects.” See:  Lee, D. and E. Saez (2012): “Optimal  minimum  wage policy in 
competitive labor markets”, Journal of Public Economics 96, pp 739-749.  
69  “A  well-adapted  minimum  wage  level  contributes  to  strengthen  internal  demand  and  economic  growth.  It  also 
reduces poverty and social exclusion as well as prevents unfair competition and social dumping on the labour market, a 
key  concern  for  SMEs.”  SMEUnited  (2020):  Response  to  first  phase  consultation  of  social  partners  under  Art  154 
TFEU on a possible action addressing the challenges related to fair minimum wages. See Annex 2 for a summary of 
consultations. 
70 For instance, past research on increased minimum wages for young workers has suggested 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): “Disentangling 
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  individual  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.   
71 European Commission (2016): LMWD 2016 Report, DG EMPL, Chapter II.1. 

19 

 
 
                                                           
differentials (between regions and between countries) can trigger outward mobility from 
poorer  regions,72  particularly  among  low  paid  workers  and  the  young,  exacerbating 
ongoing  demographic  trends  of  ageing  and  population  decline,  in  certain  regions. 
Minimum wages can counteract these trends by supporting the wages of young workers 
in  low-income  regions.  At  the  same  time,  outward  labour  mobility  may  tighten  local 
labour markets, increase the bargaining power of local workers and raise average wages 
in the short term.73 But such re-equilibration is less effective among low-wage earners. 

2.7

  How will the problem evolve? 

It  is  expected  that  more  workers  will  need  the  protection  of  adequate  minimum 
wages  in  the  future.  In  particular,  the  situation  of  low-wage  workers  may  continue 
deteriorating,  and  in-work  poverty  can  be  expected  to  continue  increasing.  This  is 
because the main external drivers of these developments (including technological change 
leading to job polarisation, global low wage competition, shifts in the economy towards 
services  putting  pressure  on  collective  bargaining,  and  increasing  the  weight  of  non-
standard work) are secular trends, which are expected to continue.  

Without policy action, these trends may also be exacerbated by the strong impact of 
the  Covid-19  crisis.  Social  distancing  has  strongly  hit  sectors  where  low-pay  workers 
are  disproportionally  represented.  The  most  affected  sectors  are  services  including 
transports,  tourism  and  hospitality.  In  the  second  quarter  of  2020,  there  were  6  million 
less employed in the EU compared to the last quarter of 2019; about half of this was due 
to  job  destruction  in  wholesale  and  retail  trade,  transport,  accommodation  and  food 
services.  Activity in  these sectors is  likely to stay  on  hold  for  a while,  as people adopt 
voluntary social distancing to minimise the risks of infections or new waves of contagion 
lead  public  authorities  to  introduce  selective  restrictive  measures.  These  changes  have 
redistributive  effects  as  not  all  workers  are  equally  adaptable  or  exposed  to  them. 
Workers  that  were  in  a  weak  position  before  the  pandemic  hold  occupations  that  are 
vulnerable to social distancing. Real-time survey data show that those in the top earnings 
quartile were on average 50% more likely to work from home in April than those in the 
bottom  quartile.74  This  leads  to  downward  pressure  on  wages,  notably  for  low  wage 
earners, and may put further pressure on collective bargaining.  

At  the  same  time,  the  crisis  has  brought  to  the  fore  the  category  of  ‘essential 
workers’,  in  sectors  such  as  cleaning,  retail,  distribution,  logistics,  and  delivery, 
health and long-term care and residential care. In these sectors, the share of low-wage 

72 See, e.g. European Commission (2015): LMWD report, Chapter II.1. 
73 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. 
74 OECD (2020): Employment Outlook 2020.  

20 

 
 
                                                           
workers is high.75 There is an increasing public recognition of the role of such workers, 
while  their  remuneration  levels  continue  to  stagnate.  Workers  in  health  and  social 
services  are  more  likely  to  earn  the  minimum  wage  than  other  workers  in  the  public 
sector.76 Moreover, evidence suggests that lower-skilled health and social care assistants 
earn  considerably  less  than  the  national  average  wage  in  their  country.77  With 
unemployment expected to increase, the bargaining power of low-paid workers is likely 
to decrease in the near future. 

Given  the  sizeable  and  increasing  share  of  low-wage  workers,  protection  by 
adequate minimum wages becomes even more important. While reforms in minimum 
wage setting systems implemented by Member States go in the right direction, progress 
has been uneven. As a result, many workers in the EU are still not adequately protected 
by minimum wages. It is likely that the reform momentum in the minimum wage setting 
systems will not continue, notably in the context of the expected deterioration of labour 
market  conditions  caused  by  the  Covid-19  pandemic.  This  reinforces  the  case  for  EU 
intervention at the present point in time 

3

  WHY SHOULD THE EU ACT?   

3.1

  Legal basis 

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’.78  

Article  153(5)  TFEU  contains  limitations  to  the  EU  competence.  This  paragraph 
establishes that ‘the 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 all 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 

75 In particular, 15% of agricultural workers, and up to 20% in some agricultural jobs, are minimum wage earners; the 
figure is 13% in retail and 25% of cleaners and helpers. See Annex A7.2 and Eurofound (2020), Minimum wages in 
2020: Annual review, Publications Office of the European Union, Luxembourg. 
76 See Annex A7.2 for more detail. 
77 Müller, T. (2018) “She works hard for the money; Tackling low pay in sectors dominated by women, Evidence from 
health and social care”, European Public Service Union. The paper also shows that the higher the proportion of women 
in the sector, the lower the average relative income  – and this applies also to skilled nurses and midwives as well as 
lower-skilled assistant professions.  
78 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; (…)”. 

21 

 
 
                                                           
much of their substance.”79 In line with this interpretation, recent initiatives using Article 
153  TFEU  as  legal  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 
working conditions, as referred to in Article 153 (1) (b).80  

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  shall  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.81  Action  at  EU  level  could  thus  be  to  set  up  a  framework  to 
ensure  that  national  minimum  wage  setting  systems  allow  workers  to  access  adequate 
minimum wage protection, either in the form of a statutory minimum wage or of wages 
set in collective agreements. This approach would not interfere with Member States’ and 
social partners’ competence to determine the detailed modalities of their minimum wage 
setting frameworks, and in particular the level of their minimum wages, in line with the 
Treaty.  

Therefore,  the  diversity  of  minimum  wage  setting  systems  in  Europe  would  be 
preserved.  Minimum  wages  would  continue  to  be  set  either  through  collective 
agreements  or  through  legal  provisions,  in  full  respect  of  national  competencies  and 
social  partners’  contractual  freedom.  The  initiative  would  allow  Member  States  to 
implement  the  measures,  notably  those  related  to  collective  bargaining  and  national 
frameworks  for  statutory  minimum  wages,  taking  into  account  their  national  economic 
circumstances and the specificities of their minimum wage setting systems. Limits to the 
legal possibilities of EU action also imply that EU action would not make it binding for 
Member States that rely on collective bargaining to introduce statutory minimum wages.  

In light of the limitations presented above, EU action would thus not go beyond what is 
necessary  to  achieve  the  policy  objectives,  so  that  the  principle  of  proportionality  is 
respected considering the size and nature of the identified problems.  

3.2

  Subsidiarity: Necessity and added value of EU action 

The majority of Member States are affected by the problem of insufficient adequacy 
and/or  coverage  of  minimum  wages.  These  challenges  affect  both  types  of  minimum 
wage setting systems (see sections 2.1.1 and 2.1.2):  

 

In  Member  States  where  minimum  wage  protection  is  provided  by  collective 
agreements, more than 10% of workers are excluded from the protection of wages 
set in collective agreements in four countries (Italy, Denmark, Sweden, Finland), 

79 See Case C-268/06, Impact, point 124-125; Case C-307/05, Del Cerro Alonso, point 41. 
80  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. 
81 See e.g. Case C-268/06, Impact, point 123-124. 

22 

 
 
                                                           
reaching 55% in the case of Cyprus, although there is limited information about 
how  many  of  these  workers  are  earning  low  wages.  Moreover,  wages  set  in 
collective agreements in Cyprus and Italy do not seem to be sufficiently adequate.  

 

In Member States with a statutory national minimum wage, some workers are not 
protected  by  minimum  wages  due  to  exemptions  in  twelve  Member  States 
(Belgium,  Czechia,  Germany,  Estonia,  Ireland,  Spain,  France,  Croatia,  Latvia, 
Lithuania, the Netherlands, and Poland). Furthermore, statutory minimum wages 
are too low vis-à-vis other wages82 and/or to provide a decent living83 in fourteen 
Member States (Bulgaria, Czechia, Estonia, Greece, Germany, Croatia, Hungary, 
Ireland, Latvia, Luxembourg, Malta, the Netherlands, Romania, Slovenia). 

Action at national level has proven insufficient to address the problem. While over 
the last years, several Member States have taken steps towards improving their minimum 
wage systems, national action has not been sufficient to address the identified problem. 
Reforms at national level have not been comprehensive enough and implementation has 
often lagged.  

Existing  EU  instruments,  most  notably  the  European  Semester,  have  not  been 
sufficient  to  address  the  existing  shortcomings  in  national  minimum  wage  setting 
systems.  Minimum  wage  policies  have  been  subject  to  multilateral  surveillance  within 
the  European  Semester,  and  the  EU  has  issued  policy  guidance  to  selected  Member 
States.  In  the  last  decade,  thirteen  Member  States  have  received  country-specific 
recommendations (CSRs) on wages, and ten of them specifically on minimum wages (see 
Annex  A12.11).  For  instance,  Bulgaria  and  Romania  have  repeatedly  received  CSRs 
during  the  period  2014-19  calling  for  more  transparent  minimum  wage  setting 
mechanisms  based  on  objective  criteria  for  updating  minimum  wages  (such  as  job 
creation  and  competitiveness).  However,  minimum  wage  setting  frameworks  in  both 
countries remain insufficiently clear and social partners are not sufficiently involved. As 
a result, recent increases in minimum wages in these countries seem to have negatively 
affected  the  business  environment  in  these  countries.84  Continuing  to  approach  the 
problem  only  in  a  country  specific  manner  is  not  proportionate  to  the  extent  of  the 
problems identified in the majority of Member States. 

Without  policy  action  at  EU  level,  more  countries  are  likely  to  be  affected  by  the 
problem, which would endanger the level playing field in the Single Market. While 

82 Gross minimum wage below 50% of the gross median wage or below 40% of the gross average wage. 
83  Net  income  of  single  minimum  wage  earners  working  full-time  below  the  poverty  line,  which  is  set  in  European 
social statistics at 60 % of the national median equivalised disposable income after social transfers. 
84 Only 22% of all CSRs in the period 2011-2019 have been fully, or substantially, implemented by Member States, 
while  no  or  limited  progress  was  recorded  for  32%  of  them.  Cf.  2020  Commission  Communication  on  European 
Semester: Country-specific recommendations, COM(2020) 500 final. 

23 

 
 
                                                           
the effect of most internal drivers is expected to  remain steady85, the secular decline of 
collective  bargaining  is  likely  to  reinforce  the  magnitude  of  the  identified  problem.  In 
countries where minimum wage protection is provided by collective agreements, both the 
adequacy of wages set in collective agreements and the share of protected workers will 
be affected. In Member States with statutory minimum wages, minimum wage adequacy 
will  also  be  impacted  given  the  strong  effect  that  collective  bargaining  has  on  it,  as 
explained  above  (see  section  2.5.1).  Without  concerted  action  at  EU  level,  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.  This 
creates  challenges  for  maintaining  a  level  playing  field  in  the  Single  Market  as 
competition  risks  being  more  based  on  lowering  social  standards,  rather  than  on 
innovation and productivity.  

An  EU  initiative  would  be  more  effective  in  strengthening  minimum  wage  setting 
systems  than  other  instruments.  An  EU  framework  would  set  clearer  expectations, 
ensure that  progress  is  not  partial or uneven,  and reinforce trust  among  Member States 
and  social  partners  by  increasing  transparency.  This  would  help  provide  the  necessary 
momentum  for  reinforcing  collective  bargaining  and  for  national  reforms  of  minimum 
wage  setting  mechanisms.  EU  action  can  provide  increased  transparency,  providing 
comparative data on the coverage and adequacy of minimum wages and the underlying 
developments  of  wages  and  collective  bargaining  in  the  Member  States.  This  could 
support the development of national collective bargaining frameworks, strengthening the 
social dimension of the Single Market.  

EU action would also ensure a level playing field in the Single Market by helping to 
address large differences in the coverage and adequacy of minimum wages that are not 
justified by underlying economic conditions.  

EU  action  on  fair  minimum  wages  would  improve  the  fairness  of  the  EU  labour 
market,  promote  economic  and  social  progress  and  cohesion,  help  reduce  the 
gender pay gap, and contribute to upward social convergence.86 These objectives are 
clearly set out 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, and 
taking  into  account  economic  conditions,  EU  action  on  minimum  wages  would 
contribute  to  paving  the  way  for  better  working  conditions  in  the  Union.  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, 

85 It is expected that minimum wage setting systems in Member States will remain overall stable without action at EU 
level. 
86  The  role  of  an  EU  initiative  on  the  minimum  wage  in  ensuring  upward  convergence  was  supported  by  Member 
States (EMCO and SPC) during the targeted consultation (see Annex A2.3 details). 

24 

 
 
                                                           
 
notably  those  of  SMEs.  EU  action  would  be  in  line  with  international  instruments, 
notably  ILO  conventions  and  the  European  Social  Charter.  The  value  added  of  the  EU 
action could be to build on those standards and to make them more operational and more 
targeted  to  EU  labour  markets.  It  can  thus  reinforce  the  credibility  of  Union  action  to 
protect labour standards in external relations, notably in bilateral trade agreements. 

4

  OBJECTIVES: WHAT IS TO BE ACHIEVED?  

4.1

  General objective  

The initiative aims at improving working conditions by ensuring that all workers in 
the Union have access to adequate minimum wage protection either in the form of 
statutory minimum wages or wages set in collective agreements, allowing for a decent 
living wherever they work, as laid down by principle 6 of the European Pillar of Social 
Rights  and  the  Treaty.  This  objective  is  to  be  achieved  while  safeguarding  access  to 
employment  and  taking  into  account  the  effects  on  job  creation  and  competitiveness, 
including  for  SMEs.  The  initiative  fully  respects  national  competencies  and  social 
partners’ contractual freedom.   

4.2

  Specific objectives  

In order to reach this general  objective, the specific objectives of the EU initiative 
would be to improve the adequacy and to increase the coverage of minimum wages. 
These objectives are relevant  to  both  types of wage setting systems.  As a result of this 
initiative, it would be considered a success if:  

  Member  States  with  statutory  minimum  wages  would  ensure  that  the  minimum 
wage  is  set  and  maintained  at  an  adequate  level  (as  guided  by  reference  values 
commonly used at the international level).  

 

In all Member States the collective bargaining coverage rate would be at a level 
of at least 70%.    

The initiative is addressed to all Member States. It applies to all workers in all sectors 
provided that they have an employment contract or employment relationship as defined 
by  the  law,  collective  agreements  or  practice  in  force  in  each  Member  State,  with 
consideration to the criteria established by the Court of Justice of the European Union.87   

87  If  they  fulfil  those  criteria,  domestic  workers,  on-demand  workers,  intermittent  workers,  voucher  based-workers, 
bogus  self-employed,  platform  workers,  trainees,  apprentices  and workers  in  the  public  sector  should  fall  within  the 
scope of the initiative. 

25 

 
 
                                                           
5

  WHAT ARE THE POSSIBLE POLICY MEASURES? 

5.1

  The baseline scenario 

Under  the  baseline  scenario,  external  drivers  like  globalisation  and  technological 
developments are expected to persist and will continue to rapidly change the structure 
of  economies  and  labour  markets.  While  taking  into  account  the  changes  in  the  recent 
past (see also Annex 10) no further changes by Member States are expected to improve 
the adequacy of their minimum wages or to improve the framework setting them (for the 
status quo, see Annex A6.2 and Annex 9). 

Member  States  that  ratified  international  labour  standards,  namely  the  ILO’s 
Minimum Wage Fixing Convention (C. 131)88 and the Collective Bargaining Convention 
(C.154)89 are bound by them, while no new ratifications are expected. All Member States 
are expected to report on minimum wages to the Council of Europe. 

At the EU level, minimum wage policies will be subject to multilateral surveillance 
within  the  European  Semester  and  monitoring  through  a  benchmarking  framework.90 
The  European  Semester,  the  regular  cycle  of  economic  policy  coordination  in  the  EU, 
may ultimately lead to  the adoption of Country-Specific Recommendations (CSR) with 
suggestions and guidance for national minimum wage setting in selected countries.  

Member  States  already  have  to  make  information  on  minimum  wages  publicly 
available on a single national website under the Enforcement Directive concerning 
the  posting  of  workers.91  Information  on  the  collective  agreements  in  force  is  also 
available  on  these  websites.  The  single  national  official  websites  of  all  Member  States 
are accessible from the Your Europe website.92 

The baseline scenario assumes stability of institutions and policies in Member States 
regarding the coverage of minimum wages. In Member States with statutory minimum 
wages, no changes are expected to exemptions or enforcement. In turn, while collective 
bargaining 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 
Annex  9.1).  The  assumption  of  continued  stability  of  collective  bargaining  coverage  in 
these countries is therefore reasonable.93 

88 Ratified by Bulgaria, France, Latvia, Lithuania, Malta, Netherlands, Portugal, Romania, Slovenia and Spain. 
89  Ratified  by  Belgium,  Cyprus,  Czechia,  Finland,  Greece,  Hungary,  Latvia,  Lithuania,  Netherlands,  Romania, 
Slovakia, Slovenia, Spain and Sweden. 
90 For more information see Annex A12.11. 
91 Directive 2014/67/EU, Art 5 (2) 
92 https://europa.eu/youreurope/citizens/work/work-abroad/posted-workers/index_en.htm%23national-websites 
93 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,  the  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. 

26 

 
 
                                                           
5.2

  Description of the policy measures 

The  specific  objectives  can  be  achieved  by  a  combination  of  measures  aimed  at 
addressing the internal drivers identified in section 2.3. In this regard, the following five 
areas of intervention were identified:  

(1) Collective  bargaining  on  wage  setting:  A  well-functioning  system  can  ensure 
that all workers, particularly the most vulnerable ones, are protected by adequate 
wages,  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.  The  structure  and  functioning  of 
collective  bargaining  thus  play  a  key  role  for  achieving  fair  minimum  wages, 
whether it is the sole wage setting system existing in the country or whether it is 
combined with statutory national minimum wage. 

(2) Clear national frameworks to set and update statutory minimum wages: The 
use  of  clear  and  stable  criteria  referring  to  adequacy  goals  and  reflecting 
socioeconomic  conditions  in  a  country  as  well  as  guiding  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  conducive  to  good  working  conditions.  At  the  same  time,  minimum  wage 
setting systems must provide sufficient flexibility to account for changing socio-
economic conditions and adjustment needs. 

(3) Involvement of social partners in statutory minimum wage setting systems: A 
timely  and  effective  involvement  of  the  social  partners  in  statutory  minimum 
wage  setting  and  updating  is  key  to  allow  minimum  wage  developments  to 
achieve adequacy goals, 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,  and  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) Variations,  exemptions  and  deductions  from  statutory  minimum  wages:  In 
many  Member  States,  reduced  minimum  wage  rates  apply  to  specific  groups  of 
workers, e.g. in the case of sub-minimum wages for youth. Moreover, there is a 
large  variety  of  deductions  applied  to  wages  that  can  reduce  the  remuneration 
paid  to  workers  to  a  level  below  the  statutory  minimum  wage.  Variations  and 

27 

 
 
deductions  are  clear  limitations  to  minimum  wage  adequacy.  Finally,  statutory 
minimum wages have exemptions in their scope of application that exclude some 
groups of workers from the protection of minimum wages, although in most cases 
they are either related to up- or re-skilling or to labour market integration. 

(5) Enforcement  and  monitoring:  Well-established  procedures  to  ensure  proper 
implementation  of minimum wage rules and frameworks  are key to  ensuring an 
effective  protection  of  concerned  workers  on  the  ground.  This  is  an  important 
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.  Reliable  EU  monitoring  and  data  collection 
contributes to the transparency of the national systems. 

However,  not  all  areas  of  intervention  and  the  relevant  policy  measures  thereof 
apply  to  both  Member  States  where  minimum  wage  protection  is  provided  by 
collective  agreements  and  those  with  statutory  national  minimum  wages.  This  is 
because the way each system is affected by internal drivers differs across the two systems 
(see section 2.3). Moreover, differences also result from the Treaty limitations regarding 
the contractual freedom of social partners. In particular: 

 

 

In  countries  relying  exclusively,  or  in  most  sectors,  on  collective  bargaining 
to  set  wages,  the  specific  objectives  can  be  achieved  through  a  combination  of 
measures  in  two  areas:  (1)  Collective  bargaining  on  wage  setting  and  (5) 
Enforcement and monitoring.  

In  countries  with  national  statutory  minimum  wages,  the  specific  objectives 
can be achieved through a combination of measures in five areas: (1) Collective 
bargaining  on  wage  setting,  (2)  Clear  national  frameworks  to  set  and  update 
minimum wages, (3) Involvement of social partners in statutory minimum wage 
setting systems, (4) Variations, exemptions and deductions from minimum wages 
and (5) Enforcement and monitoring. 

The  following  sections  discuss  the  policy  measures  considered  to  address  the  root 
causes of the problem under each of these five areas of intervention. Table 1 presents 
a  summary  of  the  measures  considered  for  this  initiative  per  minimum  wage  setting 
system. Measures considered but not retained are discussed in Section 5.5. In Section 5.6 
policy packages are built from the individual measures.   

28 

 
 
 
 
Table 1: Summary overview of measures considered for the initiative 

Member States relying on 
collective bargaining 

Member States with national 
statutory minimum wages 

Area 1: 
Collective 
bargaining on 
wage setting 

Measure 1.1  

Measure 1.2  

Measure 1.3  

Capacity building for social 
partners and encouraging 
negotiations on wages. 
Administrative extensions of 
collective agreements, when agreed 
with social partners.    
Member States with collective 
bargaining coverage below 70% to 
provide for a regulatory framework 
or enabling conditions and to 
establish an action plan to promote 
collective bargaining. 

Area 2: 
Clear 
national 
frameworks 
to set and 
update 
statutory 
minimum 
wages 

Area 3: 
Involvement 
of social 
partners in 
statutory 
minimum 
wage setting 

Area 4: 
Variations, 
exemptions 
and 
deductions 

Area 5: 
Enforcement 
and 
Monitoring 

Measure 2.1  N.A 

Measure 2.2  N.A 

Measure 2.3  N.A 

Measure 2.4  N.A 

Measure 3.1  N.A 

Measure 3.2  N.A 

Measure 4.1  N.A 

Measure 4.2  N.A 

Measure 5.1 

Measure 5.2 

Strengthening the enforcement of 
wage clauses in collective 
agreements. 

Ensuring compliance in public 
procurement with wages set by 
collective agreements. 

Measure 5.3 

Enhancing monitoring and data 
collection mechanism for wages set 
in collective agreements. 

29 

Capacity building for social partners 
and encouraging negotiations on 
wages. 
Administrative extensions of 
collective agreements, when agreed 
with social partners.    
Member States with collective 
bargaining coverage below 70% to 
provide for a regulatory framework 
or enabling conditions and to 
establish an action plan to promote 
collective bargaining. 
Clear and stable criteria to guide 
minimum wage setting and its regular 
updating, defined in national 
legislation, and establishment of 
consultative bodies to advice 
authorities. 
Automatic indexation mechanisms 
for statutory minimum wage updates.  
Indicators and reference values to 
guide the assessment of the adequacy 
of statutory minimum wages. 
Statutory minimum wages to follow a 
national measure of decent living 
standards (reference income), 
developed in consultation with social 
partners. 
Ensuring the timely and effective 
involvement of social partners in 
minimum wage setting and updating. 

Setting up a bipartite or tripartite 
body for social partners’ consultation 
with decision-making power. 

Limited and justified use of 
variations in and deductions from 
statutory minimum wages. 
Banning variations, exemptions and 
deductions from statutory minimum 
wages. 
Strengthening the enforcement of 
statutory minimum wages and wage 
clauses in collective agreements. 
Ensuring compliance in public 
procurement with wages set by 
collective agreements and with 
statutory minimum wages. 
Enhancing monitoring and data 
collection mechanism on statutory 
minimum wages and on wages set in 
collective agreements. 

 
 
 
 
5.3

  Measures affecting Member States relying exclusively on collective bargaining  

5.3.1

  Collective bargaining in wage setting 

This  section  presents  the  measures  considered  for  Member  States  countries  where 
minimum  wage  protection  is  provided  by  collective  agreements.  Three  measures  were 
considered which are not mutually exclusive.  

The need to strengthen collective bargaining, especially at the sectoral and cross-sectoral 
level, was emphasised by the European workers’ organisations in their reply to the social 
partner  consultations  (see  also  Annex  2).  They  suggested  several  measures  to  promote 
collective  bargaining  (including  capacity  building  activities  and  the  introduction  of 
extension  mechanisms,  when  agreed  with  social  partners)  and  proposed  that  Member 
States  should  take  action  to  increase  the  collective  bargaining  coverage  rate  when  it  is 
below 70%. Some employers’ organisations stated that collective bargaining is a strong 
foundation  for  good  wage  setting  while  others  proposed  various  measures  (including 
capacity  building  activities  and  increased  availability  of  funds)  to  encourage  social 
dialogue  and  support  social  partners.  However,  objections  were  raised  by  some 
employers’  organisations  regarding  measures  to  extend  coverage  to  all  workers.  At  the 
same  time,  social  partners  from  some  Member  States  with  well-functioning  collective 
bargaining  systems,  and  in  particular  Denmark  and  Sweden,  expressed  concerns  about 
EU action on minimum wages as it could interfere with their labour market model based 
on  collective  bargaining.  Both  the  workers’  and  employers’  organisations  stressed  that 
any  future  initiative  should  not  undermine  existing  well-functioning  minimum  wage 
systems, and must respect national competences and traditions, social partners’ autonomy 
and the freedom of collective bargaining.  

Measure 1.1:  Capacity building for social partners and encouraging negotiations on 
wages 

Member States, in consultation with social partners, would take measures to promote the 
building  and  strengthening  of  the  capacity  of  social  partners  to  engage  in  collective 
bargaining on wage setting. In addition, Member States would encourage negotiations on 
wages  among  social  partners.  The  choice  of  the  specific  actions  would  be  left  to  the 
Member  States.  In  the  area  of  capacity  building,  these  could  include  among  others 
providing financial or technical support, mutual learning, exchange of good practices or 
qualified training and counselling. 

Measure 1.2: Administrative extensions of collective agreements, when agreed with 
social partners    

Member  States  could  introduce  extensions  of  collective  agreements  so  that  their  terms 
apply also to workers or firms that are not represented by the signatory social partners. 

30 

 
 
 
The conditions and situations for such extensions would be left to the Member States in 
agreement with social partners at the relevant level.  

Measure  1.3:  Member  States  with  collective  bargaining  coverage  below  70%  to 
provide  for  a  regulatory  framework  or  enabling  conditions  and  to  establish  an 
action plan to promote collective bargaining94  

In a context of declining collective bargaining coverage, it is key that the Member States 
put  in  place  all  the  necessary  measures  to  enhance  workers’  access  to  wages  set  in 
collective  agreements.  Member  States  with  a  small  share  of  low-wage  earners  have  a 
collective bargaining coverage rate above 70%.95 Similarly, the majority of the Member 
States with high levels of minimum wages relative to the median wage have a collective 
bargaining coverage above 70%. Therefore, Member States should be encouraged to take 
action  to  promote  collective  bargaining  so  that  the  coverage  of  collective  agreements 
reaches at least 70% of the workforce.96 

In  this  regard,  Member  States  would  provide  for  a  regulatory  framework  or  create 
enabling conditions97 to promote collective bargaining, which could be either set in law 
or after consultation with social partners or in agreement with them. Among the measures 
that  could  be  foreseen  are:  mediation,  arbitration  and  peace  clauses  in  collective 
agreements;  representativeness  criteria  for  social  partner  organisations;  duration  of 
collective agreements; retroactivity and ultra-activity clauses98 in collective agreements; 
and measures to improve the availability of collective bargaining to all groups of workers 
and  employers  at  all  levels  (national,  sectoral  and  firm  level).99  In  addition,  Member 
States would agree with social partners an action plan to promote collective bargaining. 
The choice of the specific actions to be included would be left to the Member States.  

5.3.2

  Enforcement and monitoring  

This section presents the measures related to enforcement and monitoring considered for 
Member  States  where  minimum  wage  protection  is  provided  by  collective  agreements. 
Three measures were considered which are not mutually exclusive.  

94 The proposed measure to introduce a reference value of 70% on collective bargaining coverage is in line with the 
legal basis and it does not go beyond Article 153(5) TFEU since it does not represent an opt-out threshold but should 
rather aims to incentivise countries with lower collective bargaining coverage to increase it. 
95 There are data limitations related to the measurement of collective bargaining rate (see Annex A4.6). 
96 A target of minimum 70% for collective bargaining coverage was also proposed by the Workers’ organisation during 
the second stage consultation.  
97 Member States differ in the institutional setup of their collective bargaining systems. While a regulatory framework 
is mainly based on legislation and in principle initiated by the Government, enabling conditions may also be based on 
other existing national practices. 
98 The length of collective agreements’ validity is partly defined by their possible validity related to the period before 
they were signed (retroactivity) and their validity beyond their expiry date (ultra-activity).  
99 See Annex A11.1 for more detail on these components.  

31 

 
 
                                                           
The  need  for  strengthened  application  and  enforcement  mechanisms  was  also 
identified by both the European workers’ and employers’ organisations in their reply to 
the  social  partners’  consultation,  however,  some  employers’  organisations  stressed  that  
this falls within the competence of national authorities, questioning as such the value of 
EU  action  in  this  area.  Some  employers’  organisations  argued  that  cases  of  non-
compliance and  abuses should  be addressed  for both  statutory minimum  wages and  for 
wages  set  in  collective  agreements,  while  a  couple  supported  a  mapping  of  the 
implementation of the social clause in the Public Procurement Directive 2014/24/EU.  

Measure  5.1:  Strengthening  the  enforcement  of  wage  clauses  in  collective 
agreements  

Member  States  would  take  measures  to  ensure  that  workers  have  access  to  dispute 
resolution  mechanisms  and  a  right  to  redress,  including  adequate  compensation,  in  the 
case of non-respect of their rights relating to the minimum wage protection provided by 
collective agreements. Member States would also take measures to protect workers from 
any adverse treatment resulting from lodging a complaint for non-respect of their rights. 
The specific rules for enforcement would be left to Member States to ensure the respect 
of national practices regarding the enforcement of collective agreements.  

Measure  5.2:  Ensuring  compliance  in  public  procurement  with  wages  set  by 
collective agreements  

Article 18(2) of the Public Procurement Directive 2014/24/EU100 provides that Member 
States  shall  take  appropriate  measures  to  ensure  compliance  with  the  applicable 
obligations  established by  labour law  and the relevant  collective agreements  during the 
performance of public contracts. Building on such provision, under this measure Member 
States  countries  where  minimum  wage  protection  is  provided  by  collective  agreements 
would  require  that,  in  the  performance  of  public  or  concession  contracts,  economic 
operators comply with the collectively agreed wages set in collective agreements.  

Measure 5.3: Enhancing monitoring and data collection mechanism on wages set in 
collective agreements  

Member States would develop effective data collection tools to monitor the coverage and 
adequacy  of  wages  set  in  collective  agreements.  Moreover,  they  would  also  have  to 
develop  tools  to  monitor  the  level  and  adequacy  of  wages  not  covered  by  collective 
agreements. 

100  Similar provisions are also included in Article 36(2) of Directive 2014/25/EU on procurement by entities operating 
in the water, energy, transport and postal services sectors and Article 30(3) of Directive 2014/23/EU on the award of 
concession contracts. 

32 

 
 
                                                           
5.4

  Measures affecting only Member States with statutory minimum wages  

5.4.1

  Collective bargaining in wage setting 

This  section  presents  the  measures  considered  for  Member  States  with  statutory 
minimum  wages  in  the  area  of  collective  bargaining.  Three  measures  were  considered 
which are not mutually exclusive. These are the same measures as those considered for 
the  case  of  Member  States  where  minimum  wage  protection  is  provided  by 
collective agreements.  

5.4.2

  National frameworks to set and update statutory minimum wages 

This  section  presents  the  measures  considered  for  Member  States  with  statutory 
minimum wages in the area of national frameworks to set and update statutory minimum 
wages. Four measures were considered. Among the measures, only measures 2.1 and 2.2 
are mutually exclusive. Measures 2.3 and 2.4 could be combined with each other but also 
possibly together with either measure 2.1 or measure 2.2.  

Workers’ organisations underlined that statutory minimum wages should be increased to 
a level  at  which they ensure at  least  a decent  standard of living  and should  be updated 
following  a  regular,  clear  and  predictable  procedure,  which  fully  involves  the  social 
partners.101 In particular, they stated that statutory minimum wages “must not fall below 
a threshold of both 60% of the full-time gross national median wage and 50% of the full-
time  national  gross  average  wage”.  Additionally,  statutory  minimum  wages  are  to  be 
benchmarked  against  national  reference  values  such  as  a  basket  of  goods  and  services, 
established  in  consultation  with  the  social  partners.  Some  employers’  organisations 
stressed the importance of using clear and stable criteria to guide minimum wage setting, 
which would take into account social and economic developments, including productivity 
and employment trends and tax and benefits systems, with several stating that this falls 
within the competence of the  national  authorities and social  partners.  Some employers’ 
organisations  also  stated  that  they  see  the  added  value  in  developing  reference 
benchmarks  at  EU  level,  however,  with  divergent  views  on  whether  the  net  or  gross 
wages should be considered.  

Measure  2.1:  Clear  and  stable  criteria  to  guide  statutory  minimum  wage  setting, 
and  its  regular  updating,  defined  in  national  legislation,  and  establishment  of 
consultative bodies to advise authorities  

National statutory minimum wage legislation would include provisions on criteria to be 
taken into account when setting and updating minimum wages to ensure adequacy while 
reflecting socio-economic developments. Such criteria should include:102 the purchasing 
power of minimum wages, taking into account the cost of living, and the contribution of 

101 See Annex 2 for more detail on the results of the two-stage social partner consultation. 
102 Similar criteria are provided in Art 3 of ILO Convention 131 (MW).  

33 

 
 
                                                           
taxes and social benefits; the level and distribution of wages in a country; wage growth; 
and  labour  productivity  developments.  These  criteria  could  be  potentially  used  in 
addition  to  any  existing  criteria  defined  in  national  legislation.  It  would  be  left  to 
Member  States  to  decide  how  to  apply  them  and  whether  existing  criteria  should  be 
maintained.103 Member States would ensure that minimum wage updates occur regularly 
and timely, at such frequency as appropriate to safeguard their adequacy. 

In  addition,  Member  States  would  be  called  upon  to  put  in  place  or  adjust  existing 
consultation bodies to advise national authorities on issues related to statutory minimum 
wages.  It  would  be  for  Member  States  to  decide,  in  the light  of  national  circumstances 
and traditions, the way in which these bodies could be set up or appointed. Such bodies 
are already in place in France, Germany, Greece, and Ireland, which would thus not need 
to take further action in this respect (see Annex A6.2). 

Measure  2.2:  Automatic  indexation  mechanisms  for  statutory  minimum  wage 
updates 

Relevant provisions on minimum wage setting would establish an automatic indexation 
mechanism  for  updating  minimum  wages  whereby  minimum  wage  changes  would  be 
automatically linked to developments in economic fundamentals and updated on the basis 
of a formula. It would be up to the Member States to define the formula to be used but, in 
order  to  protect  the  purchasing  power  of  minimum  wages,  increases  in  statutory 
minimum wages should at least keep up with increases in consumer prices under normal 
circumstances. Member States could also include a link to wage growth, which generally 
results in a faster pace of updates. Member States could define criteria under which the 
automatic indexation would be suspended under exceptional economic circumstances. It 
would  also  be  possible  to  decide  on  increases  on  top  of  the  ones  suggested  by  the 
indexation formula. Automatic indexation rules are in use in a number of Member States 
(Belgium,  France,  Malta,  Netherlands,  Luxembourg  and  Slovenia),  either  based  on  the 
rate of change in consumer prices (inflation) or wages (aggregate or collectively agreed), 
or a combination of both.  

Measure  2.3:  Indicators  and  reference  values  to  guide  the  assessment  of  the 
adequacy of statutory minimum wages 

Member  States  would  be  called  on  to  use  indicative  reference  values  to  guide  the 
assessment of  adequacy  of statutory minimum  wages in  relation  to  the  general level  of 
gross  wages.  A  list  of  possible  adequacy  indicators  and  respective  indicative  reference 
values is provided in Annex A11.2. From this list, two indicators are retained for more 
detailed  assessment:  (i)  the  minimum  wage  as  a  ratio  to  the  median  wage  and  (ii)  the 
minimum wage as a ratio to the average wage. Both indicators are commonly used at the 
international level to compare minimum wages across countries.  

103 See Annex A6.2 for more information on existing minimum wage setting institutions in Member States as well as 
Section 2.2 and Annex A9.2 for an exposition of related institutional challenges.  

34 

 
 
                                                           
into  account,  notably  possible 

Reference values help assess whether the minimum wage is set at an adequate level. 
Member States will have to compare their minimum wage level to the chosen reference 
value.  Member  States  can  use  them  in  minimum  wage  setting  while  taking  other 
considerations 
impacts  on  employment  and 
competitiveness. Common reference values used at the international level include 40%, 
45%, and 50% of the average wage and 50%, 55%, and 60% of the median wage. Thus, 
these reference values are retained for more detailed assessment. These reference values 
can  be  combined:  for  instance,  it  is  possible  that  Member  States  take  into  account  the 
reference values of both 50% of the average wage and 60% of the median wage to guide 
the assessment of adequacy.  

Measure  2.4:  Statutory  minimum  wages  to  follow  a  national  measure  of  decent 
living standards (reference income), developed in consultation with social partners 

Member States  would be asked to  assess the adequacy of the national  minimum  wages 
against  a  reference  value  based  on  a  measure  of  decent  living  standards  (reference 
income).  This  measure  would  be  based  on  a  basket  of  goods,  defined  at  a  national 
level.104  Minimum  wage  setting  would  need  to  balance  this  criterion  with  other 
considerations, such as possible impacts on employment. 

5.4.3

Involvement of social partners in statutory minimum wage setting 

This  section  presents  the  measures  considered  for  Member  States  with  statutory 
minimum wages in the area of involvement of social partners in statutory minimum wage 
setting. Two measures were considered which are mutually exclusive.  

Workers’ organisations called for full and genuine involvement of all social partners in 
minimum  wage  setting  and  updating  procedures  (see  also  Annex  2).  The  employers’ 
organisations  welcomed  the  establishment  of  well-functioning,  effective  and  timely 
consultation of social partners, at national and sectoral level, in minimum wage setting, 
with some stressing that this is essential to ensure that wage setting at national level takes 
into account the economic situation in the country, as well as in specific sectors, and the 
impact  at  company  level.  In  this  regard,  they  proposed  to  reinforce  the  involvement  of 
social partners and to establish well-functioning consultation processes.  

Measure  3.1:  Ensuring  the  timely  and  effective  involvement  of  social  partners  in 
minimum wage setting and updating 

Member  States  would  be  called  to  take  measures  to  ensure  that  the  social  partners  are 
involved  in  an  effective  and  timely  manner  in  the  setting  and  updating  of  statutory 
minimum  wages.  Consultations  would  guarantee  that  the  views  of  social  partners  are 
taken into account in the decision-making process, in particular on: issues related to the 
selection and interpretation of objective criteria for setting and updating minimum wage 

104 An additional option for an EU-wide reference income was considered but was disregarded (see section 5.5). 

35 

 
 
 
                                                           
levels,  the  regularity  and  timeliness  of  the  updates,  the  establishment  of  variations  and 
deductions, and the collection of data. In addition, the social partners would participate in 
in  consultative bodies advising national  authorities on statutory minimum  wages where 
they exist.  

Measure  3.2:  Setting  up  a  bipartite  or  tripartite  body  for  social  partners’ 
consultation with decision-making power   

Member States would be called upon to set up a formal, dedicated body to allow for an 
effective and timely consultation of social partners on the setting and annual updating of 
statutory minimum wages. This body could be either bipartite or tripartite, depending on 
national  traditions,  and  it  would  be  the  body  responsible  for  all  the  decision-making 
regarding the statutory minimum wage, including the criteria to guide updates as well as 
variations  and  exemptions.  When  a  decision  is  reached,  it  would  be  binding  for  all 
parties. Such structured tripartite bodies are in place in Lithuania, Poland and Slovakia.  

5.4.4

  Variations, deductions, and exemptions  

This  section  presents  the  measures  considered  for  Member  States  with  statutory 
minimum  wages  in  the  area  of  variations,  deductions  and  exemptions.  Two  measures 
were considered which are mutually exclusive.   

In their reply to the social partners’ consultation, European workers’ organisations called 
for  eliminating,  or  at  least  keeping  to  a  bare  minimum,  exemptions  from  statutory 
minimum  wages,  sub-minimum  wages  and  deductions  (see  also  Annex  2).  The 
employers’ organisations stressed their opposition to eliminating or limiting exemptions 
and  variations,  stating  that  justified  exemptions,  decided  by  social  partners  and/or  the 
national government, should be maintained.  

Measure  4.1:  Limited  and  justified  use  of  variations  in  and  deductions  from 
statutory minimum wages  

Member  States  would  define  variations  for  specific  groups  of  workers.  The  variations 
should be non-discriminatory, proportionate, limited in time, if relevant, and objectively 
and reasonably justified by a legitimate aim, including employment policy, labour market 
and  vocational  training  objectives.  In  addition,  Member  States  would  ensure  that 
deductions from minimum wages are necessary, objectively justified and proportionate.  

Measure  4.2:  Banning  variations,  exemptions  and  deductions  from  statutory 
minimum wages   

Member  States  would  eliminate  variations,  deductions  and  exemptions  from  their 
statutory national minimum wages. 

36 

 
 
5.4.5

  Enforcement and monitoring   

This  section  presents  the  measures  considered  for  Member  States  with  statutory 
minimum  wages  in  the  area  of  enforcement  and  monitoring.  Three  measures  were 
considered which are not mutually exclusive. These are measures that are very similar to 
those considered for the case of Member States where minimum wage protection is 
provided by collective agreements; however, in this case Member States would ensure 
the enforcement and monitoring of statutory minimum wages as well as of wages set by 
collective agreements.    

Measure 5.1: In the case of Member States with statutory minimum wage this measure 
implies that Member States would strengthen the enforcement of statutory minimum 
wages and wage clauses in collective agreements.105   

In particular, Member States with statutory minimum wages, in cooperation with social 
partners, would be asked to take at least the following measures to enhance the access of 
workers  to  statutory  minimum  wage  protection:  (i)  strengthening  controls  and  field 
inspections by enforcement authorities, (ii) developing guidance to target non-compliant 
businesses,  and  (iii)  ensuring  the  availability  of  information  on  statutory  minimum 
wages.  

In addition, these Member States would also take measures to ensure that workers have 
access  to  dispute  resolution  mechanisms  and  a  right  to  redress,  including  adequate 
compensation,  in  the  case  of  non-respect  of  their  rights  relating  to  statutory  minimum 
wages and to the minimum wage protection provided by collective agreements. Member 
States would also take measures to protect workers from any adverse treatment resulting 
from  lodging  a  complaint  for  non-respect  of  their  rights.  The  specific  rules  for 
enforcement would be left to  Member States to  ensure the respect  of national  practices 
regarding the enforcement of statutory minimum wages and of collective agreement.   

Measure  5.2:  In  the  case  of  Member  States  with  statutory  minimum  wages,  it  would 
imply  that,  Member  States  would  ensure  compliance  in  public  procurement  with 
wages set by collective agreements and with statutory minimum wages.  

Measure 5.3: In the case of Member States with statutory minimum wage this measure 
implies that Member States would enhance monitoring and data collection mechanism 
on statutory minimum wages and on wages set in collective agreements. 

This implies that in addition to the obligations described in section 5.3.2, Member States 
with statutory minimum wages would develop effective data collection tools to monitor 
the  coverage  and  adequacy  of  statutory  minimum  wages.  This  would  also  include 

105 This is in line with Art 5 of ILO Convention 131 (MW) and Art 14 (b) of ILO Recommendation 135 (MW). 

37 

 
 
                                                           
monitoring minimum wage variations and deductions and the share for workers affected 
by them. 

5.5

  Measures discarded at an early stage 

When considering the policy measures, a number of options have been discarded at  an 
early stage. Most of these have not been listed in the previous subsection. 

Options discarded related to strengthening collective bargaining 

A number of options were discarded either because of a lack of legal basis or because 
they did not respect the autonomy of the social partners and their right to negotiate and 
conclude collective agreements or national competences.  

An option to replace the statutory minimum wages with collective bargaining in all 
countries was also considered but not retained. Collective bargaining is considered as 
an important way to improve the adequacy of minimum wages, or even as the best way 
by social partners. However, this measure was discarded from detailed analyses as it was 
considered as legally not feasible.   

Options discarded related to national frameworks to set statutory minimum wages  

A  number  of  adequacy  indicators  related  to  the  net  income  of  minimum  wage 
earners have not been considered as alternative to guide the assessment of minimum 
wage  adequacy.  In  particular,  such  discarded  indicators  compared  the  net  income  of 
minimum  wage  earners  with:  (i)  the  net  median  wage;  (ii)  net  average  wage,  and  (iii) 
median  net  household  income.106  These  indicators  have  significant  merit  from  an 
analytical point of view, as they allow the comparison of the take-home pay of minimum 
wage earners across countries. However, they are very complex. Thus using them would 
make the policy less transparent for workers and companies. Further, these indicators are 
affected  by  the  tax  and  benefit  system,  while  minimum  wages  are  set  in  gross  terms 
(“before taxes”). This has also been pointed out by social partners during the consultation 
process.  

A  measure  to  call  for  the  definition  of  reference  budgets  at  the  EU  level  to 
benchmark  minimum  wage  adequacy  was  considered  but  not  retained.  Defining  a 
common concept for a living wage requires a 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  (and  regions)  in  terms  of  productivity  levels 
(reflecting businesses’ ability to  pay) and needs  (including climate, customs,  etc.).107 A 

106 These indicators are presented in Annex A8.2. Possible reference values are listed in Annex A11.3. 
107 For a more detailed discussion, see, e.g., Eurofound (2018): “Concept and practice of a living wage”, Publications 
Office  of  the  European  Union,  Luxembourg.  For  ongoing  research,  supported  by  the  European  Commission,  on 
reference budgets comparable across the EU, see:  
https://ec.europa.eu/social/main.jsp?catId=1092&intPageId=2312&langId=en. 

38 

 
 
                                                           
socially  acceptable  minimum  decent  living  standard  in  one  country  may  be  above  or 
below what is socially acceptable in another country. In particular, a “living wage” which 
is  meaningful  in  higher-wage  countries  would  likely  translate  to  a  very  high  wage  in 
lower-wage countries, despite the lower prices in these countries.  

5.6

  Description of alternative policy packages 

The  policy  measures  presented  in  Section  5.2  are  combined  into  three  policy 
packages,  for  the  sake  of  assessing  impacts  as  well  as  of  comparing  effectiveness, 
efficiency and coherence. While many other combinations of measures are theoretically 
possible, the policy packages below represent coherent sets of measures, which comply 
with the Treaty provisions (see section 3.1).  

These  packages  are  built  around  two  main  criteria:  (i)  the  role  played  by  social 
partners in the governance of the minimum wage setting system and (ii), in the specific 
case  of  Member  States  with  statutory  minimum  wages,  the  degree  of  discretion  of 
governments in setting and updating minimum wages.  

Specifically, the three packages are the following: 

  Package A  requires all  Member States  to  actively support  collective bargaining 
on  wage  setting,  with  a  view  to  strengthening  the  role  of  social  partners.  In 
addition,  for  Member  States  with  statutory  minimum  wages,  it  requires  that 
national frameworks for setting and updating statutory minimum wages ensure a 
strong  involvement  of  social  partners  in  the  setting  of  minimum  wages. 
Moreover,  this  package  includes  a  national  measure  of  decent  living  standards 
against which to assess statutory minimum wage adequacy. 

  Package  B  asks  all  Member  States  to  support  the  capacity  building  of  social 
partners  and  encourage  wage  negotiations  on  wage  setting,  as  well  as  support 
collective  bargaining  when  its  coverage  is  low.  In  addition,  for  Member  States 
with  statutory  minimum  wages,  it  requires  that  national  frameworks  are  more 
rule-based  than  Package  A,  including  explicit  criteria  for  minimum  wage 
adequacy  and  indicative  reference  values,  with  an  enhanced  role  for  social 
partners as compared to the baseline. 

  Package  C  also  requires  all  Member  States  to  support  the  capacity  building  of 
social  partners  and  encourage  negotiations  on  wages,  as  well  as  to  support 
collective  bargaining  when  its  coverage  is  low.  In  addition,  for  Member  States 
with  statutory  minimum  wages,  national  frameworks  should  mainly  rely  on 
automatic  indexation,  together  with  the  use  of  non-binding  reference  values,  to 
reach the objectives of the initiative. 

Regarding  enforcement  and  monitoring,  all  packages  include  the  same  provisions, 
given that these measures are not mutually exclusive and they can all, individually or in 
combination,  contribute  to  achieving  the  objectives  through  addressing  different 
challenges, while their combination would reinforce the expected benefits.   

39 

 
 
Further details on the composition and the measures included under each intervention can 
be found in sections 5.6.1 and 5.6.2, as well as the overview table in Annex A11.3. The 
baseline scenario is discussed in section 5.1. Annex A12.14 presents tables summarising 
the implications of the packages on the EU Member States.  

5.6.1

  Member  States  where  minimum  wage  protection  is  provided  by 

collective agreements 

Graph  4  presents  the  composition  of  the  packages  for  Member  States  where  minimum 
wage protection is provided by collective agreements.  

Graph 4: Package composition for Member States relying on collective bargaining 
to set minimum wages 

Packages  differ  in  terms  of  the  measures  for  strengthening  collective  bargaining, 
namely in terms of the different role played by Member States to support social partners: 

  Package  A  includes  measures  for  promoting  capacity  building  activities  for 
social  partners  and  encouraging  negotiations  on  wages  (Measure  1.1). 
Moreover,  in  order  to  reach  the  specific  objective  on  increased  coverage,  it 
requires  Member  States  to  extend  collective  agreements,  when  agreed  with 
relevant  social  partners  (Measure  1.2).  In  this  package,  the  underlying 
framework relies on decisions taken in a bipartite or tripartite setting. 

  Package  B  foresees  measures  for  promoting  capacity  building  activities  for 
social  partners  and  encouraging  negotiations  on  wages  (Measure  1.1).  In 
addition,  as  an  alternative  to  Measure  1.2  of  Package  A,  to  reach  the  specific 
objective on increased collective bargaining coverage, Package B foresees that 

40 

 
 
 
 
in the case of Member States where this coverage rate is below 70% Member 
States would provide for a regulatory framework or enabling conditions, as well 
as to establish an action plan to promote collective bargaining (Measure 1.3).  

  Package C, similarly to Package B, requires all Member States to take action to 
promote the capacity building of social partners and encourage negotiations on 
wages (Measure 1.1) and foresees that in the case of Member States where this 
coverage  rate  is  below  70%  Member  States  would  provide  for  a  regulatory 
framework  or  enabling  conditions,  as  well  as  to  establish  an  action  plan  to 
promote  collective  bargaining  (Measure  1.3).  This  is  coherent  with  the 
approach taken for countries with statutory minimum wages under this package, 
which is oriented towards more state intervention and automatic decision rules.  

All  packages  include  the  same  measures  on  enforcement  and  monitoring,  namely:  
strengthening the enforcement of wage clauses in collective agreements (Measures 5.1), 
ensuring  compliance  with  wages  set  by  collective  agreements  in  public  procurement 
(Measure 5.2), and enhancing monitoring and data collection mechanism on wages set in 
collective agreements (Measure 5.3). As mentioned above, this is because these measures 
are not mutually exclusive and they can all, individually or in combination, contribute to 
addressing the challenges.   

5.6.2

  Member States with statutory minimum wages 

Graph  5  presents  the  composition  of  the  packages  for  Member  States  with  statutory 
minimum wages.  
Graph 5: Package composition for Member States with statutory minimum wages 

41 

 
 
 
In the area of collective bargaining, given that the objective is the same as in the case of 
Member  States  which  rely  on  collective  bargaining  to  set  minimum  wages,  all  the 
packages include the same measures as presented in section 5.6.1.   

The main difference in the composition of the three packages relates to the governance 
structures  to  set  and  update  statutory  minimum  wages,  including  the  role  of  the 
social partners. As a result, measures differ across packages as follows:  

 

 

In  Package A, national  frameworks for statutory minimum  wages  give a strong 
and  prominent  role  to  the  social  partners  in  the  decision-making  process  for 
setting  minimum  wages.  Besides  administrative  extensions  of  collective 
agreements  (Measure  1.2),  they  include  a  bipartite  or  tripartite  body  (Measure 
3.2), with decision-making rights on all the elements of the frameworks. In order 
to  achieve  the  specific  objective  of  increased  adequacy,  these  bodies  are  also 
entrusted  to  develop  a  national  benchmark  for  decent  living  standards  against 
which  minimum  wage  adequacy  could  be  assessed  (Measure  2.4).  As  statutory 
minimum wages are defined by the social partners, Member States should refrain 
from setting exemptions and variations and should ban deductions (Measure 4.2). 

In  Package  B,  national  frameworks  rest  on  rule-based  government  decision-
making with an enhanced role for social partners as compared to the baseline. In 
particular,  the  package  includes  an  obligation  to  define  criteria  in  national 
legislation to guide the setting and updating of minimum wage setting, as well as 
to  establish  consultative  bodies  (Measure  2.1).  In  addition,  as  an  alternative  to 
Measure 2.4 of Package A, in order to reach the specific objective on increased 
collective  bargaining  coverage,  Package  B  foresees  indicators  and  indicative 
reference  values  to  benchmark  minimum  wage  adequacy  (Measure  2.3). 
Moreover, it provides for a strengthened involvement of social partners (Measure 
3.1)  and  requires  that  variations  and  deductions  should  be  objectively  justified 
and proportionate (Measure 4.1).  

  Different  options  could  be  considered  under  this  package  regarding 
the  indicative  reference  values.  These  are,  40%,  45%,  and  50%  of  the 
gross average wage and 50%, 55%, and 60% of the gross median wage, as 
reference values to benchmark gross minimum wages against.  

 

In  Package  C,  national  frameworks  rest  on  a  government-driven  automatic 
indexation mechanism. In particular, adjustments in minimum wages are based on 
a formula defined in the national legislation (Measure 2.2.). To ensure adequacy, 
this  package  also  includes  indicators  and  indicative  reference  values  to  assess 
minimum wage adequacy (Measure 2.3) and a strengthened involvement of social 
partners  (Measure  3.1)  and  it  requires  that  variations  and  deductions  are 
objectively justified and proportionate (Measure 4.1).  

42 

 
 
 
Regarding  enforcement  and  monitoring,  all  packages  include  the  same  provisions, 
provisions  for strengthening the enforcement of statutory minimum  wages and of wage 
clauses  in  collective  agreements  (Measure  5.1),  an  obligation  for  the  government  to 
ensure compliance with  wages set out by collective agreements and statutory minimum 
wages in public procurement (Measure 5.2), and the enhancement of monitoring and data 
collection  mechanisms  on  statutory  minimum  wage  and  on  wages  set  in  collective 
agreements  (Measure  5.3).  These  measures  are  not  mutually  exclusive  and  can  all, 
individually or in combination, contribute to addressing the challenges.  

6

  WHAT ARE THE EXPECTED IMPACTS OF THE VARIOUS POLICY PACKAGES? 

This  section  presents  the  main  impacts  of  the  policy  packages  on  social  and 
economic outcomes as well as fundamental rights. No environmental impact has been 
identified for any of the options. Details on the methodology used are provided in Annex 
4. More details on impacts, going beyond the discussion of the main text, are included in 
Annex 12. Significant efforts have been made to collect the necessary data and provide a 
quantitative  assessment.  However,  in  some  cases,  scarcity  of  data  or  other  factors  may 
imply  that  a  quantification  is  not  possible.  In  such  cases,  a  qualitative  assessment  is 
provided.  

Impacts are compared to the baseline scenario, discussed in Section 5.1, based on a 
view  of  how  the  problem  may  evolve  (Section  2.7).  The  discussion  in  each  area  is 
divided into two parts: the impacts of all packages are discussed before differences in the 
impacts  of  individual  packages  are  presented.  The  discussion  is  also  divided  based  on 
impacts  for the two  systems  of minimum wage setting in  the EU: impacts  on countries 
where  minimum  wage  protection  is  provided  by  collective  agreements  are  discussed 
separately from impacts on countries with a statutory national minimum wage. The last 
subsection summarises the comparison between the packages.  

The  component  measures  of  the  packages  fall  into  the  five  areas  identified  in 
Section  5.2.  Measures  in  all  these  areas  contribute  to  the  attainment  of  the  specific 
objectives,  i.e.,  more  adequate  minimum  wages  for  some  workers  or  reducing  gaps  in 
coverage.108   

6.1

  Social impacts 

Under  the  baseline  scenario,  many  workers  in  the  EU  will  not  be  adequately 
protected by minimum wages. In some Member States, minimum wages will continue 
to  be  inadequate  while  gaps  in  the  coverage  will  continue  to  exist  in  several  Member 
States  (Section  2).  Furthermore,  there  is  a  risk  that  the  situation  of  low-wage  earners 
deteriorates further in the context of the Covid-19 pandemic.109 

108 These links are summarised in Graph A5.2 in Annex 5. 
109 For more detail on how the problem is expected to evolve, see Section 2.5. 

43 

 
 
                                                           
Social impacts under the various policy packages are presented in four subsections. 
The first two subsections discuss impacts that are common to all packages, starting with 
impacts  on  countries  where  minimum  wage  protection  is  provided  by  collective 
agreements,  and continuing with  impacts  on  countries with  a statutory minimum wage. 
The  last  two  subsections  discuss  the  impacts  of  individual  packages  on  each  system  in 
turn.    

6.1.1

Impacts  of  all  packages  on  Member  States  where  minimum  wage 
protection is provided by collective agreements 

All  packages  are  expected  to  increase  the  coverage  and  adequacy  of  collectively 
agreed  minimum  wages  as  compared  to  the  baseline.  All  the  packages  include 
measures  to  strengthen  collective  bargaining  and  the  enforcement  of  collective 
agreements  and  monitoring  of  minimum  wage  adequacy  and  coverage.  An  impact  is 
expected  especially  in  the  case  of  those  countries  where  the  current  coverage  and 
adequacy of wages set in collective agreements is lower, namely in Cyprus. Nevertheless, 
the  exact  impact  will  depend  on  how  Member  States  will  implement  these  measures. 
None of the packages would necessitate the introduction of a statutory minimum wage in 
countries that do not have them. 

6.1.2

Impacts  of  all  packages  on  Member  States  with  a  statutory  national 
minimum wage 

Impact on working conditions  

All packages will promote fair working conditions and help to prevent unfairly low 
wage  levels  in  Member  States  with  a  statutory  national  minimum  wage.  They  will 
increase the adequacy of minimum wages, support incomes from work and contribute to 
ensuring decent living standards.110  

All  packages  will  result  in  fairer  working  conditions  for  vulnerable  groups.  Fewer 
groups of workers will receive sub-minimum wages and more workers will be paid the 
wages they are entitled to. This will be achieved through strengthened enforcement and 
monitoring of statutory minimum wages. Vulnerable groups, such as women, young and 
low-skilled  workers,  as  well  as  those  with  temporary  or  part-time  jobs  have  a  higher 
probability of being beneficiaries of minimum wage setting systems than other workers. 
At  the  same  time,  “typical”  beneficiaries  would  be  women,  adult  workers,  medium-
skilled,  and  those  working  in  standard  jobs.111  Other  provisions,  such  as  strengthening 
enforcement  of  existing  wages  set  in  collective  agreements  would  reinforce  the 

110 Labour incomes increase as long as employment impacts are small. This section as well as Annex A12.4 show that 
they are indeed expected to be small as compared to the benefits for low-wage earners in increased wages.  
111 See section 2.1.1 for a summary and Annex 7 for details. 

44 

 
 
 
 
                                                           
protection of vulnerable groups, as they are the groups most affected by non-compliance 
with existing rules and collective agreements.112   

Improved national frameworks for setting and updating minimum wages contribute 
to higher minimum wages and to an improved business environment, both of which 
bring positive impacts in working conditions. In fact, the regular updating of minimum 
wages  based  on  appropriate  criteria  contributes  to  maintaining  the  value  of  minimum 
wages as they reduce the chance that minimum wages are left unchanged year after year 
in an economic and social context that would allow increases in minimum wages.113 At 
the same time, these elements reduce the uncertainty for both businesses about their costs 
and for workers about their future entitlements.  

The  timely  and  effective  involvement  of  social  partners  in  statutory  minimum  wage 
setting  and  updating  will  bring  additional  benefits  in  terms  of  good  governance.  It 
will improve the involvement of stakeholders in the decision making process, through the 
establishment  of  new  governance  structures.  This  enhances  the  role  of  different  actors 
and makes the decision-making process more informed and inclusive.  

Improved  working  conditions,  including  improved  wages,  in  low-wage  economies 
may reduce outward labour mobility although this impact is  expected to be small. 
Since the initiative will strengthen minimum wage setting systems and contribute to more 
adequate  minimum  wages  across  the  union,  it  may  reduce  the  incentives  of  some  low 
earners  in  low-wage  countries  to  move  to  another  region.  At  the  same  time,  wage 
convergence  between  regions  and  countries  is  most  importantly  driven  by  the 
convergence  in  economic  fundamentals,  including  productivity.  This  process  of  wage 
convergence is ongoing, especially between Eastern and Western Member States.114 

Impacts on wage inequality and in-work poverty  

By increasing minimum wages, all packages are expected to contribute to reducing 
in-work  poverty.115  Simulations  with 
wage 
the  Euromod 
microsimulation model confirm these impacts in EU Member States.116  

inequality  and 

Positive effects on wage inequality will be further enhanced through a strengthened 
regulatory framework or enabling conditions for collective bargaining,  foreseen by 
all  policy  packages.117  Strong  collective  bargaining  ensures  that  increases  in  the 

112 Eurofound (2019): Minimum wages in 2019 - Annual review. 
113 Clearer and more stable frameworks for statutory minimum wage setting, and an enhanced involvement of social 
partners in the process, are expected to overall increase the levels of the minimum wages relative to the average wage. 
For more details see: European Commission (2016): LMWD 2016 Report, DG EMPL. 
114 For more detail on wage convergence between Member States, see European Commission (2018): LMWD report, 
Chapter II.2.   
115 See Annex A8.1 for a summary of past research.  
116 For detailed simulation results, see Annex A12.2. The methodology of simulations is described in Annex A4.3. 
117 Visser J., “What happened to collective bargaining during the great recession?”, IZA Journal of Labor Policy, 2016.  

45 

 
 
                                                           
minimum wage also lead to wage increases higher up the wage distribution by preserving 
wage differentials.118  

Impacts on employment and unemployment 

The  impacts  of  the  packages  on  employment  are  expected  to  be  muted.  Minimum 
wages, at levels observed in the EU, do not significantly reduce employment and in some 
cases, they can even increase it.119 This is supported by the recent experience of Ireland 
(in  2000)  and  Germany  (in  2015),  where  the  introduction  of  a  statutory  national 
minimum  wage  affected  15%  (in  Germany)  and  more  than  20%  (in  Ireland)  of  the 
workforce, but no impacts on aggregate employment have been identified.120 A survey of 
recent 48 high-quality academic studies, including on EU Member States, suggests that 
the benefits of the minimum wage increase to low-wage earners outweigh its costs to the 
same group, caused by possible employment impacts, by a ratio of 6-to-1.121 In the same 
survey, for the set of studies that consider broad groups of workers, rather than specific 
demographic groups, the median estimate is close to zero. While there is variation across 
the  studies,  and  the  impacts  may  depend  on  the  specific  context,  the  weight  of  the 
evidence suggests any job losses induced by minimum wage increases at levels observed 
in advanced economies such as those of EU Member States are quite small. 

The  impacts  on  unemployment  are  a  mirror  image  of  employment  impacts.  The 
existing  body  of  evidence  focuses  on  the  impacts  of  minimum  wages  on  employment; 
unemployment  impacts  are  derived  from  these.  This  is  because,  whenever  minimum 
wages  have  an  impact  on  employment,  the  opposite  impact  will  be  observed  in 
unemployment. A slight gap between both  impacts  may emerge when inactive workers 
decide  to  start  searching  for  a  job  after  a  minimum  wage  increase  (see  more  on  work 
incentives  below).  Those  workers  who  do  not  find  a  job  right  away  will  be  counted  as 
unemployed.  These  impacts  are  however  quantitatively  small;  they  have  not  been 
quantified in the existing literature.  

Employment  impacts  are  expected  to  be  broadly  proportional  to  the  benefits  to 
workers,  but  minimum  wages  set  at  very  high  levels  may  involve  higher  risks  in 
terms  of  employment.  Simulations  of  employment  impacts  of  various  scenarios  have 
been  conducted  for  this  impact  assessment.  Simulated  employment  impacts  are 

118  Grimshaw,  D.  and  Bosch,  G.  (2013)  “The  intersection  between  minimum  wage  and  collective  bargaining 
institutions”,  in  Grimshaw,  D.  (ed.),  Minimum  wages,  pay  equity  and  comparative  industrial  relations,  New  York, 
London: Routledge, 50-80.  
119 This is the conclusion of the last three decades in academic research. For overviews, see Card, D. and A.B. Krueger 
(2016):  ”Myth  and  measurement:  The  new  economics  of  the  minimum  wage.”  Twentieth-anniversary  edition,  2016, 
Princeton University Press; Belman, D., & Wolfson, P. J., “15 years of research on US employment and the minimum 
wage.” Tuck School of Business Working Paper, 2016. 
120 See a summary of findings on the Irish and German experience in Annex A12.6. In addition, a statutory national 
minimum  wage  was  introduced  in  the  UK,  then  an  EU  Member  State  in  1999.  Ex-post  evaluations  have  found  no 
negative  employment  effects  of  the  UK  minimum  wage.  See,  e.g.,  Dolton,  P.,  Ch.  Rosazza  Bondibene,  and  J. 
Wadsworth (2010): “The UK National Minimum Wage in Retrospect”, Fiscal Studies, vol. 31, no. 4, pp. 509–534. 
121  This  is  based  on  the  median  estimate  of  an  “own-wage  elasticity”  of  -0.16,  as  estimated  by  the  48  studies.  The 
survey was compiled by Dube, A. (2019): “Impacts of minimum wages: review of the international evidence”, Report 
prepared for the UK Low-Pay Commission. For a more detailed explanation, see Annex A4.4. 

46 

 
 
                                                           
proportional  to  the  wage  increase  experienced  by  low-wage  earners.  The  relationship 
between gains in wages and the negative employment impacts is calibrated based on the 
evidence  cited  in  the  previous  paragraph.122  These  simulations  are  based  on  evidence 
which  assessed  the  impacts  of  minimum  wages  at  levels  already  observed  in  advanced 
economies.  Research  remains  inconclusive  about  the  level  up  to  which  the  minimum 
wage  can  be  increased  without  causing  a  significant  loss  in  employment.123  Very  high 
levels of the minimum wage may involve higher employment risks. Employment impacts 
may also depend on the pace and predictability of minimum wage increases, and whether 
these  take  into  account  economic  conditions.  Therefore,  they  also  depend  on  the 
institutions of statutory minimum wage setting.73  

Impacts on work incentives  

All  packages  will  contribute  to  enhancing  the  incentives  to  work  through  more 
adequate wages, leading thus to increased labour market participation. Simulations 
show that when the gross minimum wage is increased, the financial gain from accepting 
a job offer increases too.124 In particular, in a majority of Member States, minimum wage 
earners keep 50% or more of an increase in their gross wage. This net gain depends on 
the taxes paid on the additional income and the benefits withdrawn when people take up 
a  job.  Thus,  the  net  gain  is  highest  in  systems  where  taxes  paid  by  minimum  wage 
earners are low, and when benefits are not withdrawn. This is the case in Spain, Portugal, 
Greece and Croatia where workers keep 80% or more of a minimum wage increase.  In 
contrast,  in  some  countries  with  generous  benefits,  their  withdrawal  results  in 
comparatively  low  financial  gains  from  increased  minimum  wages  (e.g.  in  the 
Netherlands, Luxembourg and Malta). 

Impact on compliance and undeclared work  

All  packages  include  measures  to  strengthen  the  enforcement  of  rules  related  to 
minimum  wages.  This  will  lead  to  more  people  being  de  facto  protected  by  adequate 
minimum wages. This is important because otherwise, increasing minimum wage levels 
may  increase  the  risk  of  non-compliance,  including  undeclared  work.125  At  the  same 
time,  however,  in  Member  States  where  a  practice  of  “envelope  wages”  is  widespread, 

122  Detailed  simulation  results  are  shown  in  Annex  A12.4,  while  an  explanation  of  the  methodology  is  provided  by 
Annex A4.4.  
123 This point has been made by Card, D. and A.B. Krueger (2016): ”Myth and measurement: The new economics of 
the  minimum  wage.”  Twentieth-anniversary  edition,  2016,  Princeton  University  Press,  preface.  This  conclusion  has 
also  been  made  by  Prof.  A.  Lindner  in  his  expert  report  submitted  for  this  impact  assessment,  based  on  academic 
literature on the recent experience of U.S. cities. For a summary of the report, see Annex A4.1. 
124 Simulations with the OECD Tax-Benefit model. For details, see Annex A12.3 and in particular Error! Reference 
source not found. therein. For details on the methodology, see Annex A4.5. 
125  European  Commission  (2007):  “Stepping  up  the  fight  against  undeclared  work”,  COM(2007)628,  Brussels;  and 
Kampelmann, S, A. Garnero and F. Rycx (2013): “Minimum wages in Europe: does the diversity of systems lead  to a 
diversity of outcomes?” ETUI Report 128, pp. 55-58. 

47 

 
 
                                                           
higher minimum wages  may have an effect in increasing formal wage payments,  at the 
cost of informal payments, to the same worker.126  

6.1.3

Impacts of the individual packages on Member States where minimum 
wage protection is provided by collective agreements 

Package A would have a significant impact on collective bargaining by introducing 
administrative  extensions  to  collective  agreements.  Thus,  this  is  the  measure  that 
matters the most for the success  of this package in terms  of promoting minimum  wage 
protection  provided  by  collective  agreements.  It  would  have  significant  impacts 
especially  in  those  countries  currently  not  relying  on  extensions,  such  as  Cyprus, 
Denmark  and  Sweden.  Administrative  extensions  would  also  have  a  significant  impact 
on industrial relations because they may reduce the incentives of workers to join unions. 
This is a concern strongly emphasised by stakeholders from Nordic Member States. 

Package B includes measures to enhance collective bargaining beyond the measures 
common  to  all  packages.  The  measure  which  matters  the  most  for  the  success  of  this 
Package  in  terms  of  promoting  minimum  wage  protection  provided  by  collective 
agreements is the provision for a target level of 70% for collective bargaining coverage 
to  trigger  action  in  Member  States  in  support  of  collective  bargaining.  This  Package  is 
expected  to  have  additional  impacts  especially  in  Cyprus,  where  the  coverage  rate  is 
below  70%.  In  the  other  countries  where  minimum  wage  protection  is  provided  by 
collective  agreements,  collective  bargaining  coverage  is  already  above  70%.  In  these 
Member States, the Package will help ensure that these levels are maintained.   

Finally,  Package  C  is  expected  to  have  the  same  impact  as  Package  B.  This  is 
because it includes exactly the same measures as Package B, namely, capacity building 
of social  partners and encouraging negotiations on wages and the obligation to  provide 
for a regulatory framework or enabling conditions, as well as to establish an action plan 
to promote collective bargaining in the case of Member States where this coverage rate is 
below 70% Member States.  

The  positive  impacts  of  all  the  packages  are  reinforced  through  the  provisions  for 
enhanced enforcement and monitoring. In particular, both strengthening enforcement 
of wage clauses in collective agreements and ensuring compliance in public procurement 
with  wages  set  out  by  collective  agreements,  can  have  a  significant  positive  impact  on 
promoting  minimum  wage  protection  provided  by  collective  agreements.  Both  of  these 
measures,  individually  or  in  combination,  contribute  to  addressing  incidences  of  non-
compliance, which appears to be a significant phenomenon in many countries, while their 
combination  would  reinforce  the  expected  benefits  in  reaching  the  objectives  of  the 
initiative.  The  measure  on  enhancing  monitoring  and  data  collection  mechanism  on 

126  For  a  discussion  of  this  effect,  see  Harasztosi,  P.,  and  A.  Lindner.  2019.  “Who  Pays  for  the  Minimum  Wage?” 
American Economic Review, 109 (8): 2693-2727. 

48 

 
 
 
 
                                                           
wages set in collective agreements would help improve the quality and comparability of 
data  on  collective  bargaining  coverage  and  of  the  data  on  the  share  of  workers  not 
protected by collective agreements (see Annex A4.6 for more details). 

6.1.4

Impacts  of  the  individual  packages  on  Member  States  with  statutory 
minimum wages 

Package A will have positive social impacts of medium magnitude, mainly due to the 
bipartite  or  tripartite  body  with  decision-making  rights  about  many  aspects  of  the 
minimum wage framework including a national benchmark of minimum wage adequacy; 
as well as due to administrative extensions of collective agreements. However, it is the 
combination of the selected measures, and their reinforcing effects (described below) that 
matter the most for the success of this Package in terms of reaching the objective of the 
initiative.  

The  bipartite  or  tripartite  setting,  with  regular  updates,  would  have  a  medium 
positive impact on the adequacy of statutory minimum wages. Regular updates in a 
bipartite  or  tripartite  setting  are  expected  to  be  the  most  beneficial  in  Member  States 
where  regularity  and  timeliness  are  not  defined  by  law.  This  package  would  have  an 
impact  especially  in  Member  States  that  do  not  have  a  bipartite  or  tripartite  decision-
making  body  in  place.127  However,  it  bears  the  risk  that  it  may  take  disproportionally 
long to reach an agreement, due to insufficient capacity of participants or lack of national 
traditions,  which  could  reduce  positive  impacts  of  this  package  on  the  adequacy  and 
coverage  of  the  minimum  wages  in  some  Member  States.  The  effectiveness  of  such  a 
system  may  also  depend  on  the  rules  of  update  in  case  no  decision  is  reached  in  the 
bipartite or tripartite bodies. 

In  addition,  complementing  the  assessment  of  statutory  minimum  wages  by  a 
measure  of  decent  living  would  strengthen  their  adequacy.128  Benefits  would  be 
expected especially in countries in which many minimum wage earners report difficulties 
in  making  ends  meet,129  mostly  in  Central-Eastern  and  Southern  European  Member 
States, which may contribute to a convergence in minimum wages. This  process would 
be gradual since national decision-making processes would balance convergence to this 
standard against considerations of employment and competitiveness. 

The  banning  of  variations,  deductions  and  exemptions  from  statutory  minimum 
wages  has  also  the  potential  to  contribute  to  increasing  the  adequacy  and  coverage  of 
minimum wages.  

127  Currently,  a  formalised  tripartite  decision-making  process  on  minimum  wages  is  in  place  in  only  three  Member 
States (Lithuania, Poland, and Slovakia) where the government cannot deviate from the tripartite agreement, if one is 
reached. However, even in these cases, the government can set the minimum wage unilaterally if an agreement cannot 
be reached. A similar bipartite system is in place in Belgium and Estonia. 
128 This is the suboption including Measure 2.4, as described in Section 5.4.2. 
129 See especially Graph A8.7 in Annex A8.2. 

49 

 
 
 
                                                           
By  strengthening  collective  bargaining  especially  by  administrative  extensions  of 
collective agreements, Package A is expected to improve minimum wage adequacy, 
and  reduce  the  incidence  of  low  pay.130  The  measure  on  extending  collective 
agreements when this is agreed with relevant social partners could have a direct impact 
on increasing the collective bargaining coverage in some Member States. It also has the 
potential  to  limit  wage  inequality  by  setting  common  working  conditions  within 
sectors.131 At the same time, administrative extensions may reduce workers’ incentives to 
join a union  which may  have unintended negative consequences  for industrial relations 
systems in Member States. 

Extensions  in  combination  with  other  measures,  including  enhancing  social 
partners’  capacity  and  encouraging  wage  negotiations  will  lead  to  more  efficient 
collective  bargaining,  as  well  as  social  dialogue  (for  more  information  see  Annex 
A12.10).132  Well-organised  social  partners  with  a  broad  support  base  contribute  to  the 
attainment  of  high  collective  bargaining  coverage,  which  would  benefit  more  Member 
States where social partners’ capacity is relatively weak.133 Higher collective bargaining 
coverage has a positive impact on wages in general, which has an indirect positive impact 
on statutory minimum wages (see Section 2.5.1). It is also associated with a lower share 
of  low-wage  workers.  Studies  show  that  capacity  building  can  also  contribute  to 
strengthening  compliance.134  Finally,  strengthened  collective  bargaining  on  wages  may 
also  have  spill-over  effects,  resulting  in  better  working  conditions  in  other  areas 
negotiated by social partners.   

Package  B  has  strong  positive  social  impacts.  In  particular,  the  requirement  to  use 
indicators and indicative reference values to assess the adequacy of minimum wages 
is  mainly  responsible  for  the  strong  impacts  of  Package  B.  Even  though  these 
reference values are not binding, it is expected that Member States will attain them over 
time.  However,  as  in  the  case  of  Package  A,  it  is  the  combination  of  the  selected 
measures,  and  their  reinforcing  effects  (described  below)  that  matter  the  most  for  the 
success of this Package in terms of reaching the objective of the initiative. 

Indicative  reference  values  could  have  significant  positive  social  impacts.  The 
highest of these (50% of the gross average wage and 60% of the median) are close to the 
highest  actual  statutory  minimum  wages  currently  observed  in  the  EU.  Low  reference 
values (40% of the average wage or 50% of the median) would imply a gap to close for 
one-quarter  to  one-third  of  Member  States,  while  intermediate  reference  values  would 
imply  gaps  to  close  for  one-half  to  two-thirds  of  the  Member  States.  Such  minimum 

130 Schulten, T. (2015) “Mindestlohn und Tarifbindung – als Mittel der Begrenzung von Lohnungleichheit in Europa”, 
Presentation at the WSI-Herbstforum, 26.  
131  Hijzen  A.  and  Martins  P.,  “No  Extension  without  Representation?  Evidence  from  a  Natural  Experiment  in 
Collective Bargaining”, IMF Working Paper WP/16/143, July 2016. 
132 Eurofound working paper (2020), Exploring how to support capacity-building for effective social dialogue. 
133 Bulgaria, Cyprus, Czechia, Estonia, Greece, and Romania. 
134  Benassi,  C.  (2011):  The  Implementation  of  Minimum  Wage:  Challenges  and  Creative  Solutions,  Global  Labour 
University, Working Paper No 12. 

50 

 
 
                                                           
wage  increases  would  imply  significant  positive  social  impacts  in  terms  of  increased 
wages for minimum wage earners, reduced wage inequality and in-work poverty. If the 
reference values are used, this will lead to reductions in in-work poverty of about  10% 
(lower reference values) or even above 20% in some Member States (for higher reference 
values).  These  benefits  to  low-wage  earners  are  expected  to  greatly  outweigh  costs  in 
terms of reduced employment, which may in some Member States reach 0.2% (for lower 
reference  values),  0.5%  (for  intermediate  ones)  or  in  a  few  cases  1%  (for  the  highest 
reference values). See Annex 12.9.3 for more detail on the impacts of various reference 
values.  

As the reference values would be indicative, the full magnitude of the social impacts 
(both  benefits  and  the  smaller  costs)  would  materialise  only  in  case  of  full 
compliance. Compliance may be gradual and incomplete, especially in cases where the 
gap  to  be  closed  for  a  Member  State  is  large.  Gradual  benefits  would  be  expected 
especially  in  countries  in  which  many  minimum  wage  earners  report  difficulties  in 
making ends meet.135  

Limiting the use of variations, deductions and exemptions from statutory minimum 
wages  to  well  justified  and  proportionate  cases  would  also  contribute  to  increasing  the 
adequacy  and  coverage  of  minimum  wages,  but  with  a  more  limited  impact  than  in 
Package A.  

The measure introducing a 70% target on the collective bargaining coverage rate to 
trigger  action  by  Member  States136  could  have  a  direct  impact  on  increasing 
coverage in some Member States. This in turn is expected to have an indirect positive 
impact  on  the  adequacy  of  minimum  wages  in  Member  States  with  low  collective 
bargaining coverage, although the extent of this impact depends on the actions taken by 
the Member States in consultation with social partners. 

The  main  unintended  consequence  of  this  package  is  that  the  use  of  a  reference 
value could become a focal point in the collective bargaining negotiations on wages 
set in collective agreements. For the countries with high wage levels, this could weaken 
the additional impact of collective bargaining on adequacy. This indirect consequence is 
mitigated  by  the  measures  to  support  collective  bargaining,  including  reinforcing  the 
regulatory framework and establishing an action plan to promote collective bargaining in 
the countries lagging behind in the coverage rate of collective agreements. 

Package  C  would  also  lead  to  significant  positive  social  impacts.  These  positive 
impacts arise through the measures on automatic indexation of statutory minimum 
wages, combined with indicators and indicative reference values of minimum wage 
adequacy, similarly to Package B. Automatic indexation may in some cases reinforce the 

135 See especially Graph A8.7 in Annex A8.2. 
136  According  to  the  latest  data  (see  Annex  A9.1),  ten  Member  States  would  be  exempted  from  taking  any  action 
(Austria, Belgium, Denmark, Finland, France, Italy, the Netherlands, Portugal, Slovenia and Sweden). For data issues 
related to collective bargaining coverage see Annex A4.6. 

51 

 
 
                                                           
impact of adequacy targets. This is because, in an indexation system, the impact of one-
off  discretionary  increases  in  the  minimum  wage  is  maintained  by  the  automatic 
increases in the following years. 

Currently, automatic indexation is applied in six Member States (Belgium, France, 
Luxembourg,  Malta,  Netherlands  and Slovenia),  so  the  package  implies  respective 
reforms  in  all  the  other  Member  States  with  statutory  minimum  wages.  It  is 
expected  that  the  impacts  of  this  package  will  be  stronger  in  Member  States  where  the 
national legislation does not define criteria or indicators to set and update the minimum 
wage;137 in  Member States where  the regularity of  the updates is  not  defined by law138 
and  in  Member  States  where  the  involvement  of  social  partners  in  statutory  minimum 
wage setting is limited.139  

Furthermore,  similar  to  Package  B,  limiting  the  use  of  variations,  deductions  and 
exemptions  from  statutory  minimum  wages  to  well  justified  and  proportionate  cases 
would also contribute to increasing the adequacy and coverage of minimum wages, but 
again with a more limited impact than in Package A. These effects will be strengthened 
by  the  measure  to  introduce  a  70%  target  on  the  collective  bargaining  coverage  rate  to 
trigger action by Member States to promote collective bargaining.  

At  the  same  time,  Package  C  could  lead  to  unintended  consequences  related  to 
national  industrial  relations.  This  is  because  automatic  indexation  of  statutory 
minimum  wages  could  significantly  reduce  the  scope  of  social  partners’  influence  on 
minimum  wages  and  on  wage  developments  in  general.  This  can  in  turn  lead  to  a 
decrease in union density and in the coverage of collective agreements. The measures to 
strengthen the capacity  of social  partners and encourage negotiations on wages  and the 
measure to support collective bargaining when it is low can partly mitigate this indirect 
consequence. 

Finally, as in the case of Member States where minimum wage protection is provided by 
collective agreements,  the positive impacts  of all the packages  are  reinforced through 
the provisions for enhanced enforcement and monitoring. In particular, strengthening 
enforcement of statutory minimum wages and of wage clauses in collective agreements 
and ensuring compliance in public procurement with wages set by collective agreements 
and  statutory  minimum  wages,  can  have  a  significant  positive  impact  on  both  the 
adequacy  and  coverage  objectives  of  this  initiative.  Both  measures,  individually  or  in 
combination, contribute to addressing incidences of non-compliance, which are drivers of 
gaps  in  coverage  and  insufficient  adequacy  of  statutory  minimum  wage  and  unfair 
competition, while their combination would reinforce the expected benefits. The measure 
on  enhancing  monitoring  and  data  collection  mechanism  on  statutory  minimum  wages 
and wages set in collective agreements would help collect uniform and comparable data 

137 This is the case in Bulgaria, Estonia, Lithuania, and Romania. 
138 I.e., in Bulgaria, Czechia, Estonia, Ireland and Romania. 
139 I.e., in Bulgaria, Czechia, Spain, Croatia, Hungary, Latvia, Malta, Poland, Portugal, Slovenia and Romania. 

52 

 
 
                                                           
in  view  of  monitoring  the  progress  achieved  in  the  implementation  of  the  initiative. 
Furthermore, reliable EU monitoring and data collection contributes to the transparency 
of the national systems.  

Box 1: Social impacts of various indicative reference values in Packages B and C 

To  estimate  the  magnitude  of  the  social  and  economic  impacts  of  various  reference 
values, a microsimulation exercise has been conducted using the Euromod model.140  

The  highest  reference  values  are  close  to  the  highest  statutory  minimum  wages 
currently  observed  in  the  EU.  According  to  Eurostat  estimations  for  2019,  only 
Portugal  has  a  statutory  minimum  wage  above  60%  of  the  median  and  50%  of  the 
average wage. Bulgaria, France and Slovenia are at or close to 60% of the median, while 
countries approximating 50% of the average wage are France, Slovenia and Spain.141  

In  contrast,  the  lower  reference  values  would  imply  a  gap  to  be  closed  for  about 
one-quarter to one-third of Member States. A reference value of 50% of the median 
wage  would  imply  increases  for  9  Member  States  from  their  2019  levels  (Czechia, 
Croatia, Estonia, Germany, Greece, Ireland, Latvia, Malta, the Netherlands; the implied 
increase would be small in Croatia, Greece and the Netherlands). Meanwhile, a reference 
value of 40% of the average wage would imply increases for 6 Member States: Czechia, 
Estonia, Hungary, Ireland, Latvia and Malta. See also Graph A12.1 and Table A12.1 in 
Annex A12.1. 

Intermediate reference values would imply gaps to close for one-half to two-thirds 
of  the  Member  States.  In  particular,  an  intermediate  reference  value  of  55%  of  the 
median wage would imply increases for 15 Member States. These are, in addition to the 
ones  below  50%  in  2019:  Belgium,  Slovakia,  Hungary,  Lithuania,  Luxembourg  and 
Poland. Meanwhile, an intermediate reference value of 45% of the average wage would 
imply increases for 17 Member States. These are, in addition  to the ones below 40% in 
2019:  Belgium,  Bulgaria,  Croatia,  Germany,  Greece,  Lithuania,  Luxembourg,  the 
Netherlands, Poland, Romania and Slovakia.   

While  more  or  less  stringent  reference  values  can  be  defined  both  in  terms  of  the 
average and the median wage, both indicators have somewhat different implications 
for  individual  Member  States.  In  particular,  reference  values  based  on  the  average 
wage  are  somewhat  more  stringent  for  Member  States  with  generally  lower  or 
intermediate  wage  levels  such  as  Bulgaria,  Hungary,  Portugal  and  Romania,  while 
reference  values  based  on  the  median  wage  are  somewhat  more  stringent  for  some 
intermediate-to-higher  wage  countries  such  as  Belgium,  Germany,  Greece,  Malta,  and 
the Netherlands.   

140 Annex A12.1 presents simulations of impacts on wages, Annex A12.2 on other social impacts (wage inequality, in-
work  poverty,  the  gender  pay  gap),  while  Annex  A12.4  presents  employment  impacts.  For  a  description  of  the 
methodology, see Annex A4.3. 
141 See also Error! Reference source not found. on page 5. 

53 

 
 
 
                                                           
Reaching  indicative  reference  values  could  increase  the  wages  of  more  than  20 
million  workers  (highest  reference  values)  or  10  million  workers  (intermediate 
reference  values).  If  Member  States  increased  their  minimum  wages  to  the  highest 
reference  values,  wages  could  increase  for  22  million  workers  (at  60%  of  the  median 
wage)  or  24  million  workers  (at  50%  of  the  average  wage).  At  intermediate  reference 
values, the number of direct beneficiaries is estimated to be 11 million (55% of median 
wage) and 12 million (45% of the average wage). The difference is larger between both 
low reference values: if statutory minimum wages were increased to 50% of the median 
wage, this would increase wages for 5.4 million workers, while increases to 40% of the 
average wage would benefit 0.7 million workers.142  

Higher  reference  values  have  a  higher  impact  on  overall  wages.  In  particular, 
minimum  wage  increases  to  the  level  of  the  highest  reference  values  would  imply 
increases  in  overall  wages  of  about  1%  at  the  EU  level.  Increases  to  intermediate 
reference values would imply an overall wage increase of about  0.4%, while the lower 
reference values imply smaller increases.143  These social benefits in terms of increased 
wages are shown by Member States in Graph A12.4 in Annex A12.1.  

Significant  reductions  in  in-work  poverty  are  implied  if  Member  States  increase 
their minimum wages to various possible reference values.144 These impacts depend 
on the magnitude of the minimum wage increase implied by various reference values, but 
also the number of workers affected in each country, among other factors. In particular, 
eight  EU  countries  would  witness  a  reduction  by  more  than  20%  in  in-work  poverty 
should  they  increase  their  statutory  minimum  wage  to  a  reference  value  of  60%  of  the 
median  gross  wage  or  50%  of  the  average.  The  most  significant  reductions  in  in-work 
poverty  would  be  observed  in  Estonia,  Greece  and  Romania  where  in-work  poverty  is 
comparatively high, but also in Germany, Hungary and Luxembourg, albeit from a lower 
baseline.  More  significant  reductions  would  be  typically  between  10%  and  20%  if 
minimum wages were increased to the intermediate reference values (45% of the average 
wage or 55% of the median), while they would remain close or below 10% for the lower 
values (40% of the average wage or 50% of the median).   

Minimum wages increase wages of low-wage earners much more than their possible 
negative impact on jobs.145 Possible negative employment effects would remain below 
0.2%  in  most  cases  if  all  Member  States  increased  their  minimum  wages  to  the  lower 
reference values. The employment effect would exceed this in Estonia and Ireland in the 
case of 40% of the average wage and, in addition, in Germany, Greece and Luxembourg 
in  the  case  of  50%  of  the  median  wage.  Possible  negative  employment  effects  would 

142 Calculations based on Euromod simulations on the share of workers affected (Annex A12.1) and LFS data on the 
number of employees in 2019.  
143 The estimated increase in the EU wage bill is about 0.2% with all statutory minimum wages at 50% of the median 
wage, while the increase is 0.01% at 40% of the average wage. 
144 For more detail on the social impacts of hypothetical minimum wage scenarios, see Annex A12.2.  
145 For more detail on the employment impacts of hypothetical minimum wage scenarios, see Annex A12.4.  

54 

 
 
                                                           
remain below 0.5% of total employment in most cases if minimum wages were increased 
to intermediate reference values, and below 1% in all cases. Employment effects would 
remain  below  0.8%  in  most  cases  for  high  reference  values,  but  would  reach  1%  in 
Greece and Estonia and Ireland (at 60% of the median wage) as well as in Greece and in 
Romania (at 50% of the average wage). 

6.2

  Economic impacts 

Economic impacts of various policy packages are presented, as in the case of social 
impacts in the previous section, in four subsections. The first two subsections discuss 
impacts  that  are  common  to  all  packages,  for  each  minimum  wage  setting  system 
separately. The last two subsections present impacts that are specific to individual policy 
packages; this discussion is also divided by minimum wage setting systems.  

6.2.1

Impacts  of  all  packages  on  Member  States  where  minimum  wage 
protection is provided by collective agreements 

The economic impacts of all packages are expected to be small in countries where 
minimum wage protection is provided by collective agreements. Measures related to 
strengthening collective bargaining are expected to increase the coverage and adequacy 
of wages set  in  collective agreements,  although the exact  impact  depends on the action 
taken by Member States. These measures are expected to bring some social benefits (see 
Section 6.1.1 ) but are not expected to lead to significant economic impacts.  

At  the  same  time,  some  economic  costs  can  be  expected  under  all  packages, 
especially  for  public  authorities,  however,  it  is  not  possible  to  quantify  the 
magnitude of these costs. These include small one-off costs that could arise in the case 
Member  States  would  be  required  to  provide  for  a  regulatory  framework  or  enabling 
conditions, and to establish an action plan to promote collective bargaining. These costs 
could be accompanied by respective small one-off costs of familiarisation with the new 
provisions. In addition, Member States could incur costs arising from promoting capacity 
building activities for social partners, the magnitude of which will depend on the amount 
of funds that Member States will choose to dedicate. Finally, additional costs might arise 
from  the  implementation  of  the  enforcement  and  monitoring  provisions  (for  more 
information on the latter see section 6.2.3).   

6.2.2

Impacts  of  all  packages  on  Member  States  with  a  statutory  national 
minimum wage 

Impact on labour costs, prices and profits  

By  contributing  to  higher  minimum  wages,  the  economic  effects  of  all  packages 
include  increased  labour  costs  for  firms,  increased  prices  and,  to  a  lesser  extent, 

55 

 
 
 
 
lower profits. Increased wage costs are a direct consequence of increased wages paid to 
minimum wage earners.146 The ensuing effects on prices and profits depend on whether 
firms can pass on higher wage costs to consumers through price increases or if they can 
counterbalance  them  by  cutting  costs  elsewhere  or  through  increased  productivity.  Past 
research found some evidence that minimum wage increases lead to increases in prices, 
and only limited evidence that they lead to a reduction in profits.147 More recent research, 
based on previously inaccessible data sources which link information on employees with 
employer  balance  sheets,  found  that  minimum  wage  increases  indeed  result  in  an 
improved  situation  for  low-wage  workers  (despite  higher  prices),  while  the  costs  are 
borne  by  higher-wage  workers  (as  a  result  of  increased  prices)  and,  to  a  lesser  extent, 
firms  (in the form  of reduced profits).148  The study  finds that about  ¾ of the economic 
cost of higher minimum wages is borne by consumers, while about ¼ is borne by firms. 
This  particular  estimate  reflects  the  specific  context  of  Hungary,  a  transition  economy, 
facing  increasing  international  competition  for  its  exporting  firms  in  the  runup  to  its 
accession to the EU, and issues related to non-compliance (e.g. the practice of envelope 
wages)  possibly  cushioning  the  effects  for  smaller  firms  more  than  for  others. 
Nevertheless, it is valuable because it is the first direct estimate of these shares due to the 
high-quality data used in the study.149 In general, the impact on firms is mitigated by the 
fact  that  the  propensity  to  consume  of  low-wage  earners  is  relatively  higher,  thus 
supporting domestic demand.150  

Impacts on consumption 

All packages are also expected to increase the consumption of lower-income groups, 
while the impact on aggregate  consumption  would be small.  Since higher minimum 
wages increase the income of low-wage earners, but indirectly also consumer prices, the 
impact on consumption is theoretically  ambiguous.  Recent  evidence, including analysis 
by the European Commission found that higher minimum wages have a positive impact 
on the consumption of low-income groups, in spite of increased prices, while the effect 
of  higher  minimum  wages  on  the  consumption  of  higher-income  groups  is  not 
statistically significantly different from zero.151  

146 The countervailing impact of reduced employment is small, as is shown in the discussion in the previous subsection. 
147  See,  e.g.,  Card  and  Krueger  (2016):  ”Myth  and  measurement:  The  new  economics  of  the  minimum  wage.” 
Twentieth-anniversary edition, 2016, Princeton University Press, especially Chapter 10.  
148  Harasztosi  and  Lindner  (2019):  “Who  Pays  for  the  Minimum  Wage?”  American  Economic  Review  109  (8),  pp. 
2693-2727. The authors find that “around 25 percent of the increased cost of labour is covered by lower profits, and so 
paid by the  firm owners,  and around 75 percent is paid by consumers in the  form of higher revenue. […] Since the 
minimum  wage  raised  income  of  low-wage  workers,  while  the  higher  output  prices  are  more  or  less  equally  shared 
among consumers, our evidence underscores that the minimum wage is an effective redistributive policy.”  
149 Qualitatively, the findings are in line with the body of literature surveyed by Card and Krueger (2016, op cit). 
150 See Annex A12.5 (b)) and European Commission (2016): LMWD 2016 Report, DG EMPL. 
151 See Annex A12.5 (a)) and European Commission (2016): LMWD 2016 Report, DG EMPL. 

56 

 
 
 
 
                                                           
Impacts on output, competitiveness, productivity, and the business environment 

The impact of the packages on aggregate output and productivity will most likely be 
small while the direction of the impact is ambiguous.  Economic models suggest that 
the  effect  of  minimum  wages  on  economic  activity  is  broadly  neutral  whenever 
employment  effects  are  small.  Moreover,  when  impacts  on  employment  and  output  are 
small, cross-border effects, i.e., impacts on the internal market through an effect on the 
aggregate  competitiveness  of  export  industries,  are  also  small.152  (See  a  discussion  of 
possible sectoral impacts below.)153 The simulations prepared for this impact assessment 
show that, while the wage increases for minimum wage earners exceed 10% or even 20% 
in a number of Member States and scenarios, the increase in the overall wage bill is more 
muted, rarely exceeding 1%. This means that increased minimum wage levels as a result 
of  the  initiative  are  not  expected  to  significantly  impact  aggregate  competitiveness  of 
Member  States.  The  experience  of  Member  States  that  introduced  a  statutory  national 
minimum wage in recent years also suggests no negative impacts on output, productivity 
or  competitiveness,  even  though,  admittedly,  the  Member  States  at  the  time  enjoyed  a 
favourable growth environment.154   

At the same time, all the packages may have positive impacts on productivity at the 
level  of  the  individual  firm.  A  recent  ECB  survey  of  Central  and  Eastern  European 
firms finds that most executives would react to minimum wage increases by cutting non-
labour  costs,  increasing  product  prices,  and  improving  productivity.155  Evidence  in 
specific  countries  suggests 
increase 
productivity in the low-paid sector.156  

that  minimum  wage 

increases  can 

indeed 

In addition, Packages A and B can improve productivity by strengthening collective 
bargaining.  Strong  collective  bargaining  leads  to  better  wage  conditions,  which  may 
induce  employees  to  work  more  productively  and  companies  to  adapt  faster  and  more 
smoothly to changed market conditions, thus fostering productivity growth.157  

By means  of clear and stable frameworks for minimum wage setting, all packages 
would also improve the business environment, reduce uncertainty and volatility and 
enable  employers  to  plan  ahead.  At  the  same  time,  the  strengthened  involvement  of 
social  partners  in  setting  the  statutory  minimum  wage  also  leads  to  a  more  predictable 

152  European  Commission  (2019):  “Macroeconomic  effects  of  minimum  wages:  Model-based  simulations  using  the 
QUEST model”, DG ECFIN. See a summary in Annex A4.1. 
153  European  Commission  (2019):  “Macroeconomic  effects  of  minimum  wages:  Model-based  simulations  using  the 
QUEST model”, DG ECFIN. See a summary in Annex A4.1. 
154 See Annex A12.6 for a survey.  
155  Bodnár,  K.,  L.  Fadejeva,  S.  Iordache,  L.  Malk,  D.  Paskaleva,  J.  Pesliakaitė,  N.  Todorović  Jemec,  P.  Tóth  &  R. 
Wyszyński. (2018): “How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern 
Europe” IZA Journal of Labor Policy, Volume 7. 
156 Rizov, M, R Croucher and T Lange (2016), “The UK National Minimum Wage's Impact on Productivity,”  British 
Journal of Management 27(4): 819–835). 
157 Policardo L., Punzo, L. F. and Sanchez Carreras E. J., “Wage inequality and labor productivity in OECD countries”, 
2018. 

57 

 
 
                                                           
minimum  wage  setting,  which  takes  into  account  all  relevant  social  and  economic 
developments preserving as such employment and competitiveness. Furthermore, taking 
into account their views can have positive effects on the investment decisions of firms. 

Improved  enforcement  of  minimum  wage  rules  has  positive  effects  for  compliant 
firms.  This  is  because  it  reduces  or  eliminates  the  illegitimate  cost  advantage  of  non-
compliant firms. Since the incidence of non-compliance is likely to be higher in services 
sectors  and  in  small  firms,  it  is  likely  that  its  economic  impacts  involve  somewhat 
increased  prices  by  such  providers  but  international  competitiveness  is  unlikely  to  be 
affected.  

Sectoral impacts  

The  impacts  of  the  considered  policy  packages  on  specific  sectors  depend  on 
whether  they  employ  many  minimum  wage  earners  and  whether  the  demand  for 
their output is sensitive to domestic purchasing power. Such impacts are expected to 
be  modest  for  firms  active  in  sectors  that  are  sensitive  to  domestic  demand  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 demand for their products and services.  

Potentially negative impacts on external competitiveness, notably in agriculture and 
industry, are possible and should be monitored by Member States. These sectors are 
likely to be less able to pass on cost increases to consumers as they are more integrated 
into external markets than others. In agriculture, about one in four workers are minimum 
wage earners, while the share of minimum wage earners is lower in industry (about 8%) 
than in other sectors.158 However, since these sectors, and especially agriculture, have a 
relatively  small  share  in  overall  employment,  most  minimum  wage  earners  are  not 
employed  in  agriculture  or  industry,  but  rather  in  services.159  Patterns  vary  across 
Member  States,  and  there  are  a  few  Member  States  where  both  the  share  of  minimum 
wage earners is comparatively high and many of them work in agriculture or industry. In 
particular, this is the case in some Central and Eastern European Member States (e.g. in 
Bulgaria, Croatia,  and Romania).160  In these cases,  such impacts  may be stronger. This 
should  be  taken  into  account  in  the  minimum  wage  setting  framework  as  part  of  the 
relevant  economic  circumstances  when  informing  the  setting  and  updating  of  the 
statutory minimum wage. 

158 See Annex A7.2, and in particular, Graph A7.7, for more details. The high share of low-wage earners in agriculture 
is also emphasises in a recent study by the European Commission (2020): “Meeting labour demand in agriculture 
in times of COVID 19 pandemic”, Joint Research Centre (link). 
159 See Graph A7.6 in Annex A7.2.  
160 See Graph A7.1 in Annex A7.1 and Graph A7.6 in Annex A7.2.  

58 

 
 
 
 
                                                           
Impacts on SMEs  

As  a  result  of  increased  minimum  wages,  labour  costs  of  small  and  medium  sized 
enterprises  (SMEs) will increase.  Employees of SMEs have a higher  chance of being 
minimum  wage  earners.  In  particular,  while  SMEs  (with  less  than  250  employees) 
employ  about  two-thirds  of  all  workers  in  the  EU,161  they  employ  almost  90%  of 
minimum wage earners. Similarly, while small firms with less than 50 employees employ 
about one-half of all workers in the EU, they are estimated to employ about two-thirds of 
minimum wage earners.162 For this  reason, SMEs are more affected by minimum wage 
increases than other firms. In particular, the increase in labour costs to SMEs (or small 
firms) is expected to be proportional to their share in the employment of minimum-wage 
earners. At the same time, since many of them are active in sectors sensitive to domestic 
demand,  they  may  pass  on  these  costs  to  increased  prices,  also  because  increased 
minimum wages may increase demand for their services. Calculations on direct costs for 
SMEs implied by various non-binding reference values of minimum wage adequacy are 
reported in Box 2 in Section 6.2.4.  

A boost in domestic spending following minimum wage increases may explain why 
the academic literature has not found systematic evidence that small firms are more 
negatively  affected  by  minimum  wage  increases  than  other  firms.  In  contrast,  the 
extensive academic literature on restaurants has found that, in most cases, enterprises in 
this sector may benefit from minimum wage increases.163 Most of the existing evidence 
is  based  on  sector-specific  studies,  in  particular  those  related  to  the  hospitality  sector 
which  employs  many  minimum  wage  earners,  while  studies  focusing  on  impacts  on 
SMEs in general are scarce. Only recent studies have been able to assess the impacts of 
minimum wage increases on a broader range of SMEs. According to one of these studies, 
the 2015 introduction of the minimum wage in Germany has not reduced employment,164 
but  it  may  have  induced  a  movement  of  some  workers  from  smaller  firms  to  better-
paying jobs, in some cases offered by larger companies.165 This implies that some small 
companies, especially in low-wage regions, may find it difficult to compete for workers 
when minimum  wages  are increased. This  appears to  be true  especially for small firms 

161 Eurostat: Structural business statistics overview. 
162 On the distribution of minimum wage earners by firm size, see Annex 7.2, and in particular Graph A7.8. The graphs 
are based on EU-SILC data which do not allow a differentiation between  medium-sized and large firms. Combining 
these data with information with EU-SES, a similar picture emerges for all SMEs: these firms (employing up to 250 
employees) employ about two-thirds of all workers in the EU, and almost 90% of all minimum wage earners. 
163 The first major scientific study finding positive impacts of minimum wages on employment was a study of fast food 
restaurants: Card, D. and A. B. Krueger (1994) “Minimum Wages and Employment: A Case Study of the New Jersey 
and Pennsylvania Fast Food Industries,” American Economic Review, 84(4): 772-793. More recent studies have found 
similar  results,  see,  e.g.:  Dube,  A.,  S.  Naidu,  and  M.  Reich.  2007.  “The  economic  effects  of  a  citywide  minimum 
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. 
164 The employment rate in Germany in the 15-64 age group increased from 73.8 in 2014 to 74.7 in 2016, in the context 
of an EU-wide recovery. The studies assessing the impacts of the introduction of the minimum wage are not based on 
these  aggregate  figures  but  rather  compare  more  affected  regions  and  firms  with  less  affected  ones  to  tease  out  the 
causal effects of the minimum wage.     
165 Dustmann, Ch., A. Lindner, U. Schönberg, M. Umkehrer, and Ph. vom Berge (2020)  “Reallocation Effects of the 
Minimum Wage: Evidence From Germany”, CREAM Discussion Paper 07/20, University College London.  

59 

 
 
                                                           
with  less  than  50  employees,  while  medium-sized  companies  (between  50  and  250 
employees) appear to have increased their employment after the minimum wage increase, 
similarly to larger ones.166   

Minimum wages may also have unintended consequences on business dynamics, but 
research is inconclusive about these effects so far. The case study on the introduction 
of the German minimum wage has found that small firms in more affected regions appear 
to have have had an increased rate of exit after the introduction of the statutory minimum 
wage in 2015.167 The body of existing evidence on this is, however, inconclusive.168  

On the other hand, SMEs are expected to profit from more stable and transparent 
mechanisms  to  set  statutory  minimum  wages.  This  will  help  SMEs  to  anticipate 
developments  in  the  minimum  wage  and  mitigate  any  negative  impacts.  The  quality  of 
minimum  wage  setting  frameworks,  including  the  involvement  of  social  partners,  was 
emphasised by employer representatives during the consultations.169 In addition, in cases 
with  significant  negative  unintended  consequences  for  SMEs,  Member  States  may 
choose  a  more  gradual  approach  to  increase  minimum  wages,  or  may  adopt  mitigating 
measures such as reducing the tax or contribution burden on minimum wages. 

Moreover,  all  packages  provide  flexibility  to  Member  States  to  adjust  minimum 
wage increases taking into account the impact on SMEs. In package A, the prominent 
role  of  the  social  partners  in  the  decision-making  process  for  setting  minimum  wages 
would  ensure  that  the  interests  of  SMEs  are  duly  taken  into  account  when  setting  and 
updating  minimum  wages.  In  package  B  and  C,  as  the  reference  values  would  be 
indicative, compliance with adequacy indicators could be gradual taking into account the 
economic  circumstances  and  specificities  of  SMEs,  especially  in  cases  where  the 
potential negative impact of minimum wage adjustments on these firms would be large.      

Impact on public budgets and public authorities 

Through  minimum  wage  increases,  the  initiative  is  expected  to  have  a  small  but 
positive  effect  on  public  budgets.170  According  to  analysis  done  with  the  Euromod 
microsimulation  model,  fiscal  effects  of  increased  minimum  wages  are  estimated  to  be 
positive in almost all cases, driven by increases in tax revenues and reductions of benefit 

166 Calculations by Prof. A. Lindner based on Dustmann et al. (2020, op. cit.), in his expert report submitted for this 
impact  assessment,  on  the  “Effects  of  statutory  minimum  wages  on  small  and  medium-sized  enterprises”.  For  a 
summary of this report, see Annex A4.1.  
167 Dustmann et al. (2020, op cit.)  
168 For example, Rohlin (2010) finds no indication that exit rates increase in response to the minimum wage, but finds 
that firm entry is reduced at the most exposed industries. On the other hand, Aaronson et al. (2018) find that both exit 
and entry rates increase in the restaurant sector, especially for chain restaurants. See: Rohlin, Shawn M., 2011. "State 
minimum  wages  and  business  location:  Evidence  from  a  refined  border  approach,"  Journal  of  Urban  Economics, 
Elsevier, vol. 69(1), pages 103-117, January; Aaronson, D., French, E., Sorkin, I. and To, T. 2018. “Industry Dynamics 
and the Minimum Wage: A Putty-Clay Approach.” International Economic Review, 59: 51-84. 
169 SMEUnited (2020): Response to first phase consultation of social partners under Art 154 TFEU on a possible action 
addressing the challenges related to fair minimum wages; See Annex 2 for a summary of consultations.  
170 For a description of the methodology, see Annex 4. 

60 

 
 
                                                           
expenditure. The magnitude of these effects is small. The overall improvement of public 
budgets  is  smaller or close to  0.1% of GDP in  the scenarios implying smaller changes, 
while  it  reaches  0.4%  of  GDP  in  a  few  cases  where  minimum  wages  are  increased  to 
60% of the median wage (in Estonia, Germany, Greece, the Netherlands) or 50% of the 
average wage (in the Netherlands, Poland, Romania).171   

The strengthening of enforcement of minimum wage rules may have direct costs for 
public  administrations,  but it  may  also  result in  increased  revenue.  Increased  costs 
are involved if the improvements are based on increased staff and other resources, while 
increased  wages  and  reduced  undeclared  work  are  expected  to  result  in  increased 
revenues in labour taxes and social security contributions. 

The initiative is expected to bring some costs to the public authorities, however, it is 
not possible to quantify the magnitude of these costs. Such costs include small one-off 
costs that could arise in the case changes would be required to the current minimum wage 
legislation or to the legal framework on collective bargaining or the legal framework on 
enforcement,  and  respective  small  one-off  costs  of  familiarisation  with  the  new 
legislations.  In  addition,  compliance  costs  may  arise  in  case  Member  States  would  be 
required  to  take  measures  to  ensure  the  timely  and  effective  involvement  of  social 
partners  in  minimum  wage  setting  and  updating.  In  particular,  these  costs  would  be 
higher  in  case  Member  States  would  be  required  to  establish  new  consultative  bodies. 
Moreover,  Member  States  could  incur  costs  arising  from  promoting  capacity  building 
activities for social partners, the magnitude of which will depend on the amount of funds 
that Member States will choose to dedicate. Finally, costs may arise from monitoring and 
data collection mechanisms, which will depend on the changes that would be required to 
the current systems while additional costs could be envisaged due to the implementation 
of  enforcement  provisions  and  in  particular  from  strengthening  the  enforcement  of 
statutory  minimum  wages  and  wages  set  in  collective  agreements,  and  ensuring 
compliance  in  public  procurement  with  wages  set  in  collective  agreements  and  with 
statutory minimum wages.  

6.2.3

Impacts of the individual packages on Member States where minimum 
wage protection is provided by collective agreements 

While there are differences between the packages regarding their social impacts on 
these  Member  States,  their  economic  impacts  are  expected  to  be  small.  While 
Package A is  expected to have the most significant impact on the collective bargaining 
systems  due  to  the  use  of  administrative  extensions,  the  packages  are  not  expected  to 
have a significant economic impact at the aggregate level on these Member States.  

However,  as  mentioned  above,  some  economic  costs  can  be  expected  under  all 
packages  arising  from  the  provisions  of  enforcement,  monitoring  and  data 

171 For more information, see Annex A12.8. 

61 

 
 
 
                                                           
collection. In particular, both strengthening the enforcement of wage clauses in collective 
agreements and ensuring compliance in public procurement with wages set by collective 
agreements  would  possibly  require  increasing  the  capacity  of  the  current  enforcement 
mechanisms.  However,  the  magnitude  of  these  costs  would  depend  on  the  adjustments 
that  would  be  required  to  the  current  system.  Furthermore,  additional  costs  could  be 
expected  from  the  provision  on  monitoring  and  data  collection  given  the  current 
significant  challenges  which  exist  in  this  domain  in  most  of  the  Member  States  where 
minimum  wage  protection  is  provided  by  collective  agreements  (see  Annex  A4.6  for 
details on data issues). 

6.2.4

Impacts  of  the  individual  packages  on  Member  States  with  statutory 
minimum wages 

Economic  impacts  of  increased  minimum  wage  levels  are  expected  to  be 
proportional to their social benefits. This is because an increase in beneficiaries’ wages 
means  increased labour  cost  for firms.  This cost may be shared between employers (in 
the form of reduced profits) and consumers (in the form of higher prices) but this does 
not  loosen  the  close  link  between  social  benefits  and  economic  costs.  For  this  reason, 
economic costs are expected to be largest for Package B, which is expected to have the 
largest social benefit, followed by Package C and Package A (medium impacts).  

At  the  same  time,  differences  in  governance  aspects  of  minimum  wage  setting 
frameworks  imply  additional  differences  in  economic  costs,  which  loosen  this 
proportional relationship. Package A brings additional benefits in terms of an improved 
business environment because of the high collective bargaining coverage, as well as the 
strong and decisive involvement of the social partners in both the minimum wage setting 
and updating and in  enforcement.  However, the  bipartite and tripartite decision-making 
bodies  involve  economic  costs  related  to  the  possibility  that,  in  some  cases,  agreement 
may  be  difficult  or  impossible  to  reach.  This  could  reduce  the  benefits  of  such  an 
arrangement for the predictability of minimum wage setting. 

Package  B  would  improve  the  business  environment  both  by  a  clearer  and  more 
stable  framework  and  a  stronger  involvement  of  social  partners  and  sufficient 
flexibility to take into account economic conditions. Criteria for setting the minimum 
wage,  including  indicators  and  indicative  reference  values  related  to  adequacy  make  it 
easier  for  workers  and  firms  to  understand  and  anticipate  minimum  wage  setting,  even 
though the updates do not follow an automatic rule. The involvement of social partners is 
strengthened  and  all  information  is  brought  to  the  attention  of  the  decision-makers  and 
the public, but updates do not depend on whether a consensus can be reached among all 
stakeholders.  Most  importantly,  this  package  includes  sufficient  flexibility  to  allow 
economic conditions to be taken into account. This allows Member States to take a more 
gradual  approach  to  reach  adequacy  targets  if  the  economic  situation  or  considerations 
related  to  impacts  on  some  sectors,  regions  or  SMEs  justify  this.  Thus,  this  package 
ensures that economic costs remain low as compared to the social benefits.  

62 

 
 
 
Package C, and the automatic indexation in particular combined with the impact of 
indicative  reference  values  on  adequacy,  could  imply  additional  economic  costs 
because  of  its  lack  of  flexibility.  Automatic  indexation  systems  make  it  easy  for  the 
public to understand and anticipate minimum wage updates, but may not be sufficiently 
flexible  under  some  circumstances.  This  is  because  automatic  rules  cannot  take  into 
account all economic and social circumstances, which may become relevant under some 
circumstances,  as  this  would  make  any  rule  too  complex.  For  this  reason,  while 
indexation systems are, by definition, the most predictable among the systems, they may 
cause disadvantages for the business environment under some circumstances.  

While  increased  minimum  wages  generally  improve  public  budgets,  the  various 
packages  may  involve  some  costs  of  smaller  magnitude  for  the  government.  As 
explained above, direct  costs may be involved related to the capacity building of social 
partners (in all Packages), for the setting up of bipartite or tripartite bodies (for Package 
A) as well as one-off costs related to the adjustment of existing rules to comply with the 
initiative. 

Finally,  similarly  to  the  case  of  Member  States  where  minimum  wage  protection  is 
provided by collective agreements,  some negative economic impacts can be expected 
under all packages arising from the provisions of enforcement, monitoring and data 
collection. In particular, strengthening the enforcement of statutory minimum wages and 
wages set in collective agreements and ensuring compliance in public procurement with 
wages set by collective agreements and statutory minimum wages would possibly require 
increasing the capacity of the current enforcement mechanisms. However, the magnitude 
of  these  costs  would  depend  on  the  adjustments  that  would  be  required  to  the  current 
system.  At  the  same  time,  the  costs  arising  from  the  provision  on  monitoring  and  data 
collection are expected to be smaller than in the case of Member States where minimum 
wage protection is provided by collective agreements given that the challenge is smaller 
in  Member  States  with  statutory  minimum  wages.  Nevertheless,  data  gaps  still  exist, 
especially regarding the share of non-covered workers or the share of workers affected by 
specific variations in or deductions from minimum wages. 

63 

 
 
 
Box 2: Economic impacts of various indicative reference values in Packages B and 
C 

Higher reference values have higher economic costs for firms and consumers. Social 
benefits in terms of higher wages directly translate into increased labour costs for firms. 
At the highest reference values, the overall increase in the wage bill is about 1% at the 
EU  level,  which  translates  to  about  EUR  51-53  billion  of  total  economic  cost  for 
consumers  and  firms.  The  increase  of  the  wage  bill  is  about  0.4%  at  intermediate 
reference values  (translating into about EUR 20-22 billion of economic cost) while the 
lower  reference  values  imply  smaller  increases.172  As  the  economic  costs  are  broadly 
proportional  to  the  social  costs,  the  incidence  of  the  costs  by  Member  States  can  be 
inferred from Graph A12.4 in Annex A12.1. 

Most of this cost is  borne by consumers in terms of higher prices, while a smaller 
share is borne by firms. According to a recent estimate, consumers bear about 75% of 
the cost in the form of higher prices, while firms bear about 25% of the cost in the form 
of lower profits.173   

About  85-87%  of  the  increased  labour  cost  in  the  EU  is  expected  to  affect  SMEs 
(employing  less  than  250  workers)  based  on  their  share  in  the  employment  of 
minimum  wage  earners,  which  exceeds  SMEs’  two-thirds  share  in  overall 
employment.174  About  two-thirds  of  the  increased  labour  costs  associated  with  higher 
statutory minimum wages are expected to affect micro and small enterprises (employing 
less than 50 employees), divided almost equally between both categories. An additional 
20% of the costs would affect medium-sized firms. The remaining 13-15% of the costs is 
expected to fall on large enterprises (see Graph 6). This corresponds to the share of these 
categories of firms in the employment of minimum wage earners in the countries affected 
by  various  scenarios.  The  additional  annual  costs  for  SMEs  are  estimated  to  be  about 
EUR  4-5  billion  if  Member  States  increase  their  statutory  minimum  wages  to  the 
intermediate  reference  values  (55%  of  the  median  wage  or  45%  of  the  average  wage), 
while  the  they  could  be  about  EUR  11-12  billion  of  Member  States  increase  their 
statutory  minimum  wages  to  the  highest  reference  values  (60%  of  the  median  wage  or 
50%  of  the  average  wage).  Finally,  annual  costs  to  SMEs  could  be  close  to  EUR  2.5 
billion  if  Member  States  increased  their  minimum  wages  to  50%  of  the  median  wage, 
while costs would be very small based on a reference value of 40% of the average wage.    

172  The  estimated  increase  in  the  EU  wage  bill  is  about 0.2%  with all  statutory  minimum  wage,  translating  to  about 
EUR 11 billion at 50% of the median wage, while the increase is 0.01% at 40% of the average wage. 
173 This figure is based on the estimation of Harasztosi, P. and A. Lindner (2019): “Who pays for the minimum wage?” 
American Economic Review, Vol. 109(8): 2693–2727. Since most of these consumers are not minimum wage earners, 
the minimum wage has a clear redistributive effect. 
174 See Annex A12.12, for more details, on the division of total costs by firm size. The share of minimum wage earners 
by Member State and firm size is estimated from EU-SILC, as shown in Annex A7.2. 

64 

 
 
 
 
                                                           
Graph 6: Breakdown of annual costs for firms by firm size, scenarios of compliance 
with various indicative reference values, billion EUR 

Note: Calculations based on Euromod simulations conducted by the European Commission, Joint Research 
Centre. 

Very  high  reference  values  may  increase  the  risks  in  terms  of  economic  impacts, 
which are not taken into account in the simulations. In addition, the highest reference 
value involves significant risk in terms of implementation. Risks related to employment 
and economic impacts related to the highest reference values (60% of the median wage 
or  50%  of  the  average  wage)  are  likely  to  lead  some  Member  States  towards  non-
compliance.  

6.3

Impacts on fundamental rights 

6.3.1

Impacts of all packages 

Adequate  wages  and  strengthened  collective  bargaining  also  support  gender 
equality  and  help  reduce  the  gender  pay  gap.175  This  is  because  a  majority  of 
minimum wage earners are women. Research into the distributive function of minimum 
wages  illustrates  that  there  is  a  link  between  the  level  of  minimum  wages  and  positive 
pay equity effects: “countries with higher minimum wages tend to have smaller shares of 
low  wage  employment,  more  compressed  wage  structure  (in  the  bottom  half  of  the 

175 Blau F.D. and Kahn L. M., “Understanding international differences in the gender pay gap”, Working Paper 8200, 
National Bureau of Economic Research, April 2001. 

65 

 
 
 
 
 
                                                           
distribution) and better indicators of pay equity”.176 The finding that improved minimum 
wages reduce the gender pay gap is confirmed by Euromod simulations prepared for this 
impact  assessment.  In particular,  the reduction in the gender pay  gap is  significant  in  a 
majority  of  countries  (reaching  10%  under  some  scenarios),  including  in  some  EU 
countries  where  the  gap  in  average  wages  between  men  and  women  is  high  (e.g., 
Czechia,  Latvia,  Germany).177  Strengthened  enforcement  would  also  contribute  to 
supporting gender equality and equal pay for equal work.178 

6.3.2

Impacts of the individual packages 

All  packages  are  expected  to  reduce  the  gender  pay  gap  through  their  impact  on 
minimum wages. As the impact on minimum wage levels is expected to be strongest in 
the case of packages B and C, these packages are expected to have the strongest impact 
of the gender pay gap.  

6.4

  Comparing the policy packages 

In  this  section,  the  policy  packages  are  compared  against  the  core  criteria  of 
effectiveness,  efficiency  and  coherence.  Effectiveness  refers  to  the  extent  that  the 
packages help achieve the social objectives of the initiative. Efficiency, in turn, refers to 
the  ratio  of  these  benefits  to  the  associated  costs.  Overwhelmingly,  these  costs  are 
economic costs for firms and consumers, as well as possible costs for workers in terms of 
a reduction in employment. Other types of costs, e.g. administrative costs, are of overall 
small magnitude as compared to these. The key results are presented in Table 2, based on 
the assessment of benefits and costs discussed in the impact sections. 

Table 2: Comparison of policy packages 

Baseline 

Package A 

Package B 

Package C 

Effectiveness 
(meeting objectives)  
Adequacy 
Coverage 
Efficiency 
Coherence [incl. 
fundamental rights] 

0 

0 
0 
0 

0 

++ 

++ 
+++ 
+++ 

++ 

+++ 

+++ 
++ 
+++ 

+++ 

+++ 

+++ 
++ 
++ 

+++ 

Notes:  For  the  purpose  of  comparing  the  impacts  of  the  packages  with  the  baseline  scenario,  all  criteria  have  equal 
weight  and  a  seven-stage  qualitative  grading  scale  is  used:  significant  positive  impact/gains  (+++),  medium  (++),  
small (+), no impact (0), small negative impact/cost (-), medium (--), significant (---). 

176 Grimshaw, D. and Rubery, J. (2013) “The distributive function of a  minimum  wage: First- and second-order pay 
equity effects”, in Grimshaw, D. (ed.), Minimum wages, pay equity and comparative industrial relations, New York, 
London: Routledge, 81-111. 
177 See Annex A12.1 for detailed results.  
178 Research has found a reduction in the gender wage gap at the bottom of the distribution in Ireland. However, the 
same  study  did  not  find  a  reduced  gender  gap  in  the  United  Kingdom.  The  authors  suggest  that  this  is  due  to  non-
compliance  with  the  minimum  wage  legislation.  See:  Bargain,  O.,  Doorley,  K.,  van  Kerm,  Ph.,  (2016):  “Minimum 
wages and the gender gap in pay. Evidence from the UK and Ireland”, LISER Working Paper Series 2016-02, LISER. 

66 

 
 
 
 
 
                                                           
6.4.1

  Effectiveness 

Package B would have the most significant positive effectiveness. Most importantly, 
together  with  Package  C,  it  is  the  most  effective  to  guide  national  frameworks  to  set 
statutory minimum wages because of the inclusion of indicators and indicative reference 
values of minimum wage adequacy. Package B complements this with ensuring that clear 
and stable criteria to guide updates of statutory minimum wages are in place, as well as a 
strengthened  participation  of  social  partners  as  compared  to  the  baseline.  Strengthened 
collective bargaining and enforcement contribute to the effectiveness of the package both 
in  terms  of  adequacy  (in  Member  States  with  both  types  of  systems)  and  coverage  in 
Member States relying on collective bargaining to set minimum wages. The precondition 
of the 70% collective bargaining coverage rate to trigger action to strengthen collective 
bargaining  would  help  to  counter  its  declining  trend  and  thus  result  in  a  medium 
effectiveness to increase coverage. 

Higher reference values are more effective in increasing the adequacy of statutory 
minimum  wages.  In  particular,  the  highest  reference  values  are  associated  with  very 
significant  social  benefits,  intermediate  reference  values  are  associated  with  significant 
social  benefits,  while  the  lowest  reference  values  are  associated  with  moderate  social 
benefits.179 Reference values relative to the median versus average wage somewhat differ 
in terms of the group of countries affected (see Box 1 in Section 6.1.4).  

Package C would have also high effectiveness.  This package combines indicators and 
indicative  reference  values  of  minimum  wage  adequacy  with  automatic  indexation, 
instead of a framework based on criteria and more discretion as it is the case of Package 
B.  Furthermore,  as  in  the  case  of  Package  B,  strengthened  collective  bargaining  and 
enforcement contribute to the effectiveness of the package both in terms of adequacy (in 
Member  States  with  both  types  of  systems)  and  coverage  in  Member  States  relying  on 
collective  bargaining  to  set  minimum  wages.  The  precondition  of  the  70%  collective 
bargaining coverage rate to trigger action to strengthen collective bargaining would help 
to counter its declining trend and thus, it would also result in a medium effectiveness to 
increase coverage.  

Package A would have intermediate effectiveness. The measure providing for bipartite 
or  tripartite  decision-making  bodies,  in  combination  with  national  benchmarks  of 
minimum  wage  adequacy,  could  be  effective  in  improving  the  adequacy  in  Member 
States  with  statutory  systems.  However,  such  a  setting  also  involves  risks.  It  may  take 
disproportionally  long  to  reach  agreements  about  minimum  wage  updating  in  such  a 
setting.  The  effectiveness  of  such  a  system  may  also  depend  on  the  rules  of  update  in 
case no decision is reached in the bipartite or tripartite bodies.  

179 For a more detailed comparison between the reference values, see Annex A12.9 and Annexes 12.1 and 12.2 for 
detailed, country-specific simulation results. 

67 

 
 
                                                           
6.4.2

  Efficiency 

In  most  cases,  economic  costs,  which  are  the  main  costs  associated  with  the 
packages, are expected to be broadly proportional to social benefits. This is because 
wage  increases  are  direct  benefits  for  workers  while  they  are  direct  costs  for  firms. 
Differences  between  the  packages  regarding  efficiency  arise  because  some  packages 
involve  costs  related  to  additional  risks  to  employment  or  the  competitiveness  of 
particular sectors. Competitiveness concerns may be more significant in Member States 
in which many minimum wage earners are employed in in manufacturing or agriculture 
(e.g.  in  Bulgaria,  Croatia,  and  Romania).180  This  subsection  explains  how  these  costs 
affect  the  efficiency  score  of  the  three  packages.  The  ranking  of  packages  in  terms  of 
efficiency presented in this section is mainly based on the impacts in Member States with 
statutory  minimum  wages,  as  the  packages  are  similar  in  terms  of  their  efficiency  in 
Member States where minimum wage protection is provided by collective agreements. 

Package  B  has  a  very  high  efficiency  as  it  combines  the  most  significant  social 
impacts with low risks in terms of economic costs. While indicative reference values 
and  clear  criteria  for  the  setting  and  updating  statutory  minimum  wages  are  expected, 
along  with  other  measures  in  the  package,  to  strengthen  the  adequacy  of  minimum 
wages, the package includes sufficient flexibility for Member States to take into account 
economic impacts and possible effects on specific regions, sectors and SMEs under the 
particular  circumstances. This  means that they can take a more  gradual  approach if the 
risks  in  terms  of  costs  are  perceived  to  be  high,  which  limits  risks  related  to  economic 
costs. 

Various  reference  values  of  minimum  wage  adequacy  can  be  similar  in  terms  of 
efficiency.  While  the  ratio  of  the  minimum  wage  to  the  median  wage  may  be  a  more 
accurate indicator of wage compression at low wages than the ratio to the average wage, 
it is based on a more complex statistical concept and may be harder to communicate for 
the  wider  public.  Both  can  provide  useful  guidance  for  minimum  wage  setting.181 
Especially  since  Member  States  have  sufficient  flexibility  to  take  into  account  all 
relevant  factors  of  minimum-wage  setting,  including  economic  costs  and  impacts  on 
firms  and  competitiveness,  all  reference  values  can  lead  to  an  efficient  ratio  of  social 
benefits  and  economic  costs.  This  is  true  for  the  lowest,  intermediate,  and  highest 
reference  values.  At  the  same  time,  the  highest  reference  values  (60%  of  the  median 
wage  or  50%  of  the  average)  may  involve  higher  risks  in  terms  of  employment  and 
economic impacts, and some risks in terms of implementation.  

180 See Graph A7.1 in Annex A7.1 and Graph A7.6 in Annex A7.2. The graphs are based on EU-SILC data which do 
not allow a differentiation between medium-sized  and large  firms. Combining these data  with information with EU-
SES, a similar picture emerges for all SMEs: these firms (employing up to 250 employees) employ about two-thirds of 
all workers in the EU, and almost 90% of all minimum wage earners. 
181 For a more detailed comparison between indicators and reference values, see Annex A12.9. 

68 

 
 
                                                           
While  Package  A  is  less  effective  than  Package  B,  it  is  similarly  efficient.  This  is 
because  economic  and  social  costs  are  expected  to  be  broadly  proportional  to  social 
benefits. A statutory minimum wage setting mechanism driven by a bipartite or tripartite 
decision making body does not involve additional risks in terms of these costs.  

Package  C  has  intermediate  efficiency.  While  it  is  expected  to  be  very  effective  in 
reaching  the  social  goals  of  the  initiative  in  Member  States  with  statutory  minimum 
wages,  it  involves  economic  costs  related  to  risks  in  terms  of  employment  and 
competitiveness  impacts.  Particularly  in  bad  economic  times,  such  as  times  of  high 
unemployment, automatic indexation may be less able to take into account the economic 
and employment concerns than the more flexible approach based on criteria in Package 
B.  In  particular,  automatic  indexation  systems  have  been  found  to  have  difficulties  in 
taking  into  account  the  economic  circumstances  in  the  wake  of  the  financial  crisis  of 
2008.182  These  considerations  are  particularly  relevant  in  the  current  economic  context 
strongly  affected  by  the  Covid-19  pandemic.  Evidence  also  suggests  that  employment 
impacts  of minimum  wage increases may be larger under  automatic indexation.183 This 
inflexibility can result in disproportional economic costs under some circumstances. 

6.4.3

  Coherence 

In terms of coherence, all the packages considered under this initiative are coherent 
with the social goals of the EU, in so far as they contribute to the Treaty-based goals of 
promoting  employment  and  improved  living  and  working  conditions  (Article  151 
TFEU), and to the implementation of the 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). They also address the rights set 
out in the Charter of Fundamental Rights of the EU in relation to the right of workers to 
fair  and  just  working  conditions  (Article  31).  The  options  are  also  coherent  with  the 
European Semester and with the Country Specific Recommendations issued to Member 
States during the last years (see also Annex A12.11).  Furthermore, all packages are also 
coherent with the newly launched Commission initiative on collective bargaining for the 
self-employed.184 The initiative seeks to ensure that conditions can be improved through 
collective agreements not only for employees, but also for those self-employed who need 
protection.  

182 The European Commission has addressed Country-Specific Recommendations to Belgium, France, Luxembourg, 
Malta and Slovenia related to wage indexation systems, calling attention to competitiveness concerns or a need to take 
into account productivity developments. See Annex A12.11 for more detail. 
183  See  Congressional  Budget  Office  (2019):  “The  Effects  on  Employment  and  Family  Income  of  Increasing  the 
Federal Minimum Wage”, based on studies by Isaac Sorkin, “Are There Long-Run Effects of the Minimum Wage?” 
Review of Economic Dynamics, vol. 18, no. 2 (April 2015), pp. 306–333, https:// doi.org/10.1016/j.red.2014.05.003; 
and Peter Brummund and Michael R. Strain. “Does Employment Respond Differently to Minimum Wage Increases in 
http://dx.doi. 
the  Presence 
org/10.3368/jhr.55.2.1216.8404R2. 
184 The initiative was launched on 30 June 2020. See: 
 https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1237. 

Journal  of  Human  Resources 

(forthcoming), 

Indexing?” 

Inflation 

of 

69 

 
 
                                                           
The EU promotes the international rules and standards set within the frames of the 
International  Labour  Organisation  (ILO),  in  particular  the  Minimum  wage  Fixing 
Convention  (C  131)  and  the  Collective  Bargaining  Convention  (C  154),  which  are  the 
most relevant for this initiative. The EU supports the implementation of these standards 
and this initiative would set the overall level of protection above the ILO standards.  

6.4.4

Impacts on stakeholders 

Benefits for workers will be highest from Package B and Package C. These packages 
are  more  effective  for  improving  the  adequacy  and  coverage  of  minimum  wages  as 
compared  to  Package  A  (less  effective  in  improving  adequacy).  Across  all  three 
packages, these benefits are expected to outweigh potential negative employment impacts 
as well as negative impacts on consumers through increased prices.  

Impacts on businesses in the form of higher wage costs are broadly proportional to 
social benefits. This means that costs for firms are expected to be highest for packages B 
and  C,  and  lower  for  package  A.  On  the  other  hand,  benefits  for  businesses,  including 
SMEs, in terms of reduced uncertainties and improved business environment will also be 
the  strongest  in  Package  B  and  C  due  to  clear  and  stable  frameworks  to  set  statutory 
minimum wages, followed by Package A. At the same time, Package C involves the risk 
that it is less able to take into account economic and employment concerns under adverse 
economic  circumstances  than  Package  B.  This  could  lead  to  additional  costs  for  firms 
under Package C.   

Member States’ administrations will face the same financial burden throughout all 
packages caused by strengthened enforcement and monitoring. In addition, under all 
packages, some costs are also associated with capacity building for social partners. This 
is the case both for Member States with collectively bargained and those with statutory 
minimum  wages.  For Member States  with  statutory minimum  wages, recurrent  cost  for 
consultation activities derives from all packages. Some additional one-off cost will come 
from  Packages  A  to  develop  a  benchmark  for  decent  living  standards.  Some  financial 
burden is caused by Packages B and C for the assessment of adequacy using indicative 
indicators and reference values. Nevertheless, higher minimum wages are associated with 
higher  revenues  from  income  taxes  and  social  security  contributions.  This  impact  is 
expected  to  more  than  counterbalance  possible  administrative  costs  related  to  the 
initiative.  

6.4.5

Impacts on national industrial relations systems 

Package  A  will  have  a  significant  impact  on  industrial  relations  systems  by 
introducing extension mechanisms of collective bargaining. While this would be done 
with  the  agreement  of  social  partners,  it  would  imply  significant  changes  in  industrial 
relations  systems  of  many  Member  States  which  currently  do  not  use  administrative 
extensions, irrespective of their minimum wage setting system. Such extensions may also 

70 

 
 
 
 
reduce the incentives of workers to join unions which would have significant impacts in a 
number of countries, including notably Denmark and Sweden. 

Package  C  would  have  a  strong  impact  on  industrial  relations  systems  by 
introducing  automatic  indexation  of  statutory  minimum  wages.  This  would  have  a 
significant  impact  on  the  industrial  relations  systems  in  many  Member  States  with 
statutory  national  minimum  wages.  It  would  reduce  significantly  the  scope  of  social 
partners’ influence on minimum wages and on wage developments in general. This can 
in turn lead to a decrease in union density and in the coverage of collective agreements.   

Package B, in contrast, is a package that fully respects existing industrial relations 
systems  in  the  EU.  While  it  includes  measures  to  strengthen  collective  bargaining  in 
Member States and encourages an increase in collective bargaining coverage to 70%, and 
effective  consultation  of  social  partners  for  setting  and  updating  statutory  minimum 
wages, it does not imply changes in the systems of either Member States where minimum 
wage  protection  is  provided  by  collective  agreements  or  those  with  statutory  national 
minimum wages. 

7

  THE PREFERRED PACKAGE 

The  preferred  option  is  policy  package  B.  As    indicators  and  indicative  reference 
values  for  benchmarking  the  adequacy  of  statutory  minimum  wages,  it  includes  the 
options of 55% or 60% of the median wage, or 45% or 50% of the average wage, or a 
combination of these.185 This package best balances achieving 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.  

As a consequence of this package, minimum wages would increase in about half to 
two-thirds  of  the  Member  States.  A  large  number  of  workers,  in  particular  from 
vulnerable groups including women, would be entitled to more adequate minimum wages 
(about  11-12  million  in  the  case  of  compliance  with  the  intermediate  reference  value, 
while 22-24 million in the case of compliance with the highest reference values). Wage 
increases of beneficiaries would reach  20% in  a  few  countries, but  the increases of the 
total EU wage bill are expected to be moderate (about 0.4% or EUR 20-23 billion for the 
intermediate  reference  values  or  1%  or  EUR  51-53  billion  for  the  highest  reference 
values,  in  the  case  of  full  implementation).  Employment  effects  would  remain  below 
0.8% in most cases for high reference values, but would reach 1% in Greece, Estonia and 
Ireland  (in  the  case  of  the  highest  reference  values).  Thus,  the  costs  are  commensurate 
with  the  objective  to  be  achieved  by  the  initiative.  The  preferred  package  includes 

185 In particular, a combination of both intermediate reference values (55% of median wage and 45% of average wage) 
or both of the highest reference values (60% of median wage and 50% of average wage) is possible. The comparison 
between the social and economic impacts of various reference values is summarised in Annex 12.9.  

71 

 
 
                                                           
sufficient  flexibility  to  allow  Member  States  to  determine  the  pace  of  improving  the 
adequacy  of  minimum  wages  in  light  of  economic  conditions  and  risks,  including  to 
specific sectors, regions and SMEs. 

Strengthening  and  increasing  the  coverage  of  collective  bargaining  will  bring 
benefits  to  workers  because  it  will  lead  to  a  larger  number  of  sectors,  and  thus  more 
workers,  being  covered  by  minimum  wages  in  Member  States  with  collectively 
bargained systems. It may also result in more wages set in collective agreements on top 
of  statutory  minimum  wages.  This  will  entail  modest  one-off  administrative  costs  for 
putting in place a regulatory framework or enabling conditions for collective bargaining 
on wages, as well as some direct cost for administrations and social partners for capacity 
building.  For  businesses,  increased  costs  related  to  strengthened  collective  bargaining 
and higher wages set in collective agreements are partly counterbalanced by benefits in 
terms  of  employee  motivation  and  engagement,  as  well  as  other  possible  measures  in 
collective agreements which are beneficial for the operation of companies. 

Adjusting national  frameworks to set statutory  minimum wages, which  foresee an 
enhanced  involvement  of  social  partners,  will  ensure  clearer  and  more  stable 
criteria.  A  stronger  role  of  social  partners  will  lead  to  a  more  predictable  and  thus 
favourable business  environment. This will entail some one-off administrative costs for 
the  legislative  process  and  modest  yearly  cost  for  enhanced  involvement  of  social 
partners in updating the minimum wages.  

The introduction  of an indicative reference value (e.g. 55% or 60% of the median 
wage or 45% or 50% of the average wage), along with the limitation of variations, 
will  create  substantial  benefits  for  minimum  wage  earners  and  vulnerable  groups 
which  are  currently  not  entitled  to  minimum  wages,  by  improving  their  working 
conditions.  It  is  expected that firms  will  benefit  in  terms  of increased productivity as a 
result of higher motivation and engagement of workers. Those measures will moderately 
increase wage costs for companies in particular in the retail and hospitality sectors and in 
Member States in which statutory minimum wages start from a comparatively low level.  

Strengthening enforcement and ensuring better compliance will contribute to more 
adequate  wages  actually  paid  to  all  who  are  entitled  to  it.  This  brings  benefits  to 
workers, to companies by ensuring fair competition and, via higher tax and contribution 
revenues, public budgets. It will imply some direct cost for public administrations due to 
more frequent inspections. 

Finally, with respect to subsidiarity and proportionality considerations, the preferred 
package only sets minimum standards for wage setting, thus ensuring that the degree of 
intervention will be kept to the minimum necessary in order to reach the objectives of the 
initiative.  The  package  respects  well-established  national  traditions  in  minimum  wage 
setting.  In  particular,  it  fully  respects  the  competences  of  Member  State  and  social 
partners to determine the detailed modalities of their minimum wage setting systems, and 

72 

 
 
the level of their minimum wages. Therefore, it allows for minimum wages to continue to 
be set either through collective agreements or through legal provisions, in full respect of 
national  competences  and  social  partners’  contractual  freedom.  Furthermore,  it  leaves 
room for considering national economic circumstances, besides adequacy considerations, 
and the specificities of their minimum wage setting systems, thus providing for flexibility 
to adjust to the economic cycle and to specific conditions in individual Member States. 
Therefore,  the  proposal  does  not  go  beyond  what  is  necessary  to  achieve  the  policy 
objectives,  thus  the  principle  of  proportionality  is  respected  considering  the  size  and 
nature of the identified problems. By striking a balance between views expressed in the 
formal  social  partner  consultation  and  taking  into  consideration  the  specificities  and 
heterogeneity  of  minimum  wage  setting  systems,  the  preferred  option  represents  a 
realistic  and  proportionate  set  of  measures  commensurate  with  the  ambitions  of  the 
European Pillar of Social Rights.186 

8

  THE CHOICE OF LEGAL INSTRUMENT 

8.1

  Legal options 

The legal instruments considered for the initiative are a Council Recommendation 
and  a  Directive.  The  possibility  of  an  increased  focus  on  minimum  wages  in  the 
framework of existing tools, notably the European Semester, is also considered. A careful 
choice of the level of detail of the provisions would ensure that the proposal does not go 
beyond  the  minimum  that  is  necessary  to  achieve  the  objectives  of  the  proposal, 
irrespective of the specific instrument chosen. Subsidiarity is thus fully respected and it 
does  not  provide  an  argument  for  determining  the  choice  between  the  different  legal 
options since it is compatible with the considered legal 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 does not allow 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.  Nevertheless,  and  in  line 
with  the  interpretation  of  the  European  Court  of  Justice,  it  does  not  prevent  the  EU  to 
take  measures  under  Article  153  (1)  involving  any  sort  of  link  with  pay.  Both  binding 
and non-binding instruments  are possible under this  Article. The EU instruments  under 
consideration are explained in more detail as follows. 

EU Directive 

Article  153  (2)  TFEU  provides  the  possibility  of  adopting  a  Directive  in  the  area  of 
‘working  conditions’  laying  down  minimum  requirements  for  implementation  by 

186 For more details on costs and benefits for the different stakeholders, please see Annex 3. 

73 

 
 
                                                           
Member States.187 In line with Article 288 TFEU, a Directive would give certainty about 
the  binding  requirements  to  be  applied  by  Member  States.  This  instrument  would  thus 
have  a  high  degree  of  effectiveness  in  reaching  the  objectives  of  the  initiative.  To  this 
end,  the  proposal  would  contain  a  set  of  minimum  requirements  and  procedural 
obligations to be 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. Furthermore, the Directive 
would not affect the bargaining freedom of social partners. 

A  Member  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 
Member State would need to ensure that social partners introduce the necessary measures 
by the transposition date that would be indicated in  the Directive. The Directive would 
provide for a framework for monitoring its implementation. 

Council Recommendation  

Alternatively,  a  Council  Recommendation  could  be  considered,  inviting  Member 
States  to  set  the  conditions  for  ensuring  adequate  minimum  wages  that  protect  all 
workers  in  the  Union.  A  Recommendation  would  provide  for  policy  guidance  and  a 
common policy framework at EU level, without setting specific obligatory requirements. 
As in the case of a Directive, it would not take away the freedom of Member States and 
social  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 the implementation of this non-binding instrument 
might include the use of a benchmarking framework with suitable indicators, 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  appropriate  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. 

During  the  second  stage  consultation  with  the  social  partners,  from  the  workers’ 
organisations side, the ETUC and CESI called on the European Commission to propose 
an  EU  Framework  Directive  while  CEC  European  Managers  considered  a  Council 
Recommendation  as  the  most  effective  tool.  Most  employers’  organisations  advocated 
that  the  EU  has  no  competence  to  introduce  a  legal  instrument,  however,  several 
organisations stated that a Council Recommendation could be considered, provided that 

187 Art 153(2) (b) also states that “Such directives shall avoid imposing administrative, financial and legal constraints 
in a way which would hold back the creation and development of small and medium-sized undertakings”. 

74 

 
 
                                                           
the autonomy of social partners and freedom of collective bargaining are fully respected 
and well-functioning national wage setting mechanisms are not undermined. 

Combination of a Directive and a Recommendation 

This  would  be  an  intermediate  solution  which  would  allow  to  set  binding  objectives, 
while being more specific and targeted on certain aspects of the initiative. The Directive 
could lay down the framework rules for having access to collective bargaining or setting 
and  updating  statutory  minimum  wages.  The  complementary  Recommendation  could 
give  more  specific,  non-binding  guidance  on  measures  to  be  taken  to  strengthen  the 
capacity of social partners and to facilitate collective bargaining.  

8.2

  Preferred option 

The preferred instrument would be a Directive as this is regarded as the most suitable 
to  deliver  on  the  objectives  of  the  initiative  and  is  also  considered  to  be  the  most 
proportionate and effective option. 

A Directive provides binding  minimum requirements, while it leaves  room for the 
Member  States  to  define  the  method  and  form  of  intervention  to  achieve  the 
objectives. Article 151 TFEU calls on the Union to take into account the diverse forms 
of  national  practices  when  implementing  measures  in  the  field  of  working  conditions. 
Article  153(2)  TFEU  does  allow  setting  minimum  requirements  for  gradual 
implementation by the means of directives in fields such as working conditions. The EU 
instrument  would  thus  set  minimum  rules  and  procedures  making  national  systems 
capable  of  achieving  the  common  policy  objectives  while  respecting  the  particular 
characteristics  and  modalities  of  national  systems.  This  can  be  best  achieved  by  the 
means  of  a  Directive.  A  Directive  would  allow  achieving  an  equal  level  of  overall 
protection against in-work poverty for workers across the EU. 

A  Directive  would  better  serve  the  objectives  of  this  proposal  due  to  its  binding 
nature  and  its  better  enforceability.  The  proper  transposition  of  the  Directive  into 
national law can be ensured by the Commission. Moreover, the Directive can be enforced 
at the national level in line with the practices of Member States. A Directive would also 
bring  more  even  and  more  predictable  implementation  which  would  contribute  to  the 
level  playing  field  in  the  Single  Market.  Predictable  implementation  and  enforceability 
would also address non-compliance issues with the national frameworks more efficiently, 
thus making a Directive a more adequate instrument for the initiative. 

The  adoption  of  a  Council  Recommendation  would  be  in  line  with  the  TFEU; 
however, it would not deliver the same level of protection for workers as a Directive, 
due to its non-binding nature. Moreover, the key added value of having more specific 
and  non-binding  guidance  would  fade,  if  it  led  to  more  selective  implementation  and 
diverse results in the Member States, making a Recommendation a less effective tool to 

75 

 
 
promote collective bargaining and to  achieve  adequate and regularly updated minimum 
wages.  More  specific  rules  would  also  entail  deeper  interference  with  national 
frameworks.  Therefore,  a  Council  Recommendation  would  not  effectively  address  the 
issue  of  inadequate  minimum  wages  due  to  non-compliance  with  the  already  existing 
frameworks,  leaving  those  affected  by  non-compliant  behaviour  without  remedies  and 
compensation against infringements.  

Lastly,  a  combination  of  a  Directive  and  a  Recommendation  poses  risks  to 
proportionality  and  subsidiarity.  Adopting  a  Recommendation  together  with  a 
Directive  would  unnecessarily  inflate  the  EU  guidance  and  its  detail.  It  could  also 
increase  the  risk  that  important  binding  elements  –  necessary  to  achieve  the  desired 
objectives  -  would  become  subject  to  political  bargaining  and  be  transferred  to  the 
proposed  complementary  Recommendation  instead  of  the  Directive.  Therefore,  the 
combination of instruments could decrease the overall level of protection of the initiative. 

9

  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?  

Progress  towards  achieving  the  objectives  of  the  initiative  will  be  monitored  by  a 
series  of  core  indicators  related  to  the  objectives  of  the  initiative.  These  and  the 
related  data  sources  are  summarised  in  Annex  13.  The  monitoring  framework  will  be 
subject  to  further  adjustment  according  to  the  final  legal  and  implementation 
requirements and timeline. To avoid putting additional administrative burden due to the 
collection of data or information for the purpose of monitoring, it relies as far as possible 
on established comparative (Eurostat, OECD) or national data sources. It also builds on 
the  minimum  wage  benchmarking  framework  being  developed  by  the  European 
Commission  and  Member  States.188  This  benchmarking  framework  proposes  indicators 
to  monitor  outcomes,  policy  performance  and  policy  levers  related  to  the  adequacy  of 
minimum  wage  policies,  but  has  not  yet  established  quantitative  thresholds  for  good 
performance. The Commission will evaluate the initiative 5 years after it enters into force 
in line with the Better Regulation Guidelines. 

188 For more detail, see Annex A12.11. 

76 

 
 
 
                                                           
Annex 1

   Procedural information 

A1.1. Lead DG, Decide Planning/CWP references 

The lead DG is DG EMPL, DG Employment, Social Affairs and Inclusion.  

Agenda  planning:  PLAN/2019/6127;  Work  Programme  reference:  Policy  Objective 
No.18:  Social  Europe,  Initiative:  Fair  minimum  wages  for  workers  in  the  EU  (Articles 
153(1) b, 153(2) and 154 TFEU189   

A1.2. Organisation and timing 

The Impact Assessment was assessed by the Interservice Steering Group (ISSG) (present 
DGs  SG,  ECFIN,  GROW, JRC,  LS,  ESTAT,  RTD,  TAXUD)  on  1  September  2020.  It 
was then assessed via a fast-track Interservice Consultation (ISC) meeting on 19 October 
2020.  

The Analytical Document accompanying the second phase consultation of social partners 
on  which  the  Impact  Assessment  is  based,  together  with  the  second  stage  consultation 
document,  was  assessed  by  the  ISSG  on  31  March  2020  (present  DGs  SG,  ECFIN, 
GROW,  ESTAT,  SJ, JRC,  TAXUD,  RTD)  and  adopted  following  ISC  (DGs  consulted 
ECFIN, ESTAT, GROW, HOME, JRC, JUST, MOVE, SANTE, SG, SJ, TAXUD).  

The first stage consultation document were assessed by the Interservice Steering Group 
on 9 September 2019 (present DGs SG, ECFIN, GROW, ESTAT, SJ, JRC, TAXUD) and 
adopted  following  ISC  (DGs  consulted  ECFIN,  ESTAT,  GROW,  HOME,  JRC,  JUST, 
MOVE, SANTE, SG, SJ, TAXUD). 

A1.3. Consultation of the RSB 

The  Impact  Assessment  report  was  reviewed  by  the  Regulatory  Scrutiny  Board 
(RSB)  on  30  September  2020.  The  RSB  first  delivered  a  negative  opinion  and  after 
examining  the  resubmitted  version  (submitted  on  6  October  2002)  delivered  a  positive 
opinion with reservation on 14 October 2020. The revisions introduced in response to the 
RSB opinion are summarised in the tables below.  

189 COM(2020) 440 final, ANNEXES 1 to 2: ANNEX to the Communication from the Commission to the European 
Parliament,  the  Council,  the  European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions 
Commission Adjusted Commission Work Programme 2020. 

77 

 
 
 
 
 
 
 
 
                                                           
Table A 1.1: Revisions introduced in response to the RSB 

(a)  First RSB opinion 

RSB main reservations  

Changes done in the IA  

(1) The report should systematically 
distinguish between the two types of 
minimum wage setting systems that exist in 
Member States. 

(2) The report should be clearer on how it 
uses both absolute and relative income 
indicators to show the inadequacy of 
minimum wages and poverty risks.  

The problem description should attribute 
problems and problem drivers to the two 
types of minimum wage setting systems.  

In explaining how the problem will evolve, 
the report should focus on how external 
drivers of wages (trade and migration, 
technological change and the Covid-19 
crisis) amplify the internal drivers of 
inadequate minimum wages. 

All throughout the document, the report 
distinguishes between both types of 
minimum wage setting systems. In 
particular, the sections on objectives 
(Section 4), options (Section 5) and 
impacts (Section 6) have been reorganised 
to discuss both systems separately. 

A clear explanation of the close link 
between both aspects of adequacy has been 
introduced in the first two paragraphs of 
Section 2.1.1 in the revised version of the 
IA. In addition, a paragraph has been added 
in the same section to summarise the 
assessment of adequacy based on a 
combination of indicators.  

A new section 2.3 in the revised version 
clearly differentiates between the 
mechanisms through which internal drivers 
affect the problem in each of the minimum 
wage setting systems. The subsection also 
includes a diagrammatic overview of these 
links.  

In Section 2.7 on how the problem is likely 
to evolve, the aspect of the interaction 
between external and internal drivers has 
been strengthened. External drivers are in 
particular expected to exacerbate issues 
related to the internal drivers of collective 
bargaining and enforcement. In addition, 
the impact of the Covid-19 crisis on the 
evolution of the problem has been further 
analysed. 

78 

 
 
 
 
 
 
 
(3) The main document should include 
more evidence on how the internal problem 
drivers have led to inadequate minimum 
wages. It should for example illustrate how 
declining collective bargaining has induced 
lower absolute or relative minimum wages, 
or how an increase in variations and 
exemptions has more than temporarily 
reduced protection of low-income workers. 

The problem section has been revised to 
demonstrate the links between internal 
drivers and inadequate minimum wages.  

In particular, passages have been added in 
Section 2.5.1 to illustrate how declining 
collective bargaining, and wage restraint in 
collective agreements, have led to lower 
minimum wages. 

(4) The report should better justify why 
there is a need for horizontal EU 
intervention in an area where the problem 
is specific to a number of Member States. 
The report should better substantiate and 
explain why EU-level involvement through 
country specific recommendations would 
not suffice.   

(5) In presenting the objectives, measures 
and their impacts, the report should explain 
whether and how they are relevant for the 
two different types of minimum wage 
setting systems. The options and impact 
analysis should follow the problem analysis 
in differentiating between these systems. 

(6) The report should better explain the 
logic behind the composition of the options 
packages. It should justify why certain 
measures are included only in some 
packages. It should not design the 
indexation package to be ineffective by not 
including a measure to improve the 
adequacy of minimum wages. It should be 
specific how each measure would change 
practices across Member States. 

In addition, more evidence has been added 
in Section 2.5.4 on the impact of youth 
minimum wages on the share of workers 
earning less than the regular minimum 
wage.   

The report better justifies the need for 
horizontal EU intervention (Section 3). It 
better substantiates how the legislative 
initiative is in line with the legal basis and 
with the subsidiarity and proportionality 
principles. It also explains why the 
European Semester has not been sufficient 
to address the existing shortcomings in 
national minimum wage setting systems. 

Section 4 on the objectives, Section 5 on 
the options and Section 6 on the impacts 
have been reorganised to discuss both 
minimum wage setting systems separately.  

The composition of the packages (Section 
5) has been revised to ensure that all 
packages constitute realistic options. The 
rationale behind each package and their 
content has been clarified and the main 
measures under each of them have been 
identified.  

The implications of the preferred package 
for each Member State have been assessed 
by policy measure or type of measures.  

79 

 
 
(7) The impact analysis should better 
clarify which measures matter most for the 
success of the options packages and 
whether impacts depend on individual 
measures.  

The analysis should consider risks or 
possible indirect impacts of changing 
established wage-setting systems. 

The impacts section has been strengthened 
to discuss possible impacts on wage setting 
systems and, more broadly, national 
industrial relations systems. A new section 
6.4.5 compares the packages from this 
point of view. 

This section also identifies under each 
package the most relevant measures for 
achieving the objectives of the initiative.  

(8) The report should clarify what role the 
criteria of effectiveness and efficiency have 
for the comparison of the options packages. 
For example, it is not obvious why the 
preferred package ranks highest in terms of 
efficiency. It is not clear how the higher 
wage cost is valued in comparison to lower 
administrative and compliance costs. 

Section 6.4 on the comparison of options 
has been revised to make clearer the 
criteria of effectiveness and efficiency. The 
introduction clarifies the relative weight of 
economic and social costs versus (the less 
significant) administrative costs. The 
comparison of packages has also been 
adjusted based on their changed contents. 

(9) The report should explore the 
unintended consequences of the preferred 
option on SMEs. It should clarify why they 
welcome a reduction in unfair competition 
through a legislative provision while 
requesting non-binding actions. 

(10) The report should discuss the impact 
on major stakeholders when comparing 
options. The distributional effects on 
stakeholders should be summarised and 
added in Annex 3.   

Section 6 has been strengthened by 
discussing unintended consequences on 
SMEs, in particular firm dynamics (Section 
6.2.2), and by including calculations of 
costs for SMEs (Section 6.2.4, based on a 
new Annex A12.12). Direct costs estimates 
have been included in the SME test (Annex 
A12.13).  

In the revised impact assessment, a new 
discussion has been added on impacts on 
major stakeholders in a separate section 
6.4.4. 

In addition, distributional effects on 
stakeholders have been summarised and 
added in Annex 3. 

80 

 
 
 
 
 
(b) Second RSB opinion 

RSB main reservations  
(1) The report provides additional 
discussion on the decline of collective 
bargaining on low wages in general. 
However, it should illustrate specifically 
how declining collective bargaining has 
induced inadequate minimum wages.  

It should be more precise in explaining 
how the relevance of absolute and relative 
minimum wage metrics changes with the 
shape of the wage distribution and the 
general wage level.   

The report could also be more explicit on 
the problems relating to compliance, 
enforcement and monitoring (under both 
wage setting systems).  

(2) To better link the problem analysis with 
the options, the report should be clearer on 
the specific objectives (i.e. to improve 
adequacy and increase the coverage of 
minimum wages) by specifying what 
success of the initiative would look like. 

(3) The report should justify why some 
“not mutually exclusive” measures, which 
address the same objective, are part of 
some packages for countries with collective 
bargaining, but not of others.  It should 
justify why the package with indexation of 
minimum wages does not include a 
measure on variations and exceptions or on 
reinforcing collective bargaining, which 
reduces its effectiveness.  

The report should clarify why all options 
packages contain the same measures for 
monitoring and enforcement. It should 
analyse whether some of these measures 
could be more effective or less costly.  

Changes done in the IA  
The text has further clarified the decline in 
collective bargaining and its impact on low 
wages in section 2.5.1. In section 2.5.5, 
further information has been added on 
problems relating to compliance and 
enforcement, and the text now more 
clearly describes the challenges related 
to monitoring.  

Clarification were added in section  2.1.1 
to explain the relevance of the absolute and 
relative minimum wage metrics 

Additional information was added to the 
report (section 2.5.5) to explain the 
problems relating to compliance, 
enforcement and monitoring (under both 
wage setting systems). 
Text was added to section 4.2 clarifying 
that in terms of adequacy and coverage 
success translates into: 

-A minimum wage level at the preferred 
reference value  
-At least 70% collective bargaining 
coverage rate.  
The report was revised and now all 
packages include the “not mutually 
exclusive” measures which can 
individually or in combination contribute 
to addressing the challenges. In particular, 
the composition of Package C was revised 
to include Measure 1.3 on collective 
bargaining and Measure 4.1 on variations 
and deductions.  

The introductory text of section 5.6 has 
been adjusted and now it clarifies that 
given that  these measures are not mutually 
exclusive and they can all, individually or 
in combination contribute to achieving the 
objectives through addressing different 
challenges, while their combination would 
reinforce the expected benefits.  A similar 
explanation is provided in section 5.6.1 

81 

 
 
 
 
 
The report should better explain why 
certain reference values (for median wages, 
collective bargaining coverage) were 
chosen and whether they are relevant for 
both types of minimum wage setting 
systems. 

(4) The revised report clarifies better the 
magnitude of impact (including risks and 
unintended consequences) of some of the 
individual measures (e.g. strengthened 
collective bargaining, collective bargaining 
coverage ratio, automatic indexation). 
However, the report should clarify which 
measures matter most for the success of the 
options packages and whether impacts 
depend on individual measures. 
(5) The report analyses only the immediate 
effects of the option packages on minimum 
wages. It could do more to explore effects 
on unemployment and productivity. It 
could also expand on possible indirect 
effects like induced migration between 
Member States, and internal market effects 
due to differences in impacts on national 
export industries.  

Furthermore, the report could provide 
clearer indications of how costs and 
benefits would be distributed between 
(groups of) Member States.  

(for both systems). Furthermore, text was 
added in sections 6.1.3 and 6.1.4 which 
presents in a more concise manner the 
expected positive impacts of these 
measures and to sections 6.2.3 and 6.2.4 
presenting more concisely the expected 
costs of these measures (separately for the 
two systems). 

Regarding the adequacy, the IA does not 
express a preference for specific reference 
values, rather it presents a list of possible 
options.  Regarding the collective 
bargaining coverage an explanation is 
provided in section 5.3 under Measure 1.3. 
The IA clearly indicates that the adequacy 
reference values are only relevant for MS 
with statutory minimum wages while the 
coverage reference value is relevant for 
both systems.  
The IA already identified in sections 6.1.3 
and 6.1.4 which measures matter most for 
the success of the packages. Additional 
clarifications were added to this section, 
where necessary, to clarify whether, the 
impacts depend on individual measures or 
on the combination of the selected 
measures. 

A new passage has been added to Section 
6.1.2 to discuss impacts on unemployment, 
while impacts on productivity are 
discussed in Section 6.2.2. In this section, 
the discussion of impacts on the internal 
market has been expanded based on a 
report submitted to the impact assessment 
by DG ECFIN. A discussion of impacts on 
migration (labour mobility) has been added 
to Section 6.1.2. 

The report emphasises, in Sections 6.1.2 
(on employment impacts), 6.2.4 (on 
economic impacts), and 6.4.2 (on 
efficiency), among others, that economic 
and employment costs are expected to be 
broadly proportional to social benefits 
because wage increases are benefits for 
workers but costs for firms. The report also 
emphasises instances when there are risks 
that costs could be disproportional to 

82 

 
 
 
 
 
 
 
 
 
 
The report could present the expected 
changes in minimum wages by Member 
State for the suggested reference values.  

The report should provide greater clarity on 
costs for public authorities. 

(6) The report could do more to 
acknowledge risks for micro and small 
enterprises that are likely to be affected 
most by this initiative.  

The report should clarify why SMEs 
welcome a reduction in unfair competition 
through a legislative provision while 
requesting non-binding actions. 

(7) The report should integrate the 
economic impacts separately and more 
visibly into the comparison of options. It 
can do this either under the effectiveness 
analysis (as the economic impacts are part 
of the general objective) or by focussing 
the efficiency analysis more on the cost 
side.  

benefits. Estimations of these costs and 
benefits are calculated by Member State, 
for various scenarios in Annex A12.1.  

The IA presents and discusses in Annex 
12.1 the implied minimum wage increases 
for various non-binding reference values in 
percentages. A table was added to this 
Annex indicating minimum wage levels 
corresponding to each non-binding 
reference value in all Member States with 
statutory minimum wages and the implied 
minimum wage increases for these 
reference values in nominal values in euro.  

A paragraph has been added to sections 
6.2.1 and 6.2.2 (under impact on public 
budgets) on the expected costs for public 
authorities under both systems 
respectively.  
Section 6.2.2 has been further strengthened 
by discussing risks, based on the existing 
evidence base, which SMEs may find it 
harder to compete for workers after a 
minimum wage increase. The discussion of 
the existing evidence base and its 
limitations has also been made more 
explicit. Additional cost calculations have 
been included in Box 2, in Section 6.2.4.  

Section 2.6.2 now includes a direct quote 
from SMEUnited in which “unfair 
competition and social dumping on the 
labour market” is mentioned as “a key 
concern for SMEs”. Furthermore, a direct 
quote form SMEUnited was added to 
Annex A12.12 (SME Test) providing more 
information on the arguments they raised.   
A new introductory passage of Section 
6.4.2 (on the comparison of packages 
related to efficiency) has been added to 
further clarify and give more visibility to 
the fundamental approach to the 
assessment of efficiency and the role 
economic costs play in it.  

The discussion emphasises that, in most 
cases, economic costs are proportional to 
social benefits because wage increases are 
direct benefits for workers but direct costs 
for firms. The report also emphasises 

83 

 
 
 
 
 
 
 
 
 
 
 
(8) The report should better substantiate the 
ranking of options. It should better align 
the discussion in the text with the 
effectiveness, efficiency and coherence 
ratings. When discussing the preferred 
option, it should treat all options in a 
coherent way.  

The revised report includes separate 
options packages for Member States where 
minimum wage protection is provided by 
collective agreements. It should include a 
specific comparison of these packages, 
resulting possibly in a preferred option for 
these Member States. In doing so, it should 
describe how well these packages deliver 
on the specific objectives. 

instances when there are risks that costs 
could be disproportional to benefits. These 
risks significantly affect the “efficiency” of 
various packages because they affect the 
proportion of costs to benefits.  
Section 6.4 has been revised to align the 
discussion in the text with the ratings in 
Table 2. Options are treated in a coherent 
way. 

In the revised report, policy packages are 
indeed presented in a way so as to make 
clear their implications for countries with 
both minimum wage setting systems 
separately. Nevertheless, the component 
measures of various packages are not 
separable into two groups based on which 
system they refer to. This is because some 
measures (in the areas of collective 
bargaining and compliance) refer to both 
systems. Nevertheless, the revised report 
clarifies, in Section 6.4 on the comparison 
of packages, which impact is especially 
expected to be significant in which group 
of countries. An explicit comparison 
between packages is not made on 
dimensions on which the packages are 
identical (in particular, in the area of 
compliance and monitoring).  

84 

 
 
 
 
 
A1.4. Evidence, sources, quality and external expertise 

The following expert advice has fed into the Impact Assessment:  

- External studies commissioned from external experts: 

  "Indexation  of  statutory  minimum  wage"  by  Diane  Delaurens  and  Etienne 

Wasmer.  

  “Effects of statutory minimum wages on small and medium-sized enterprises” by 

Attila Lindner, University College London.  

  “Effects  of  collectively  agreed minimum  wages  in  the Nordic countries” by Per 

Skedinger, Research Institute of Industrial Economics (IFN).  

-  Three  country  reports  requested  from  Eurofound  on  the  setting  and  adequacy  of 
minimum wages as well as related policy debates focusing, respectively, on Austria, Italy 
and Cyprus. 

- A set of expert reports on the minimum wage setting systems of EU Member States 
(one expert report for each Member State) provided by the European Centre of Expertise 
(ECE).  

- Simulations, within the framework of an existing contract, by the OECD on incentive 
effects of minimum wages.  

-  Analytical  inputs  by  the  European  Commission  (DG  EMPL,  DG  ECFIN,  JRC),  as 
detailed in Annex 4 on “Analytical methods”. 

- Relevant academic literature, as referred to in footnotes. 

85 

 
 
 
 
 
 
 
Annex 2

  Stakeholder consultation 

A  number  of  stakeholder  consultations  have  been  performed  to  inform  this 
initiative. This includes the two Treaty-based Social Partners Consultations and targeted 
consultation  with  the  Member  States  (through  the  Council  Advisory  committees: 
Employment  Committee  (EMCO),  Social  Protection  Committee  (SPC)  and  Economic 
Policy Committee (EPC)).  Views were also collected from the European Economic and 
Social  Committee  during  the  EESC  public  hearing  on  "Decent  minimum  wages  across 
Europe",  which  took  place  on  25  June  2020.  The  EESC  also  prepared  an  exploratory 
opinion on the minimum wage initiative, on the request of the European Parliament. The 
European  Parliaments  expressed  views  on  the  minimum  wage  initiative  within  the 
framework of a discussion initiated by the EESC, on 25 June, in the preparation of this 
Opinion  and  during  the  discussion  of  the  Draft  report  on  reducing  inequalities  with  a 
special focus on in-work poverty. 

The two-stage consultation of the social partners ensured a high level of transparency and 
openness by making public all relevant documents. Moreover, DG EMPL also launched 
on  14  January  a  broad  consultation  with  stakeholders  on  new  measures  for  the  Action 
Plan  to  implement  the  European  Pillar  of  Social  Rights.  This  consultation  provides  all 
stakeholders with the opportunity to express their views, including on minimum wages.  

A  public  consultation  on  the  minimum  wage  initiative  was  not  conducted.  However, 
views  were  collected  within  the  framework  of  the  public  consultation  on  the 
implementation of the European Pillar of Social Rights190 and through the replies to the 
Standard  Eurobarometer  92  (Autumn  2019),  which  included  questions  about  the 
European Union's priorities (including the minimum wage).191 

A2.1. Results of the first phase Social Partners consultation 

The first stage consultation of social partners was open from 14 January to 25 February 
2020.  The  Commission  received  23  replies  from  European  social  partners  representing 
trade unions and employers’ organisations at EU level.  

Five  trade  unions  replied  to  the  first  stage  consultation:  the  European  Trade  Union 
Federation  (ETUC),  Eurocadres,  the  CEC  European  managers,  the  European  Arts  and 
Entertainment  Alliance  (EAEA)  and  the  European  Confederation  of  Independent  Trade 
Unions  (CESI).  ETUC’s  reply  also  represents  the  views  of  ten  European  sectoral  trade 
union organisations. 

On  the  employers’  side,  18  organisations  replied  to  the  consultation,  namely 
BusinessEurope,  the  European  Centre  of  Employers  and  Enterprises  providing  Public 

190 https://ec.europa.eu/social/main.jsp?catId=1487&langId=en 
191 Report on Europeans' opinions about the European Union's priorities 

86 

 
 
 
                                                           
Services  (CEEP),  SMEunited,  the  Council  of  European  Employers  of  the  Metal, 
Engineering and Technology-Based Industries (CEEMET), the European Confederation 
of the Woodworking Industries (CEI-Bois), the Council of European Municipalities and 
Regions  (CEMR),  the  Confederation  of  European  Security  Services  (CoESS),  the 
European  Chemical  Employers  Group  (ECEG),  the  European  Cleaning  and  Facility 
Services  Industry  (EFCI),  the  European  Furniture  Industries  Confederation  (EFIC),  the 
Retail,  Wholesale  and  International  Trade  Representation  to  the  EU  (EuroCommerce), 
the European Construction Industry Federation (FIEC), the Hotels, Restaurants and Cafés 
in  Europe  (HOTREC),  the  European  Federation  for  print  and  digital  communication 
(Intergraf), the International Road Transport Union (IRU), the Live Performance Europe 
(Pearle),  the  European  Furniture  Manufacturers  Federation  (UEA)  and  the  World 
Employment Confederation (WEC). 

In  addition,  the  European  Commission  received  two  joint  social  partner  contributions, 
one from the Sectoral Social Dialogue Committee on Local and Regional Governments 
(joint contribution from the European Public Service Union (EPSU) and the Council of 
European  Municipalities  and  Regions  (CEMR))  and  one  from  the  Sectoral  Social 
Dialogue  Committee  for  Central  Government  Administrations  (joint  contribution  from 
the  European  Public  Administration  Employers  (EUPAE)  and  Trade  Unions’  National 
and European Administration Delegation (TUNED).  

Identification of the issues and possible areas for EU action 

European workers’ organisations consider that the Commission has only partly identified 
the core problems related to fair minimum wages. In their view, the central role of social 
partners  in  wage  setting  was  rightly  stressed  and  challenges  were  correctly  described, 
especially  on  in-work  poverty,  new  forms  of  work  and  gender  inequality.  Statutory 
minimum  wages  are  set  at  rates  that  are  too  low  to  be  fair,  but  the  Commission, 
according to respondents, did not sufficiently identify solutions to tackle the underlying 
problem of low wages in general, and it did not take into account the impact of zero-hour 
work arrangements and self-employment. They also pointed out that the increase in self-
employment means that many workers would not benefit from EU action. In their view, 
the best tool to achieve the objective of fair wages is the adequate promotion, protection 
and support for collective bargaining. Therefore, they suggested that the analysis should 
reflect the challenges regarding collective bargaining, as well as the need for EU action 
in  this  field  and  possible  measures.  According  to  the  respondents,  the  document  was 
unclear  on  how  a  possible  EU  initiative  would  fully  respect  and  safeguard  well-
functioning systems of collective bargaining, and should further clarify what the EU can 
and cannot do in the field of minimum wages. 

European  employers’  organisations  have  divergent  views  on  whether  the  Commission 
has  correctly  identified  the  issues  and  possible  areas  for  EU  action.  On  the  one  hand, 
several  organisations  agreed  with  the  importance  of  fair  minimum  wages.  Others 
positively assessed the analysis of the Commission and confirmed that the Commission 
correctly  identified  the  overall  policy  objective  and  a  number  of  relevant  challenges, 

87 

 
 
including  negative 

especially  those  concerning  low-wage  workers,  collective  bargaining,  the  setting  of 
statutory  minimum  wages  and  the  insufficient  involvement  of  social  partners. 
SMEUnited  pointed  out  that  minimum  wages  can  help  prevent  unfair  competition  and 
social  dumping  on  the  labour  market,  which  is  a  key  concern  for  SMEs.  On  the  other 
hand,  a  number  of  respondents  disagreed  with  the  Commission’s  assessment  of  the 
challenges and issues. Most of these organisations pointed to insufficient consideration of 
economic  arguments, 
impacts  e.g.  on  employment  and 
competitiveness, as well as productivity. Some requested definitions of core terminology, 
such  as  ‘fair  minimum  wages’.  BusinessEurope  called  for  further  examining  the 
justifications for gaps in the coverage of minimum wages. Assessing adequacy in  terms 
of  take-home  pay  and  considering  which  parts  of  the  wage  are  included  in  adequacy 
calculations  was  proposed  by  BusinessEurope,  although,  according  to  HOTREC,  EU 
action  should  not  propose  assessing  the  take-home  pay  of  minimum  wage  earners  in 
relation  to  income  levels  that  protect  against  poverty.  Many  requested  more  clarity,  in 
particular on the choice of the legal instrument, and asked for an in-depth legal analysis 
and for additional analysis of the economic and social effects of minimum wages. 

Furthermore,  some  employers’  organisations  questioned  the  effectiveness  of  minimum 
wages  alone  as  a  tool  to  improve  living  standards  and  address  in-work  poverty.  In  this 
regard,  some  also  agreed  that  discussions  on  minimum  wages  cannot  be  isolated  from 
broader labour market and social issues.  

Need and scope for EU action  

All European workers’ organisations stated that there is scope for EU action on minimum 
wages,  namely  on  two  main  areas:  (i)  to  promote  and  safeguard  (sectoral  and  cross-
sectoral) collective bargaining, including capacity building of social partners; and, (ii) to 
increase  statutory  minimum  wages  to  a  level  at  which  they  ensure  at  least  a  decent 
standard of living. All agreed that any action must fully respect the autonomy of social 
partners and safeguard well-functioning collective bargaining systems.  ETUC considers 
it important that a clearer distinction is made between the challenges and possible actions 
concerning  statutory  minimum  wages  on  the  one  hand  and  wages  set  in  collective 
agreements  on the other hand. Workers’ organisations did not express a preference for a 
particular legal instrument, except CESI, which advocated for a binding framework. 

Regarding  the  issue  of  promoting  and  safeguarding  collective  bargaining,  the  workers’ 
organisations proposed requiring Member States to take action to increase the collective 
bargaining  coverage  rate  when  it  is  below  70%.  They  also  suggested  a  variety  of 
measures  to  promote  collective  bargaining  (such  as  making  sure  that  the  necessary 
institutions  are  in  place,  strengthening  collective  bargaining  for  all  sectors  of  the 
economy,  and  ensuring  the  respect  of  the  right  to  collective  bargaining).  Moreover, 
ETUC  suggested  that  Member  States  should  introduce  extension  mechanisms  for 
collective  agreements  only  when  proposed  by  the  social  partners  at  the  national  level. 
This was supported by EPSU and CEMR in their joint reply.  

88 

 
 
Regarding the level of statutory minimum wages, the workers’ organisations proposed a 
measure of minimum wage adequacy. Specifically, they suggested that minimum wages 
should  be  at  least  60%  of  the  national  full-time  median  wage,  and  most  organisations 
proposed to assess adequacy based on gross rather than net minimum wages. Concerning 
coverage,  they  considered  that  statutory  minimum  wages  should  cover  all  workers, 
including  currently  excluded  categories  of  workers,  such  as  non-standard  workers,  and 
sub-minimum wages should be removed. Moreover, they underlined that Member States 
should  genuinely  involve  all  social  partners  in  statutory  minimum  wage  setting.  They 
also  pointed  out  that  any  possible  EU  initiative  should  not  limit  increases  of  statutory 
minimum wages, weaken well-functioning industrial relations systems based mainly, or 
exclusively, on collective bargaining, or introduce statutory minimum wages in Member 
States where social partners do not consider them necessary.  

None of the employers’ organisations was in favour of a possible binding EU initiative in 
the  area  of  minimum  wages.  Most  organisations  contended  that  the  EU  has  no 
competence to introduce a legal instrument on minimum wages or collective bargaining 
based  on  Article  153  TFEU.  Moreover,  BusinessEurope  and  SMEUnited  consider  that 
wage coverage issues are outside of the EU competence. Most organisations highlighted 
that wage setting mechanisms and wage policy fall within the competence of the Member 
States and national social partners. A number of respondents stated that the Commission 
should  consider  alternative  options  in  the  areas  where  the  EU  has  competence  and 
frameworks exist, such as the European Semester.  

The  majority  of  the  employers’  organisations  raised  concerns  that  EU  action  might 
directly and indirectly interfere with national wage setting systems and the autonomy of 
social  partners, with  a potentially detrimental  effect  on collective bargaining and social 
dialogue.  According  to  many  employers’  organisations,  an  EU  action  may  eventually 
weaken  collective  bargaining,  by  breaching  social  partners’  autonomy.  Many  of  them 
stressed  that  any  potential  EU  initiative  must  respect  the  principle  of  subsidiarity, 
national traditions, social partners’ autonomy and the freedom of collective bargaining.  

Nevertheless, several employers’ organisations believe that there is an added value for an 
EU action on minimum wages, but this should be of a non-binding nature. In particular, 
the  majority  of  the  organisations  agreed  that  the  European  Semester  is  the  most 
appropriate tool to steer reforms in this area. Some stated that social partners should be 
more  involved  in  the  Semester  than  is  currently  the  case192.  General  support  was 
expressed  for  country-specific  recommendations  in  the  field  of  minimum  wages  to 
strengthen  the  involvement  of  social  partners,  promote  a  structured  exchange  of 
information  and  best  practices,  and  enhance  enforcement  mechanisms.  Furthermore, 
actions  at  EU  level  (e.g.  EU  funding)  that  strengthen  social  dialogue  and  the  role  and 

192 Social partners provide input to the Commission ahead of the adoption of the Annual Sustainable Growth Strategy 
(ASGS) and participate in the ensuing discussions. They also provide input to the Commission’s analysis of economic 
and social developments in each Member State, which feeds into both the Country Reports and the Country-Specific 
Recommendations.  

89 

 
 
                                                           
autonomy of social partners at all levels, as well as actions for capacity building (also at a 
sectoral  and  regional  level),  would  be  welcomed.  Moreover,  various  employers’ 
organisations  proposed  to  reinforce  the  involvement  of  social  partners  in  statutory 
minimum wage setting and the establishment of well-functioning consultation processes. 
BusinessEurope also suggested clear and stable criteria to guide adjustments of statutory 
minimum  wages.  A few employers’ organisations considered that  non-compliance with 
minimum  wages  could  be  addressed  by  gathering  appropriate  data  and  through  labour 
inspections  and  public-private  partnerships.  BusinessEurope  also  pointed  out  that  the 
way  forward  to  improve  economic  and  social  convergence  across  the  EU  is  through 
broader measures, such as enhancing the single market, better functioning education and 
training, as well as investment in R&D and in welfare systems. 

Willingness to enter into negotiations 

European  workers’  organisations  were  open  to  start  negotiations,  but  considered  it 
premature  at  this  stage  of  the  consultation.  None  of  the  European  employers’ 
organisations has so far shown willingness to enter into negotiations. Some were open to 
consider starting a dialogue at a later stage on issues related to wage setting mechanisms 
(notably SMEUnited on specific topics, CEEP subject to receiving more information on 
possible  instruments,  CoESS  subject  to  appropriate  discussions  in  sectoral  dialogue 
committees, and the World Employment Confederation after having seen possible actions 
in the second stage consultation document). 

A2.2. Results of the second phase Social Partners consultation 

The second phase consultation of social partners was open from 3 June to 4 September 
2020.  The  Commission  received  19  replies  from  European  social  partners  representing 
trade unions and employers’ organisations at EU level.  

Three  organisations  representing  trade  unions  replied  to  the  second  stage  consultation: 
CEC  European  Managers,  the  European  Confederation  of  Independent  Trade  Unions 
(CESI)  and  the  European  Trade  Union  Confederation  (ETUC).  ETUC’s  reply  also 
represents the views of ten European sectoral trade union organisations. 

On  the  employers’  side,  16  organisations  replied  to  the  consultation,  namely 
BusinessEurope,  the  European  Centre  of  Employers  and  Enterprises  providing  Public 
Services  (CEEP),  SMEunited,  the  Council  of  European  Employers  of  the  Metal, 
Engineering and Technology-Based Industries (CEEMET), the European Confederation 
of the Woodworking Industries (CEI-Bois), the Council of European Municipalities and 
Regions  (CEMR),  the  Confederation  of  European  Security  Services  (CoESS),  the 
European  Chemical  Employers  Group  (ECEG),  the  European  Cleaning  and  Facility 
Services  Industry  (EFCI),  the  European  Furniture  Industries  Confederation  (EFIC),  the 
Retail,  Wholesale  and  International  Trade  Representation  to  the  EU  (EuroCommerce), 
Employers'  Group  of  Professional  Agricultural  Organisations  in  the  European  Union 
(Geopa-Copa),  the  Hotels,  Restaurants  and  Cafés  in  Europe  (HOTREC),  the  European 

90 

 
 
 
Federation  for  print  and  digital  communication  (Intergraf),  the  International  Road 
Transport Union (IRU), and the World Employment Confederation (WEC). 

Specific objectives of a possible EU action 

Workers’ organisations generally agreed with the objectives identified in the consultation 
document. ETUC stated that an initiative should not make collective bargaining subject 
to  EU  conditions,  rules  or  interpretations  that  would  undermine  trade  unions’  and 
workers’ rights nor endanger existing statutory minimum wage systems. CEC European 
Managers  stressed  that  national  traditions  and  social  partners’  autonomy  should  be 
respected.  According  to  ETUC,  the  Commission  could  have  addressed  more  the  (key) 
role of sectoral collective bargaining, as it constitutes a key component to ensure upward 
wage convergence and to increase collective bargaining coverage. 

Employers’ organisations generally showed support for most of the objectives stated in 
the  consultation  document.  However,  regarding  the  objective  to  limit  or  eliminate 
the  employers’  organisations  expressed  objections. 
variations  and  exemptions, 
BusinessEurope questioned the added value of EU regulatory action regarding statutory 
minimum  wage  setting  in  view  of  the  diversity  of  national  frameworks.  Furthermore, 
employers’ organisations stressed that the competences of Member States and/or social 
partners need to be fully respected at all times. 

Views on possible avenues for EU action 

The  ETUC  and  CEC  European  Managers  welcomed  the  Commission’s  proposal  to 
include  measures  to  promote  collective  bargaining  in  its  initiative.  However,  ETUC 
stated  that  the  policy  options  to  promote  collective  bargaining  as  identified  by  the 
Commission were unclear. ETUC, CEC European Managers and CESI emphasised that 
collective bargaining should be available to all workers (including managers) regardless 
of the sector or employment status. ETUC and CEC European Managers also stressed the 
importance  of  providing  social  partners  with  adequate  resources  and  tools  to  support 
(sectoral)  collective  bargaining.  Both  ETUC  and  CESI  proposed  the  amendment  of 
public procurement rules to incentivise companies to pay minimum wages. Besides this, 
ETUC repeated its proposal that Member States and/or social partners should develop an 
action plan to increase bargaining coverage when coverage is below 70% of the national 
workforce (or below 70% in a sector). It also stated that the right to collective bargaining 
must be respected and no extension mechanisms should be required. 

Some  employers’  organisations  (BusinessEurope,  CEEP,  ECEG,  Intergraf)  expressed 
concerns  that  EU  action  would  undermine  the  autonomy  of  social  partners,  weaken 
collective bargaining and well-established national wage setting systems, in particular if 
binding  requirements  were  to  be  established.  BusinessEurope  rejected  any  EU  action 
aimed  at  extending  coverage  to  all  workers  in  countries  where  minimum  wages  are 
exclusively  set  through  collective  bargaining,  as  this  would  interfere  with  national 

91 

 
 
collective  bargaining  systems.  A  number  of  organisations193  suggested  that  the 
Commission  should  support  the  capacity  building  of  national  (sectoral)  social  partners 
and  the  structured  exchange  of  best  practices  to  strengthen  their  role  in  collective 
bargaining, also by making more  funds available. The EFCI  and CoESS  welcomed the 
Commission’s  proposal  to  map  the  implementation  of  the  social  clause  in  the  Public 
Procurement  Directive  2014/24/EU.  In  addition,  they  welcomed  the  provision  of 
incentives to promote well-functioning collective bargaining on wage issues (EFCI) and 
a list of possible actions to support collective bargaining on wage setting (CoESS). 

All workers’ organisations called for regular, clear and predictable procedures for setting 
statutory  minimum  wages.  ETUC  emphasised  that  Member  States  must  be  free  to  set 
their  own  statutory  minimum  wage  with  the  full  involvement  of  social  partners. 
Furthermore, ETUC stressed that the Commission should clearly address the differences 
between  statutory  minimum  wages  and  wages  set  in  collective  agreements.  ETUC  also 
made it clear that no Member State should be required to introduce statutory minimum 
wages  and  that  such  an  introduction  in  any  case  should  not  be  possible  without  social 
partners’ agreement. ETUC and CESI called for the updating of minimum wages at least 
once  a  year  and  at  least  every  two  years  respectively.  ETUC  called  for  a  combined 
minimum wage threshold of 60% of the national full-time gross median wage and 50% 
of  the  national  full-time  gross  average  wage.  CESI  proposed  60%  of  the  national  full-
time  (gross)  median  wage  as  a  minimum  threshold.  ETUC  stated  that  deductions  from 
statutory minimum wages should be prohibited and tips and other extra payments should 
be  excluded.  ETUC  and  CESI  proposed  additional  indicators  of  adequacy,  such  as 
country-specific  reference  baskets  of  goods  and  services  that  ensure  that  the  minimum 
wage (set in any case above the aforementioned thresholds) guarantees a decent living. 

tool 

to  reach  agreements 

On the provision of clear and stable criteria in minimum wage setting, several employers’ 
organisations194 argued that this falls within the competence of national authorities and/or 
social partners. CoESS stated that the proposed criteria should remain non-binding, while 
the EFCI considered the provision of specific indicators for assessing minimum wages in 
Member  States  a  positive 
in  collective  bargaining. 
BusinessEurope added that specific indicators could be provided against which minimum 
wage adequacy but also the economic and labour market impacts of increased minimum 
wages  could  be  assessed.  A  number  of  organisations  (BusinessEurope,  SMEunited, 
CoESS,  HOTREC)  furthermore  emphasized  the  importance  of  taking  into  account 
broader  factors  such  as  national  tax  and  social  benefit  systems,  economic  and  social 
conditions,  productivity  levels  and  employment,  when  assessing  the  adequacy  of 
minimum  wages.  According  to  SMEunited,  the  main  indicator  when  assessing  the 
adequacy of minimum wages should be the gross value of the minimum wage. 

193 These are BusinessEurope, CEEMET, CEI-Bois, CEMR, ECEG, EFCI, EFIC, EuroCommerce, and 
WEC. 
194 These are SMEunited, CEEMET, CEI-Bois, CoESS, ECEG, EFIC, EuroCommerce, and Intergraf. 

92 

 
 
                                                           
All workers’ organisations called for full (and genuine) involvement of all social partners 
in minimum wage setting and updating procedures. ETUC and CEC European Managers 
proposed  a  timely  sharing  with  social  partners  of  all  relevant  data  and  information  to 
evaluate the adequacy of statutory minimum wages. CEC European Managers indicated 
that  the  consultation  of  social  partners  should  preferably  be  binding  for  policymakers. 
ETUC  did  not  consider  useful  an  obligation  to  involve  independent  experts.  CEC 
European  Managers  stated  that  when  independent  expert  bodies  are  involved,  the 
contribution of social partners should be strengthened and, when relevant, be considered 
more important. 

The  employers’  organisations  welcomed  the  initiative  to  ensure  that  social  partners  are 
involved in statutory minimum wage setting in an effective and timely manner, provided 
that  their  autonomy  and  national  traditions  are  fully  respected.  SMEunited,  however, 
noted that the Commission did not pay sufficient attention to how social dialogue can be 
promoted in those Member States where the social partners play no or only a minor role 
in (minimum) wage setting. EFCI expressed concerns about the provision of independent 
experts  to  be  associated  with  minimum  wage  setting  and  updating.  BusinessEurope 
highlighted that the establishment of well-functioning consultation procedures should be 
supported. 

ETUC  stated  that  any  type  of  statutory  minimum  wage  exemptions  and  statutory  sub-
minimum wages should be removed. CESI argued for eliminating exemptions or at least 
for  reducing  them  to  the  bare  minimum,  pointing  specifically  to  the  situation  of 
vulnerable self-employed workers.  Furthermore, CESI explicitly stated that  a minimum 
wage framework should also apply to the public sector, under certain conditions. 

The employers’ organisations reiterated their objections related to eliminating variations 
and exemptions.  While some agreed that it would be reasonable to  limit  exemptions  to 
the minimum necessary (CEEMET, EFCI, Intergraf), the majority of the organisations195 
argued  that  justified  exemptions  decided  by  social  partners  and/or  the  national 
government  should  remain.  EFCI  would  welcome  guiding  criteria  regarding  their  fair 
use.  

All  workers’  organisations  called  for  the  involvement  of  social  partners  in  compliance 
and  monitoring  activities.  They  also  called  for  increased  capacity  for  compliance  and 
monitoring  in  the  form  of  strengthened  labour  inspectorates,  clear  documentation  of 
working time, complaint systems, sanctions and remedies as well as the collection of data 
and information through common tools and criteria. ETUC proposed to have at least one 
labour  inspector  for  every  10.000  workers.  ETUC  called  for  ensuring  effective 
implementation  of  collectively  agreed  statutory  minimum  wage  increases  by  Member 
States.  It  also  argued  Member  States  should  be  required  to  take  action  in  the  area  of 
compliance and enforcement. ETUC and CESI advocated employer liability throughout a 

195 These include BusinessEurope, CEEP, SMEunited, and HOTREC. 

93 

 
 
                                                           
subcontracting  chain  if  employers  do  not  respect  minimum  wages  or  the  rights  to 
organise or bargain collectively. 

Several  employers’  organisations  (SMEunited,  CEEMET,  CoESS,  EFCI,  Geopa-Copa, 
HOTREC,  WEC)  supported  the  call  on  the  Member  States  to  ensure  effective 
implementation and compliance with national minimum wage frameworks, emphasising 
that  it  is  within  the  competence  of  national  authorities  to  determine  the  compliance 
mechanisms and ensure implementation. BusinessEurope questioned the added value of 
EU action, but stated that support could be provided to those Member States in which a 
need  for  improvement  on  these  aspects  has  been  identified  (e.g.  through  the  Semester 
process). Moreover, SMEunited and CoESS agreed with the role of social partners in that 
regard.  SMEunited  furthermore  supported  the  recommendation  to  Member  States  to 
reinforce  the  data  collection  tools  and  monitoring  frameworks  on  minimum  wage 
coverage, and CEEMET suggested allocating EU funds for research and data collection 
on non-compliance.  

Views on the possible legal instruments 

ETUC  called  on  the  Commission  to  propose  a  Framework  Directive  with  binding 
minimum  requirements,  complemented  by  a  Council  Recommendation  elaborating  on 
specific  elements.  CESI  called  for  an  EU  Directive  with  binding  requirements.  CEC 
European Managers considered a Recommendation the most effective tool to achieve the 
main objective of the initiative, as it would allow identifying the common objectives to 
be reached across the Union and provide technical guidance. ETUC and CEC European 
Managers argued for clauses to ensure that a legal instrument could not adversely affect 
collective  bargaining  or  minimum  wages.  ETUC  also  called  specifically  for  a  social 
progress  clause  to  protect  collective  bargaining  and  other  trade  union  rights.  ETUC 
proposed that any measures taken should be monitored by Member States with  the full 
involvement of national social partners. 

None of the employers’ organisations was in favour of a binding EU Directive in the area 
of  minimum  wages.  Most  organisations  reiterated  that  based  on  Article  153  (5)  TFEU, 
the EU has no competence to introduce a legal instrument on wage setting mechanisms 
or collective bargaining, which fall within the competence and authority of the Member 
States  and  national  social  partners.  Furthermore,  CEEP  and  CEMR  contended  that  a 
Directive would lack proportionality. A majority of the employers’ organisations raised 
concerns that a binding EU Directive would not ensure the full respect of the autonomy 
of social partners and the freedom of collective bargaining, and could potentially lead to 
disruptions of well-functioning wage setting systems and established industrial relations. 
Several  employers’  organisations  (BusinessEurope,  CEEP,  SMEunited,  CoESS,  EFCI, 
Geopa-Copa,  IRU,  HOTREC,  WEC)  stated  that  they  could  consider  a  Council 
Recommendation,  provided  that  the  autonomy  of  social  partners  and  freedom  of 
collective  bargaining  are  fully  respected  and  well-functioning  national  wage  setting 
mechanisms  are  not  undermined.  BusinessEurope  stressed  that  the  European  Social 
Partners  and  national  governments  should  be  fully  involved  in  drafting  such  a 

94 

 
 
 
Recommendation. SMEunited suggested that a Council Recommendation could define a 
number  of  common  principles  related  to  collective  bargaining,  the  capacity  building  of 
social  partners  and  their  timely  and  effective  involvement  in  minimum  wage  setting, 
when  this  is  set  by  law.  In  addition,  a  number  of  respondents196  stated  that  the 
Commission  should  consider  the  European  Semester  as  a  tool  to  better  target  specific 
guidance  and  monitor  progress  regarding  minimum  wage  setting,  in  particular  via  the 
country-specific  recommendations.  BusinessEurope,  CEEMET,  and  HOTREC  also 
advocated a stronger involvement of the social partners in the Semester process. 

Willingness to enter into negotiations 

ETUC stated that there seems to be no opportunity to open social partners’ negotiations 
which  could  achieve  a  positive  outcome.  ETUC  still  remains  open  to  discussions 
provided  there  is  a  clear  and  public  engagement  by  employers’  organisations  of  their 
willingness to open negotiations to deliver an ambitious agreement leading to a Council 
Directive.  CEC  European  Managers  would  consider  negotiating  if  other  social  partner 
organisations would be open to this.  

On  the  side  of  the  employers’  organisations,  BusinessEurope,  CEEP  and  SMEunited 
expressed  their  willingness  to  start  a  formal  dialogue  and  to  explore  the  possibility  to 
enter  into  negotiations  on  the  content  of  a  Council  Recommendation  together  with  the 
other European social partners provided that the existence of a legal basis for EU action 
(HOTREC, 
has  been 
EuroCommerce)  expressed  their  interest  in  being  involved  if  the  cross-sectoral  social 
partners decide to enter into negotiations. 

employers’  organisations 

established.  Some 

clearly 

A2.3. Results of targeted consultations with Member States  

  Joint EMCO-SPC exchange of views on the minimum wage initiative 

The  Employment  and  Social  Protection  Committees  (EMCO  and  SPC)  held  a  joint 
meeting  to  exchange  views  on  the  minimum  wage  initiative  on  7  September.  The 
Committees are each composed of two delegates from each Member State coming from 
the authorities responsible for employment and social policy. 

Views on the objectives of a possible EU action 

Most  Committee  members  were  in  favour  of  an  EU  initiative.  There  was  general 
agreement on the importance of protecting workers with fair minimum wages, especially 
in the current crisis situation. In their view, ensuring adequate minimum wage levels and 
coverage  for  all  forms  of  work  can  contribute  to  the  achievement  of  upward  social 
convergence  and  to  the  fight  against  poverty,  including  in-work  poverty.  Several 
members referred to the relevance of the initiative with respect to the European Pillar of 

196 These are BusinessEurope, CEEP, SMEunited, CEEMET, CEMR, CoESS, ECEG, EFCI, 
EuroCommerce, Geopa-Copa, HOTREC, and WEC. 

95 

 
 
 
                                                           
Social Rights, while one member mentioned that it would be a good instrument to fight 
social  dumping.  However,  some  fears  were  also  expressed  concerning  the  respect  of 
national  traditions,  but  also  regarding  the  risk  of  creating  obligations  for  only  some 
Member States.  

Several  members expressed the view that collective bargaining should remain the main 
channel for wage setting, with some expressing concerns about the possible disruption of 
well-functioning collective bargaining systems and the non-respect of the national social 
partners’  autonomy.  However,  one  member  pointed  that  social  partners’  autonomy 
should not lead to situations where groups of workers are excluded from minimum wage 
protection.  Another  member  suggested  that  national  legislators  should  follow  the 
outcome  of  leading  collective  agreements  to  set  a  sufficient  and  decent  hourly 
remuneration  for  all  the  workers,  irrespective  of  their  type  of  contract  and  sector  of 
activity. 

One member also called to consider the links between a possible initiative on minimum 
wages with one on minimum income. 

Types  of  interventions  best  suited  for  increasing  the  coverage  and  adequacy  of 
minimum wages  

All members stressed the importance of social partners’ involvement in minimum wage 
setting  and  updating.  The  majority  supported  the  promotion  of  collective  bargaining  as 
the  best  means  to  achieve  the  specific  objectives  of  the  initiative,  with  some  calling  to 
support social partners’ capacity building.  

Some members emphasised that clear and stable criteria should guide the adjustment of 
statutory  minimum  wages.  A  majority  of  the  members  considered  that  the  objective  of 
adequate  minimum  wages  should  be  achieved  taking  into  account  the  effects  on 
employment, productivity and competitiveness. 

Members’  views  regarding  the  use  of  adequacy  indicators  and  reference  values  were 
mixed.  A  number  of  members  supported  using  them  on  the  basis  of  the  ongoing 
benchmarking  exercise,  while  others  saw  this  as  going  beyond  the  EU  competence.  A 
member  argued  in  favour  of  using  the  national  gross  average  wage  as  a  reference 
indicator.  At  the  same  time,  another  member  considered  that  multiple  indicators  and 
benchmarks  are  needed  to  assess  adequacy  and  these  benchmarks  should  take  national 
characteristics into account, such as taxation and social benefits. 

Some  members  supported  measures  to  ensure  monitoring  and  compliance  at  both 
national and EU level. One member favoured a specific monitoring system looking at the 
effects of the minimum wage on women who are a single parent, and on older workers, 
in the context of combatting poverty, especially child poverty. 

96 

 
 
A  number  of  members  voiced  their  objections  to  excluding  the  use  of  exemptions  and 
variations, while some expressed their support.  

Legal instrument 

While a few members supported a binding instrument, the majority were in favour of a 
Council Recommendation. Many stressed the importance of the ongoing monitoring and 
exchange of best practices through the EPSCO treaty-based Committees, and some were 
in  favour of  a benchmarking mechanism. Some members also  called for  relying on the 
European Semester as a vehicle for achieving the goals of the initiative.  

A few members did not take a position on the choice of the legal instrument but called on 
the  Commission  to  reflect  on  the  most  effective  tool  given  the  different  models  and 
objectives.  

Policy options that could be more effective for tackling in-work poverty  

With  regard  to  in-work  poverty,  several  members  expressed  the  view  that  having  a 
specific  instrument  on  minimum  wages  (and  proper  monitoring)  can  help  reduce  the 
growing  group  of  working  poor  in  Europe.  Some  considered  that  provisions  to  ensure 
minimum wage adequacy through the definition of clear criteria are specifically relevant. 
Yet, a number of members pointed out that tackling in-work poverty requires a holistic 
approach or integrated framework in accordance with the specific needs of each Member 
State.  Within  such  an  integrated  framework,  adequate  minimum  wages  with  broad 
coverage are a key component, together with access to social protection and to enabling 
services. It was underlined that special attention needs to be given to workers in atypical 
forms of employment. 

Some members expressed their fear that if minimum wages were fixed at a certain level, 
this might create rigidities in the labour market, lower the working hours per employee or 
lead  to  job  losses.  The  impact  on  work  incentives  was  also  mentioned.  In  their  view, 
where  minimum  wages  are  not  flexible,  the  wages  just  above  them  tend  to  drop,  thus 
potentially worsening the problem of in-work poverty. 

  EPC exchange of views on the minimum wage initiative 

The  Economic  Policy  Committee  (EPC)  held  an  exchange  of  views  on  the  minimum 
wage  initiative  on  8  September.  This  Committee  includes  two  members  from  each 
Member  State  coming  from  the  authorities  responsible  for  formulating  economic  and 
structural policy, as well as a representative from the European Central Bank.  

Views on the objectives of a possible EU action 

Most  Committee  members  expressed  their  support  for  an  EU  initiative  on  minimum 
wages, with some stressing the need to take into account the heterogeneity of the national 

97 

 
 
minimum  wage  setting  systems.  All  members  stressed  the  importance  of  protecting 
workers  with  fair  minimum  wages,  especially  in  the  current  crisis  situation,  thereby 
supporting the general objective of the initiative. Some members pointed out that an EU 
framework would help social upward convergence, with one member recalling it would 
also support the implementation of the European Pillar of Social Rights.   

All  members  agreed  on  the  need  to  respect  national  traditions  and  social  partners’ 
autonomy. A few members emphasised that some systems based on collective bargaining 
are  working  well  and  hence  the  initiative  should  not  endanger  them.  In  their  view, 
strengthening collective bargaining would be the best way forward for all countries.  

Types  of  interventions  best  suited  for  increasing  the  coverage  and  adequacy  of 
minimum wages  

A  few  members  stressed  the  importance  of  supporting  and  promoting  collective 
bargaining  through  the  initiative,  especially  in  countries  where  it  does  not  work  very 
well. A member also called for enhancing the capacity building of social partners. 

Some  members  underlined  the  need  for  stable  and  clear  criteria  to  set  and  update 
statutory  minimum  wages.  Several  members  underlined  the  importance  of  looking  not 
only  at  social  and  equity  aspects,  but  also  at  economic  considerations.  A  number  of 
members pointed out that the effect on employment needs to be taken into account, even 
if it is difficult to assess. One of them was concerned that an increase of minimum wages 
could have detrimental effects on the workers that the initiative is trying to protect, such 
as those with  low skills. Another member argued that inflation and productivity should 
be taken into account when setting minimum wages.  

Several members stressed the difficulty of identifying the level of minimum wages that 
would allow for a decent standard of living while safeguarding jobs and competitiveness.  
Some members inquired about the concept of fairness and how to define a fair minimum 
wage.  One  member  cautioned  against  the  use  of  one  indicator  to  assess  adequacy, 
explaining  the  need  to  use  multiple  indicators  and  benchmarks.  Moreover,  a  member 
voiced objections to banning the use of exemptions and variations. 

Legal instrument 

With regard to the legal form of the initiative, the majority of members were in favour of 
a non-binding instrument that could take the form of a Council Recommendation, while 
two  members  expressed  their  support  for  a  Directive.  Some  members  explicitly  stated 
their  opposition  to  a  Directive,  arguing  that  either  there  was  no  legal  basis  for  it  or  it 
would  endanger  collective  bargaining.  A  few  members  expressed  their  support  for  a 
benchmarking mechanism on minimum wages. 

98 

 
 
 
A2.4. Other consultations  

Summary of the Opinion of the European Economic and Social Committee (EESC) on 
the minimum wage initiative  

The European Parliament requested an exploratory opinion from the EESC with a view 
to  a  forthcoming  Commission  initiative  on  fair  minimum  wages.  The  final  opinion, 
SOC/632 - Decent minimum wages across Europe was adopted on 16 September 2020. .  

Quality  jobs,  with  fair  wages  –  including  decent  minimum  wages  across  Europe  –  are 
needed  as  part  of  the  solution  to  the  current  crisis.  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. 

The EESC Workers' Group and the Diversity Europe Group supported 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 and is a key aspect of 
the  implementation  of  Principle  6  of  the  European  Pillar  of  Social  Rights.  The 
Employers'  Group  was  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. A majority of the EESC welcomed the objectives identified by the Commission 
and considered that they should be addressed through EU action on fair minimum wages. 
A minority, however, believed that EU action on some of those objectives would not be 
appropriate. 

There was a general consensus on the need to preserve the systems that currently work. 
All  participants  mentioned  the  critical  role  that  social  partners  play  in  the  wage  setting 
process and the importance of collective bargaining. Its promotion has been highlighted 
as one of the main aspects that the initiative should encompass. The EESC welcomed 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.  While  a  majority  of  EESC  constituents  believed  that 
EU  action  could  provide  an  added  value  others  disagree.  Among  the  key  concerns 
expressed, were that  the EU would have 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 wages set 
in collective agreements. 

The  Workers'  Group  and  Diversity  Europe  Group  considered  that  action  is  needed  as 
there  are  workers  in  the  EU,  notably  vulnerable  workers,  who  are  not  protected  by 
statutory  minimum  wages,  or  earn  a  minimum  wage  that  does  not  ensure  a  decent 
standard of living.  In their view, it would be beneficial if common EU thresholds were 

99 

 
 
 
agreed upon to determine what amounts to "a decent standard of living". The Employers' 
Group considered that thresholds for minimum  wages must not  be set  by  means of EU 
action as the EU has no competence on setting pay levels. According to them, what could 
be done at EU level, at most, is to discuss and exchange views through the Open Method 
of  Coordination  or  the  European  Semester.  Discussions  could  focus  on  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. 

On the possible legal instrument of the initiative, most workers’ representatives seemed 
to be in favour of a Directive (although only some of them made their support explicit), 
while  employers  groups  are  clearly  against  it  and  would  be  in  favour  of  a  softer 
approach, i.e. a Recommendation monitored under the European Semester. 

Summary of the discussion during the EESC public hearing on "Decent minimum 
wages across Europe" on 25 June 2020 

On 25 June, in view of the preparation of the above mentioned Opinion, the EESC held a 
hearing  where  they  invited  as  participants  Nicolas  Schmit,  Esther  Lynch  (ETUC), 
Maxime  Cerutti  (Business  Europe),  Kélig  Puyet  (Social  Platform),  Özlem  Demirel 
(MEP, DE), Dennis Radtke (MEP DE), as well as Agnes Jongerius (MEP, NL). 

The majoritarian view of the participants was that there is need for EU action on the issue 
of  fair  minimum  wages,  and  the  current  crisis  highlighted  even  more  this  need.  The 
opposing  view  on  this  came  from  employers’  representatives  who  considered  that  the 
timing was not right, as this action might have repercussions at the economic and social 
level. 

There was general consensus on the need to preserve the systems that currently work, and 
participants  acknowledged  the  Commissioner’s  firm  stance  on  this.  All  participants 
mentioned  the  imperative  role  that  social  partners  play  in  the  wage  setting  process  and 
the  importance  of  collective  bargaining.  Its  promotion  and  support  were  highlighted  as 
one  of  the  main  aspects  that  the  initiative  should  encompass.  On  the  legal  instrument 
chosen, workers’ representatives seemed to be in favour of a Directive, while employers’ 
groups spoke against this, supporting a softer approach, i.e. Recommendation monitored 
under the European Semester. 

Views of the European Parliament  

Within  the  framework  of  the  abovementioned  discussion  initiated  by  the  EESC  on  25 
June,  the  participating  Members  of  Parliament  all  agreed  on  the  timeliness  of  the 
minimum  wage  initiative,  especially  in  the  current  crisis  situation  where  workers  who 
kept our societies afloat, are usually the ones that would be at the centre of this initiative. 
Özlem Demirel (MEP for DE, GUE/NGL and Rapporteur on reducing inequalities with a 
special focus on in-work poverty) stated that the 60% poverty line should be taken as a 

100 

 
 
threshold and that the MW should not be lower than that, as this is the minimum to be 
done for in-work poverty. Collective bargaining should be promoted as it is not working 
everywhere  as  it  should,  giving  examples  of  coverage  differences  across  EU.  Dennis 
Radtke  (MEP  for  DE,  EPP  and  member  of  the  Committee  on  Employment  and  Social 
Affairs) argued that the solution is not a formula of the poverty line, but rather coverage 
of collective agreements, as fair minimum wages and wages more generally can only be 
reached through collective bargaining. Agnes Jongerius (MEP for NL, S&D and member 
of the Committee on Employment and Social Affairs) underlined the need to talk about 
the  MW  proposal  but  also  about  wage  growth  and  precarious  working  conditions  and 
collective bargaining. 

Members  of  the  European  Parliament  also  expressed  views  on  the  minimum  wage 
initiative during the discussion of the Draft report on reducing inequalities with a special 
focus  on  in-work  poverty  that  took  place  on  16  July.  Rapporteur  Özlem  Demirel 
(GUE/NGL)  emphasised  the  importance  to  focus  on  in-work  poverty  –  referring  to 
specific  measures,  in  particular  European  minimum  wages,  as  well  as  collective 
bargaining.  Anne  Sander  (EPP)  highlighted  that  this  was  an  important  subject  and 
measures  were  needed  for  poor  workers,  in  particular  young  people.  Marianne  Vind 
(S&D)  stressed  that  in-work  poverty  was  a  growing  challenge  and  a  social  protocol  is 
needed; she referred to the growing challenges linked to online platforms and the lack of 
social  rights  and  underlined  that  the  role  of  collective  bargaining  is  essential.  Atidzhe 
Alieva-Veli  (RENEW)  accentuated  the  importance  of  fair  remuneration  to  reduce 
inequalities  while  respecting  subsidiarity.  She  mentioned  that  atypical  working 
conditions raise issues underlining the role of collective agreements, as well as skills and 
qualifications.  The  green  transition  can  improve  productivity.  Dominique  Bilde  (ID) 
underlined  that  inequality  is  increasing,  linked  to  jobs  losses.  She  considered  that  the 
COM is imposing flexibility on labour markets and competition among EU workers and 
that more should be done to defend our economies. Katrin Langensieppen (Greens/EFA) 
emphasised  that  poverty  and  inequality  are  a  key  challenge  and  mentioned  that  her 
amendment will focus on persons with disabilities and strategies on undeclared economy. 
Elżbieta  Rafaslka  (ECR)  pointed  out  that  the  poverty  target  has  not  been  achieved  and 
the  risk  with  the  pandemic  is  that  poverty  and  in-work  poverty  will  increase  with 
unemployment.  She  also  highlighted  the  importance  of  support  to  families  to  fight 
against poverty and that there is no one size fits all. 

Furthermore,  in  its  Draft  report  on  a  strong  social  Europe  for  Just  Transitions  from  28 
September that will be adopted in December 2020, the Committee on Employment and 
Social  Affairs  of  the  European  Parliament  calls  on  the  Commission  to  present  a  legal 
framework for minimum  wages and collective bargaining in  order to  eliminate in-work 
poverty and promote collective bargaining. It also reiterates its call on the Commission to 
carry out a study on a living wage index, which could serve as a reference tool for social 
partners. 

101 

 
 
A2.5. Public consultations  

Replies to the European Pillar of Social Rights Public Consultation 

Respondents  to  the Public Consultation  on the European Pillar of Social  Rights  Action 
Plan overall addressed the importance of the fight against poverty, amongst which some 
mention the importance of minimum/fair wages in this respect.  

Of the organisations having replied to the public consultation so far, the European Anti-
Poverty  Network  (EAPN)  stated  its  support  for  a  EU  legal  framework  guaranteeing 
minimum  living  wages,  benchmarked  at  60%  of  the  median  wage,  contextualised  with 
reference  budgets,  as  part  of  their  call  for  an  EU  strategy  to  fight  poverty  as  an 
overarching  goal  of  the  EPSR  Action  Plan.  For  EAPN,  the  value-added  of  an  EU 
Directive would not only consist in the requirement for a statutory minimum wage for all 
countries, but rather in setting up a clear comparable EU benchmark for adequacy whilst 
respecting  the  national  means  and  procedures  to  achieve  this.  EAPN  proposed  that  the 
best way this can be achieved was by defining and enforcing a set of common minimum 
requirements  all  Member  States  have  to  comply  with.  Specifically,  it  called  for  1)  the 
coverage of the whole workforce by MW arrangements, 2) the level of pay and therefore 
the  adequacy  of  MW  (in  relation  to  take-home  pay  levels  sufficient  to  protect  workers 
against poverty and to support a decent living on the backdrop of price levels and living 
costs in a given MS), and 3) the mechanisms in place to guide adjustments of (statutory 
or collectively bargained and agreed) minimum wages. EAPN also proposed the support 
of  collective  bargaining  and  the  effective  involvement  of  social  partners  in  the 
adjustment  of  minimum  wages.  They  proposed  using  the  European  Semester,  as  a  soft 
instrument,  to  set  a  fair  wage/decent  work  priority  through  CSRs.  This  could  include:  
increased  analysis  of  in-work  poverty  related  to  gender  and  other  groups,  supporting 
increased employment security/employment status for all workers, collective bargaining 
and trade union membership and person-centred supportive active inclusion. 

The European Organisation of Military Associations and Trade Unions (EUROMIL) also 
mentioned the issue of minimum wages and collective bargaining in their contribution. It 
recommended  to  grant  members  of  the  armed  forces  the  right  of  association  without 
restriction. Once established, military associations and trade unions should be involved in 
a  social  dialogue  and  be  given  the  right  to  bargain  collectively.  More  concretely,  the 
military  salary  should  at  least  be  comparable  to  the  levels  of  payment  in  the  public 
service.  

The Employers' Association of Insurance Companies believed that an expansion of social 
policy  regulations  does  not  make  a  suitable  contribution  to  a  sustainable  social  policy. 
Rather, it considered that such efforts  put  a lasting strain  on the competitiveness  of the 
European  economy.  In  addition,  it  argued  that  the  European  Union  has  no  legislative 
competence regarding the 20 basic principles contained in the European Pillar of Social 
Rights.  In  this  respect,  the  Employers'  Association  of  Insurance  Companies  supported 

102 

 
 
 
Business  Europe's  proposal  to  set  up  a  tripartite  advisory  committee  to  improve  the 
performance of labour markets and social systems by the European Commission.  

The European Disability Forum (EDF) noted that “persons with disabilities are often paid 
at  or  below  minimum  wage,  work  part-time,  have  precarious  work  contracts  and  even 
work in isolated workshops away from the open labour market.” without further referring 
to the minimum wage initiative.  

From  the  citizens’  replies,  a  citizen  from  Spain  stated  that  the  EU  should  prioritise  the 
right  to  adequate  living  standards  and  services  through  quality  jobs  and  fair  wages, 
income  support  to  those  who  cannot  work  and  qualitative  universal  services.  A  citizen 
from  Poland  stated  that  a  minimum  wage  initiative  should  be  accompanied  by  other 
social protection measures, such as a minimum/social pension system.  

Finally,  during  the  consultation  period,  8  webinars  were  organised  by  the  Commission 
with Croatia, Greece, Hungary, Slovenia, Lithuania, Portugal, Finland and France so as 
to  discuss  the  Action  Plan  to  implement  the  European  Pillar  of  Social  Rights.  In  all  8 
meetings,  organised  with  stakeholders  from  the  8  countries,  an  EU  framework  for  fair 
minimum  wages  was  brought  into  discussion  as  one  of  the  initiatives  supporting  the 
Action Plan. 

On  18  June,  in  the  webinar  organised  with  Croatian  stakeholders,  the  representative  of 
the Institute for Public Finance considered the minimum wage to be one of the priorities 
the EU should follow, as well as strengthening social dialogue, among others. The trade 
union  representative  also  mentioned  the  strengthening  of  social  dialogue  at  all  levels, 
including collective bargaining as a tool for wage convergence. 

On 26 June, in the webinar organised with Greek stakeholders from the government, but 
also  trade  union  and  employers’  organisations,  as  well  as  NGOs,  the  employers’ 
representative emphasised that the 20 principles of the Pillar correspond to the needs we 
need  to  take  into  account  when  addressing  the  transformation  of  our  economy.  The 
approach should be tripartite, and there should also be a tripartite forum  at the national 
level to discuss the implementation of the Pillar. As regards already planned initiatives, 
he  hoped  there  could  be  common  ground  on  fair  minimum  wages.  The  trade  union 
representative also touched upon this issue when mentioning the protection of vulnerable 
workers  and  addressing  poverty  and  social  exclusion,  including  among  workers  as 
priorities for the EU.  

On 7 July, in the webinar organised with Hungarian stakeholders, both trade unions and 
employers’ representatives focused their input on the need to strengthen tripartite social 
dialogue systems as well as collective bargaining at national level. Commissioner Schmit 
reiterated the social and economic logic behind the planned initiatives on fair minimum 
wages and collective bargaining. 

103 

 
 
in 

the  webinar  organised  with  Slovenian  stakeholders, 

On  7  September, 
the 
representative of the association of Employers claimed that wages should be defined in 
an  agreed  and  transparent  manner  and  reminded  that  the  social  partners  should  not  be 
prevented  from  participating  in  the  determination  of  the  minimum  wage.  The 
representative  of  the  Social  Protection  institute  stressed  the  need  to  find  the  just 
calibration  to  create  incentives  to  encourage  work  since  there  is  a  tight  gap  existing 
between social assistance benefits and full time minimum wages. 

On  22  September  2020,  in  the  webinar  organised  with  Lithuanian  stakeholders, 
Lithuanian experts on economic and social policy claimed that the initiative on the fair 
minimum  wages  should  only  be  the  first  step  toward  the  pan-EU  social  protection  that 
should be more ambitious to improve working conditions.  

On 24 September 2020, in the webinar organised with Portuguese stakeholders, the trade 
union  representative  stressed  the  importance  of  minimum  wages  but  criticised  that 
minimum  wage  increases  have  not  appropriately  reflected  the  needs  of  workers  since 
there are still many cases of in-work poverty.  

On 28 September 2020, in the webinar organised with Finnish stakeholders, employers’ 
union representative had a concern that the initiative will interfere with the Nordic model 
of wage setting and claimed for the respect of subsidiarity. 

On 2 October 2020, in the webinar organised with French stakeholders, both trade unions 
and  employers’  representatives  advocated  the  implementation  of  this  initiative  since  it 
can ensure a proper level playing field in the EU single market and reduce poverty. The 
trade  union  representative  stressed  the  necessity  to  complement  this  initiative  by 
undertaking a reflection on working hours to safeguard the efficiency of this measure. 

View expressed through the Standard Eurobarometer 92 (Autumn 2019), which 
included questions about the European Union's priorities (including the minimum 
wage) 

In the Standard Eurobarometer 92 from Autumn 2019, on which citizens expressed their 
opinions about the European Union’s priorities, nearly nine in ten Europeans thought that 
each  EU  Member  State  should  have  a  minimum  wage  for  workers.  An  overwhelming 
majority  of  respondents,  i.e.  87%,  agreed  that  'each  EU  Member  State  should  have  a 
minimum  wage  for  workers'.  56%  of  respondents  'totally  agreed'  with  this  statement. 
Meanwhile,  less  than  one  in  ten  Europeans  (8%)  did  not  share  this  opinion,  while  5% 
said they do not know. The feeling that each EU Member State should have a minimum 
wage for workers was widely shared throughout  the EU, with  respondents in  euro area 
countries (90% total 'agree' versus 7% total 'disagree') feeling stronger towards it than in 
countries outside the euro area (83% versus 10%). 

104 

 
 
 
 
This  is  complemented by the fact  that more than eight  in  ten Europeans felt that a free 
market  economy  should  go  with  a  high  level  of  social  protection.  More  specifically, 
nearly nine in ten respondents (86%) agreed that a 'free market economy should go with 
a high level of social protection’. More than half (51%) even said that they 'totally agree' 
with this statement. Meanwhile, only 6% disagreed, and 8% said they 'don't know'. 

105 

 
 
 
 
Annex 3

  Who is affected and how? 

A3.1. Practical implications of the initiative 

If the initiative is adopted, its key obligations will apply for the Member States, workers’ 
and employers’ representative organisations, employers, and the Commission. 

All Member States will have to consider policy and/or legislative changes to strengthen 
collective bargaining (regulatory framework, capacity building), enforcement and ensure 
better compliance. In addition, Member States with statutory minimum wages will have 
to adjust/determine the modalities of their statutory minimum wage setting frameworks, 
and to invest more resources in strengthened consultation with social partners.  

Obligations  for  workers’  and  employers’  representative  organisations  (social  partners) 
arise from strengthened collective bargaining, which depends on social partners, and their 
role in enforcement. In addition, in Member States with statutory minimum wages, they 
will have greater role in the setting and updating of statutory minimum wages. For that, 
they will have to strengthen their resources and analytical capacity. Employers will have 
to  respect  agreements  on  minimum  wages  and  pay  to  the  workers  agreed  minimum 
wages.  

Summary of costs and benefits 

  The  main  benefits  of  the  preferred  package  are  achieved  through  improved 
adequacy,  in  particular  due  to  the  non-binding  reference  value,  and  coverage  of 
minimum  wages,  a  reduced  uncertainty  due  to  improved  frameworks  to  set 
statutory minimum wages as well as strengthened enforcement of minimum wage 
regulations.  

  Workers/Citizens/Consumers - For workers, in particular low-wage earners and 
other  vulnerable  groups  including  women,  the  benefits  will  be  better  protection 
through higher and more adequate minimum wages as well as being covered by 
minimum  wages,  either  collectively  agreed  or  statutory  ones.  Further  benefits 
arrive  from  improved  enforcement  and  compliance  of  minimum  wage  rules, 
reduced  uncertainty  about  future  entitlements,  improved  working  conditions, 
reduced wage inequality, in-work poverty and gender pay gap. In terms of costs, 
workers  could  face  negative  employment  impacts,  but  these  are  expected  to  be 
modest.  Consumers  might  face  higher  prices,  which  would  be  more  than 
compensated for low wage earners by higher minimum wages. 

  Businesses  –  They  will  benefit  from  more  fair  competition  and  a  more  level 
playing field and from reduced uncertainty about wage developments. In addition, 
they  will  benefit  in  terms  of  increased  productivity  as  a  result  of  higher 

106 

 
 
 
 
motivation and engagement of workers. In terms of costs, the businesses can face 
higher  labour  costs,  lower  profits  and  increased  costs  related  to  strengthened 
collective bargaining. 

  Workers’  and  employers’  representative  organisations  –  They  will  benefit 
from  strengthened  collective  bargaining  and  a  stronger  role  in  setting  and 
updating statutory minimum wages. This will entail some cost for social partners 
in  terms  of  capacity  building  and  modest  yearly  costs  for  enhanced  collective 
bargaining  and  involvement  of  social  partners  in  updating  statutory  minimum 
wages.  

  Member  States’  administrations  -  Benefits  for  all  Member  States  are  small 
positive impacts on public budgets via higher tax and contribution revenues. For 
Member  States  with  statutory  minimum  wages,  the  benefits  are  improved 
governance,  transparency  and  clarity  of  minimum  wage  setting.  Those  benefits 
should more than counterbalance administrative costs related to the measures (e.g. 
putting  in  place  a  regulatory  framework  or  enabling  conditions  for  collective 
bargaining  on  wages,  capacity  building,  enforcement,  improving  statutory 
minimum wage setting framework). 

Tables below provide more details on benefits and costs of the preferred option. 

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Comments 

Increased wages for 
minimum wage earners.  

Direct benefits 

Wages of minimum wage earners 
are estimated to increase by 0,4% 
equivalent to EUR 20-23 billion 
(intermediate reference values of 
55% of median wage or 45% of the 
average wage) or 1% equivalent to 
EUR 51-53 billion (highest 
reference values of 60% of median 
wage or 50% of the average wage). 

This effect is a result of all 
actions. Calculations are 
quantified based on simulations 
related to hypothetical minimum 
wage increases to the non-
binding reference value which is 
part of the preferred package. See 
Annex 12.1 for results by 
Member State. 

107 

 
 
 
 
Higher coverage by 
minimum wages. 

Reduced uncertainty 
about future entitlements 
for workers due to 
improved frameworks to 
set statutory minimum 
wages. 

Reduced uncertainty for 
firms about future labour 
costs, better business 
environment, due to 
improved frameworks to 
set statutory minimum 
wages. 

Improved governance and 
participation with stronger 
involvement of social 
partners. 

Improved working 
conditions through better 
access to collective 
bargaining for workers.  

Not possible to quantify. An 
increase in collective bargaining 
coverage can be expected in 
countries without a statutory 
minimum wage with 
comparatively lower current 
coverage. 

Not possible to quantify.  

Not possible to quantify. 

Not possible to quantify. 

Not possible to quantify. 

108 

 
 
 
 
 
 
 
 
 
Reduced wage inequality, 
in-work poverty, and 
gender pay gap. 

Indirect benefits 

Wage inequality is estimated to be 
reduced by 5-6% (8-10%) across 
the EU, in-work poverty by 6-7% 
(11-12%) and the gender pay gap 
by 2% (5%) for intermediate (high) 
reference values. 

A better level playing 
field for firms already 
compliant with minimum 
wage rules due to 
strengthened enforcement 
of minimum wage 
regulations. 

This effect is a result of all 
actions. Calculations are 
quantified based on simulations 
related to hypothetical minimum 
wage increases to the non-
binding reference value which is 
part of the preferred package 
(55% or 60% of the median 
wage). See Annex 12.1 for results 
by Member State. 

Not possible to quantify. 

109 

 
 
 
 
II. Overview of costs – Preferred Package  

Citizens/Consumers  

Businesses 

Administrations 

One-
off 

None  None 

Recurrent 

One-
off 

Recurrent 

One-off 

Recurrent 

None  Costs related to increased 

minimum wages included in 
costs under point (2). 

Possible 
financial burden 
to introduce 
administrative 
reforms. 

Some financial 
burden of actions 
related to capacity-
building of social 
partners. 

None  Costs related to higher min. wages 

None  None 

None  

None  

included in costs under point (2). 

(1) Action 
related to 
collective 
bargaining   

Direct 
costs 

Indirect 
costs 

(2) Action 
related to 
national  
frameworks   

Direct 
costs 

Indirect 
costs 

None  None 

None  Costs for firms of 25% of the 

cost of increased wages, 
amounting to about EUR 5-6 
(13) bn per annum for 
intermediate (high) reference 
values. 

Possible 
financial burden 
to introduce 
administrative 
reforms. 

Some financial 
burden related to 
regular assessment 
of criteria and 
consultation 
activities. 

None 

Indirect cost to consumers of about 
75% of increased wages, or about 
EUR 15-17 (38-40) bn per annum for 
intermediate (high) reference values. 

None  None 

None 

None 

110 

 
 
 
 
(3) Action 
related to 
involvement 
of social 
partners 

None  None 

Direct 
costs 

None 

Indirect 
costs 

Included in the costs under point (2) to 
the extent that these actions contribute 
to more adequate minimum wages. 

None  None 

Direct 
costs 

(4) Action 
related to 
variations  

None 

Indirect 
costs 

Included in the costs under point (2) to 
the extent that these actions contribute 
to more adequate minimum wages. 

None   Costs related to increased 

minimum wages included in 
costs under point (2). 

Possible 
financial burden 
to introduce 
administrative 
reforms. 

Some financial 
burden related to 
regular and timely 
consultations. 

None  None  

None 

None 

None   Costs related to increased 

minimum wages included in 
costs under point (2). 

None 

Possible 
financial burden 
to introduce 
administrative 
reforms. 

None  None  

None 

None 

111 

 
 
 
 
(5) Action 
related to 
enforcement   

Direct 
costs 

Indirect 
costs 

None   None 

None  

Small increase in costs 
related to inspections. 

Possible financial 
burden to introduce 
administrative 
reforms. 

Some financial burden 
related to strengthened 
labour inspectorates or other 
relevant bodies.  

None  None 

None  None 

None 

None 

112 

 
 
Annex 4

  Analytical methods 

This Annex describes methods used in the Impact Assessment. 

A4.1. Summary of studies prepared for this Impact Assessment 

Studies commissioned from external experts: 

  "Indexation  of  statutory  minimum  wage"  by  Diane  Delaurens  and  Etienne 
Wasmer. The study provided a typology and discussion of the indexation systems 
being  used  in  the  EU.  The  study  recommended  to  promote  a  combination  of 
partial  indexation  rules  (based  on  a  fraction  of  inflation  and  a  fraction  of  the 
growth of average real wages, called hard indexation) and periodic discretionary 
changes (that can informally reflect the non-indexed inflation and growth of real 
wages,  called soft indexation). This  combination had the potential to  reduce the 
potential  disconnection  between  minimum  wages  and  productivity  in  periods  of 
negative inflation or increased polarisation. 

  “Effects of statutory minimum wages on small and medium-sized enterprises” by 
Attila  Lindner,  University  College  London.  The  study  summarised  the  key 
theoretical and empirical results on how the minimum wage affects the allocation 
of labour between different types of firms. In particular, the study investigated the 
impact of the policy on small and medium sized enterprises. The report presents a 
description of the key theoretical considerations and summarises the existing but 
limited empirical literature on the topic. 

  “Effects  of  collectively  agreed minimum  wages  in  the Nordic countries” by Per 
Skedinger, Research Institute of Industrial Economics (IFN). The study examined 
the system of collectively agreed minimum wages in Nordic countries, their effect 
on employment, and how they contribute to reducing in-work poverty. 

Eurofound  studies:  Three  country  reports  requested  from  Eurofound  on  the  setting  and 
adequacy of minimum wages as well as related policy debates focusing, respectively, on 
Austria, Italy and Cyprus. 

European  Centre  of  Expertise  (ECE):  A  set  of  expert  reports  on  the  minimum  wage 
setting  systems  of  EU  Member  States  (one  expert  report  for  each  Member  State) 
provided by the European Centre of Expertise (ECE).  

Simulations: Simulations, within the framework of an existing contract, by the OECD on 
incentive effects of minimum wages.  

113 

 
 
 
 
 
 
 Internal studies and other sources: 

  “Macroeconomic effects of minimum wages: Model-based simulations using the 
QUEST model”, by DG ECFIN. This background paper discussed the effects of 
introducing a minimum wage within in a general equilibrium framework. For this 
purpose, we embed a low-wage sector with employer monopsony market power 
into the QUEST  model. The employment effects of minimum  wages  depend on 
the structure of the labour market: In a model calibrated to Germany, a minimum 
wage  of  up  to  17%  above  the  monopsony  case  is  roughly  employment-neutral 
while reducing consumption inequality and wage dispersion. Without monopsony 
market  power,  a  minimum  wage  above 
the  competitive  wage  reduces 
employment.  The  households’  labour  supply  crucially  matters  for  monopsony 
power.  Spill-over  effects  to  other  countries  after  an  introduction  of  minimum 
wages are small. 

  Analytical  inputs  by  the  European  Commission.  In  particular,  microsimulation 
analysis  of  economic,  social  and  fiscal  impacts  of  minimum  wages  has  been 
conducted  by  the  JRC  (see  Section  A4.3  below  for  a  description  of  the 
methodology).  In addition, analysis of the characteristics of minimum wage and 
low-wage earners has been conducted (see Section A4.2 below for a description 
of the methodology). 

  Relevant academic literature, as referred to in footnotes. 

A4.2. Identification of minimum (and low) wage earners  

Analytical work for this impact assessment on minimum wage and low-wage earners has 
been  prepared  by  DG  EMPL  based  on  anonymised  individual  data  from  the  EU-SILC 
and EU-SES surveys.  

Methodology of calculations based on EU-SILC 

Analytical work on the characteristics of minimum wage and low-wage workers are 
summarised in 2.1.3 and, in more detail, in Annex 7. For this work, minimum wage 
earners  are  defined  as  those  employees  with  a  full-time  equivalent  monthly  wage  that 
ranges between 80% and 105% of the statutory minimum wage. Using an income range 
to identify minimum wage earners aims to control for minor errors related to reporting, 
rounding and conversion.  

Full-time  equivalent  monthly  wages  are  obtained  from  the  micro-level  data  of  the 
2017 wave of EU-SILC. The EU-SILC dataset contains detailed information on socio-
demographic  characteristics  and  income  of  individuals  and  households.  The  2017  EU-
SILC  survey  contains  information  on  wages  in  2016.  The  full-time  equivalent  gross 
monthly  wage  is  calculated  by  dividing  the  EU-SILC  variable  of  annual  cash  gross 
earnings (PY010G) by the number of months worked in full-time jobs (PL073) plus the 
number of months worked in part-time jobs (PL074). A weakness of the data is that there 

114 

 
 
 
is a discrepancy between the time period in which the income and the months worked are 
measured  (usually one  year before the survey period) and the time period in  which the 
number of hours worked is measured (survey year). Hence, for individuals for whom the 
working  hours  are  strongly  fluctuating  over  the  two  years,  there  can  be  measurement 
error. The methodology aims to impute hours worked of part-time workers by a country 
and gender-specific factor equal to the ratio of median hours of work in part-time jobs to 
median hours of work in full-time jobs. This methodology has been used in other studies 
on minimum wages (Brandolini et al., 2010; Eurofound, 2019).  

Information on minimum wages in 2018 has been collected from OECD Statistics. 
This  has  been  adjusted  to  be  consistent  with  the  income  data  found  in  the  EU-SILC 
database  which  reflects  2016  prices  and  wages.  In  particular,  the  annual  national 
statutory  minimum  wage  in  2018  was  deflated  by  the  aggregate  hourly  wage  growth 
between 2016 and 2018 obtained from Eurostat [nama_10_a10] to obtain an “adjusted” 
annual  minimum  wage  for  2016.  Hence,  the  “adjusted”  minimum  wage  factors  in  the 
adjustments  to  the  minimum  wage  that  go  beyond  the  aggregate  hourly  wage  growth 
between 2016 and 2018. To obtain the monthly minimum wage for a full-time employee, 
the annual “adjusted” minimum wage is then divided by 12 months. 

While it is possible to identify minimum wage earners in countries with a statutory 
national  minimum  wage,  this  is  not  possible  in  countries  where  minimum  wage 
protection  is  provided  by  wages  set  in  collective  agreements.  This  is  because  of  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.  

Methodology of calculations based on EU-SES  

Low-wage earners are defined as those employees (excluding apprentices) who earn 
two thirds or less of the national median gross hourly earnings. Median gross hourly 
earnings are obtained from the Structure of earnings survey (SES). This survey is carried 
out with a four-yearly periodicity according to Regulation (EC) No 530/1999. The most 
recent available reference year for the SES is 2014. National statistical offices collect the 
information  on  earnings  used 
it  contains  questions  about 
the enterprise and  on  the  individual  employee,  aiming  to  gather  individual  data  on 
earnings and working hours, as well as personal characteristics and characteristics of the 
jobs. The statistics of the SES refer to enterprises employing at least 10 employees in all 
areas of the economy except  agriculture,  forestry and fishing  and public  administration 
and defence.  

the  survey  and 

in 

115 

 
 
 
 
A4.3. Simulations with the Euromod model: Methodological notes  

Results  presented  in  Annex  12  have  been  obtained  by  microsimulation  analysis 
using  the  Euromod  model.  Euromod  is  a  unique  microsimulation  model  for  the 
European Union that allows to assess the 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,  tax  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  the  gross  income  of  each 
individual. The tax-benefit systems simulated in this research refer 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 account 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 this purpose, observed wages and hypothetical 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 hourly 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 whenever they are lower than these in the baseline. 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 
contains  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 
presence  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 

116 

 
 
 
and months of work but not on working hours. For this missing information, we impute 
the  working  hours  by  using  information  on  gender-specific  median  working  hours  and 
workers'  history  of  full-time  and  part-time  employment.197  In  addition,  following  EU's 
Working Time Directive, we cap the working time for which a HMW is assigned to 48 
hours per week. 

A4.4. Estimation of possible employment effects: Methodology 

This  impact  assessment  uses  the  “elasticity  method”  to  estimate  possible  employment 
effects  of  higher  minimum  wages.  It  uses  output  from  the  Euromod  microsimulation 
analysis,  the  methodology  of  which  is  explained  in  the  previous  subsection.  A  similar 
elasticity  approach  was  taken  by  the  US  Congressional  Budget  Office  in  its  recent 
assessment of hypothetical increases in the US federal minimum wage.198 

The  method  relies  on  the  so-called  “own-wage  elasticity”,  which  measures  how 
employment  for  the  group  affected  by  the  minimum  wage  increase  responds  to  an 
increase in the average wage of that group induced by the minimum wage change.199  

The definition of the own-wage elasticity implies that the change in total employment is 
the product of three factors:  

(1) the own-wage elasticity (OWE);  
(2) the estimated percentage increase in the wages of those affected by the minimum 

wage increase (%∆ 𝑊𝑎𝑔𝑒𝑎𝑓𝑓); and  

(3) the share of workers affected by the new minimum wage (𝑆ℎ𝑎𝑟𝑒𝑎𝑓𝑓).  

Expressed in formula, this means that:  

%∆𝐸𝑀𝑃 = 𝑂𝑊𝐸 ∗ %∆ 𝑊𝑎𝑔𝑒𝑎𝑓𝑓 ∗ 𝑆ℎ𝑎𝑟𝑒𝑎𝑓𝑓 

Factors (2) and (3) are outputs of the Euromod microsimulations of various hypothetical 
scenarios.  

In turn, factor (1), i.e. the own-wage elasticity used in this impact assessment is based on 
the  survey  of  the  recent  literature  by  Dube  (2019,  op.  cit.).  Based  on  48  recent 
international  studies  estimating  the  OWE,  including  evidence  on  EU  Member  States, 
Dube  finds  that  the  median  elasticity  found  in  the  literature  is  -0.16.200  This  is  close, 

197  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 Statistical Books, Publications Office of the European Union, 
Luxembourg. 
198  See  Congressional  Budget  Office  (2019):  “The  Effects  on  Employment  and  Family  Income  of  Increasing  the 
Federal Minimum Wage”, Washington. 
199 See an explanation of this concept by Dube, A. (2019): “Impacts of minimum  wages: review of the international 
evidence”,  report  presented  to  the  UK  Low  Pay  Commission,  pp.  26-27.  The  CBO  (2019)  calls  this  concept  “direct 
elasticity”, or the “employment elasticity for all directly affected workers”. 
200 Dube, A. (2019), op. cit., page 50. 

117 

 
 
 
                                                           
although somewhat lower than what was found by the CBO (-0.25), based on a smaller 
selection of 11 studies for the U.S.  

The chosen elasticity of -0.16 means that the minimum wage raises wages of low-wage 
earners much more than its possible negative impact on jobs. For the overall impact of a 
minimum  wage  increase  to  be  negative  on  the  wages  of  low-wage  earners,  the  OWE 
would  need  to  be  lower  than  -1.  Accordingly,  elasticities  between  0  and  -0.4  can  be 
considered as small.201  

Naturally, there is uncertainty around the elasticity used, which is a source of uncertainty 
related to the estimated employment impacts. The elasticity of -0.16 can be viewed as a 
central  estimate,  while  more  optimistic  and  pessimistic  scenarios  could  also  be 
constructed  by  re-scaling  employment  effects  to  reflect  an  alternative  elasticity.  For 
instance,  a  more  pessimistic  alternative  scenario  is  constructed  by  the  CBO  (2019,  op. 
cit.) by assuming that long-term effects of minimum wage increases exceed those implied 
by  the  estimated  short-term  elasticities  by  50%.  This  results  in  a  possible  long-term 
elasticity of -0.375 in the CBO assessment. A more optimistic scenario, in turn, could be 
that  minimum  wage  increases,  especially  at  moderate  levels,  do  not  have  a  negative 
employment effect at all. Such an optimistic scenario could be based on the consideration 
that many of the studies used in the literature surveys focus on specific groups of workers 
such as teenagers, and are not necessarily indicative of the overall impacts of minimum 
wages. Studies focusing on a broader set of low-wage workers, on average, imply smaller 
employment  effects.  In  particular,  “for  the  set  of  studies  that  consider  broad  groups  of 
workers the median OWE estimate is quantitatively close to zero (-0.04)”.202  

to  study 

the  effects  of  minimum  wage 

Alternative approaches to assess the impacts of minimum wages on employment would 
also  be  conceivable.  It  is  possible,  for  instance,  to  use  fully-fledged  macroeconomic 
models  to  do  so.  However,  most  macroeconomic  models  were  not  built,  and  are  not 
increases.  Most 
particularly  suitable, 
macroeconomic  models  have  a  simplified,  “neo-classical”,  labour  market  module  for 
ease of tractability. This implies that wage increases “imposed from the outside” result in 
large job losses by construction. A background paper prepared for this impact assessment 
by  the  European  Commission  (DG  ECFIN)  explores  how  the  employment  effects  of 
minimum  wages  depend  on  the  structure  of  the  labour  market  in  the  Commission’s 
QUEST  model. The paper finds that labour market  structures in  which employers have 
wage setting power are compatible with the notion that minimum wage increases do not 
loss  of  employment  or  economic  activity.203  Calibrating 
result 
macroeconomic models to reproduce the empirical elasticities (such as the OWE of -0.16 

in  significant 

201 Dube, A. (2019), op. cit., page 27. 
202 Dube, A. (2019), op. cit., page 50. 
203  European  Commission  (2019):  “Macroeconomic  effects  of  minimum  wages:  Model-based  simulations  using  the 
QUEST model”, DG ECFIN. See a summary in Section A4.1 above. 

118 

 
 
                                                           
chosen in this impact assessment) would be possible. However, it would by construction 
provide identical results to those calculated here by the elasticity method.  

A4.5. The OECD Tax-Benefit model: Methodological notes 

The OECD TaxBen model204 is a calculator of tax burdens and benefit entitlements for 
working-age families. It covers all EU countries and produces outputs for the years 2001 
to  2019.  It  incorporates  detailed  tax  and  benefit  rules  which  are  validated  by  national 
ministries.205  It  is  consistent  across  countries  and  over  time,  therefore  it  allows 
comparability.  

1.  Use of OECD TaxBen model for computing adequacy indicators 

Adequacy indicators calculated in  this impact  assessment are based on the gross wages 
and net incomes of typical workers earning the minimum wage and other reference wage 
levels (e.g. a percentage of the national average or median wage), and their households. 

The  OECD  TaxBen  model  allows  to  calculate  these  gross  and  net  in-work  and  out-of-
work  incomes  for  these  selected  typical  working-age  families.  In  particular,  the  model 
has been used to  compute gross wages and net  incomes which are the denominators of 
some minimum wage adequacy indicators. In particular: 

  Gross wages are expressed as a percentage of the average wage.206 
  Net  wages  are  gross  wages  plus  cash  benefits207  minus  income  taxes  and  own 
social security contributions. Any taxes or contributions not paid directly by the 
wage  earner  or  benefit  recipient  are  not  included  in  gross  wages  (and  not 
deducted to arrive at net incomes).  

The model allows these indicators to be calculated for multiple household types. In this 
impact  assessment  most  indicators  presented  refer  to  single  childless  adult  households, 

204  The  OECD  TaxBen  model  and related  analytical  reports  have  been  produced  with  the  financial  assistance  of  the 
European Union Programme for Employment and Social Innovation “EaSI” (2014-2020). For more information, see: 
https://www.oecd.org/social/benefits-and-wages  as  well  as:  http://www.oecd.org/els/soc/OECD-Tax-benefit-model-
Overview.pdf. 
205  All  tax  and  benefit  amounts  are  computed  using  the  rules  and  regulation  that  were  in  force  on  1  January  of  the 
relevant year. 
206 Average wages used by the OECD TaxBen model are calculated, where available, for Sectors B to N (ISIC Rev. 4 
industry classification). Data relate to the average earnings for the country as a whole. The worker is an adult (male or 
female)  worker  in  the  covered  industry  sectors,  including  both  manual  and  non-manual  workers.  The  worker  is 
assumed to be fully employed during the year, although several countries are unable to separate and exclude part-time 
workers from the earnings figures (in most of these cases, full-time equivalent wages are reported). Annual earnings 
are calculated by referring to the average of hourly earnings in each week,  month or quarter, weighted by the hours 
worked during each period, and multiplied by the average number of hours worked during the year, assuming that the 
worker is neither unemployed nor sick and including periods of paid vacation. A similar procedure is used to calculate 
overtime  earnings.  Earnings  are  assumed  to  include  average  amounts  of  overtime  and  regular  cash  supplements 
(Christmas bonuses, thirteenth month payments and vacation month payments). Regular annual bonuses are included 
where they do not take the form of dividend payments. Fringe benefits are excluded.  
207  Cash  benefits  considered  include  unemployment  insurance,  unemployment  assistance,  social  assistance,  family 
benefits  and  lone-parent  benefits,  housing  benefits,  child-raising  allowance  paid  to  parents  assuming  childcare 
responsibilities for their own children and employment-conditional (or “in-work”) benefits.  

119 

 
 
 
                                                           
 
but  some  indicators  have  been  calculated  also  for  other  household  types  as  robustness 
checks.  These  household  types  include  single-earner  and  dual-earner  couples  with  and 
without children.  

2.  Use  of  OECD  TaxBen  model  to  simulate  the  impact  of  minimum  wage 

increases on work incentives 

Because of its focus on policy mechanics, the OECD TaxBen model is particularly suited 
for studying how tax-benefit and wage policies work and interact with one another in the 
context  of  policy  design  and  policy  assessment.  It  can  be  used  conveniently  for 
simulating  the  impact  of  a  policy  reform  on  a  number  of  indicators,  such  as  work 
incentives indicators and net incomes.  

In this impact assessment, ad-hoc simulations done by the OECD have been conducted to 
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 couple with two children.  

A4.6. Collective bargaining coverage: data issues 

Existing  information  on  collective  bargaining  coverage  is  based  on  a  variety  of 
sources, but the information is incomplete. More precise information could be useful, 
also in the Member States where minimum wage protection is provided by wages set in 
collective  agreements,  for  governments  and  in  particular  social  partners  to  be  able  to 
have a thorough assessment of the situation of low-wage workers. 

Collective  bargaining  coverage  is  generally  used  as  an  indicator  of  the  share  of 
workers protected by wages set in collective agreements in Member States without a 
statutory  minimum  wage.  The  primary  sources  of  this  information  is  the  ICTWSS 
database  of  the  University  of  Amsterdam,208  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  are  not  available.  One 
limitation of this type of information is that not all collective agreements set wages.   

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 

208  For  a  description  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. 

120 

 
 
 
                                                           
in  the  primary  data  sources.209  Still,  as  about  95%  of  Italian  enterprises  are  small 
companies  with  9  employees  or  less,210  these  surveys  are  thought  to  overestimate  the 
economy-wide coverage. 

Various  surveys  have different  advantages  and  disadvantages.  An  important  source 
of  information,  the  EU  Structure  of  Earnings  Survey  (EU-SES)  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 important 
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.211 Small companies are also less likely to 
be covered by collective agreements. 

A4.7. Average and median wages: statistical issues 

This  Impact  Assessment  relies  on  newly  compiled  data  by  Eurostat  to  compare 
minimum  wages  to  median  and  average  wages.  This  is  a  methodological  change  as 
compared to previous documents which relied on OECD data.212  

Both the average and the median wages are calculated based on earnings surveys. In 
particular, the latest available wave of the Structure of Earnings Survey (SES, referring to 
2014  earnings)  has  been  used  to  extrapolate  median  and  average  wages  in  2019.  The 
derived medians and means have been extrapolated using the wage component of labour 
cost index (LCI) data, published in the dataset ‘lc_lci_r2_a’ of Eurobase. The final ratios 
have  been  calculated  as  the  monthly  gross  minimum  wage  in  force  on  1  July  2019 
divided by the median / mean monthly earnings estimated for the reference year 2019. 

The basis of the calculations are monthly gross earnings in national currency. These 
include  non-regular  revenues  such  as  bonuses  and  overtime.  The  corresponding  figures 
are published in the dataset ‘earn_ses_monthly’ of Eurobase.  

The  indicators  shown  in  this  impact  assessment  are  based  on  the  earnings  of  full-
time workers, similarly to the definition of the OECD. This ensures consistency with 
the  most  widely  used  existing  indicators  which  have  shaped  the  views  of  stakeholders. 
An  alternative  version  of  the  data  covers  part-time  workers  (converted  into  full-time 
equivalents).  Part-time  workers  generally  earn  less  than  full-timers,  even  on  an  hourly 

209 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 imprese esportatrici, mercato del lavoro e 
contrattazione integrativa” – Report intermedio, (last consultation on 2 September 2019), p. 105-106.] 
210  ISTAT  (2018).  Annuario Statistico  Italiano 2018,  vol.  14  –  Imprese,  https://www.istat.it/it/files//2018/12/C14.pdf 
(last consultation on 2 September 2019), p. 488. 
211Eurostat, 
explained/index.php/Structural_business_statistics_overview#Size_class_analysis 
212 Previous documents include the analytical document accompanying the second-stage consultation of social partners, 
published on 3 June 2020. 

https://ec.europa.eu/eurostat/statistics-

overview, 

Structural 

statistics 

business 

URL: 

121 

 
 
 
                                                           
basis.  This  means  that,  in  countries  with  a  high-share  of  part-time  workers  (e.g., 
Germany and the Netherlands), their inclusion increases the Kaitz ratios (Graph A4.1). 

Graph A4.1: Minimum wages, expressed as a percentage of the gross median wage, 

2019 – full-time workers only and part-time workers included 

Source: Eurostat. 

A4.8. Dissemination of statistical data for the UK  

The  dissemination  of  data  within  this  Impact  Assessment  follows  the  Eurostat 
guidelines  for  the  production  and  dissemination  of  statistical  data  by  Commission 
services  after  the  UK  leaves  the  EU.  In  particular,  in  all  the  graphs  displaying  data 
covering  a  period  prior  to  the  year  2020,  the  UK  data  are  published  but  are  placed 
immediately  after,  but  separate  from,  the  27  Member  States.  These  data  are  presented 
only for illustration. 

It  should  be  noted  that  the  UK  data  have  been  excluded  from  all  the  analysis  and 
simulations performed for the purpose of this report.  

122 

 
 
 
 
Annex 5

   Visualisation of the problem tree and the intervention logic 

Graph A.5.1: The problem tree 

123 

 
 
 Graph A.5.2: The relationship between areas of action and specific objectives  

(a) Systems where minimum wage protection is provided by collective agreements 

(b) Systems with a statutory national minimum wage 

Note: This graph is the counterpart of Graph 3 in the main text. While Graph 3 focuses on the links 
between the internal drivers and the aspects of the problem, this graph’s focus are the links between the 
corresponding areas of intervention and specific objectives. 

124 

 
 
 
 
 
Annex 6

  Minimum wage setting systems in the 
EU  

Minimum wage protection can be provided by collective agreements or by statutory 
minimum  wages  set  by  legislation.  This  section  provides  an  overview  of  existing 
institutional settings.  

A6.1. Minimum wage protection provided by collective agreements   

In  six  Member  States  (Austria,  Cyprus,  Denmark,  Finland,  Italy,  and  Sweden) 
minimum  wage  protection  is  provided  by  wages  set  in  collective  agreements. 
Usually,  these  agreements  are  concluded  at  the  sectoral  level.  In  Cyprus,  wages  set  in 
collective agreements for certain occupations coexist with statutory minimum wages set 
for other occupations.  

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  agreements.  National  traditions  of 
collective  bargaining  vary  considerably.  In  Denmark,  firms  with  collective  agreements 
are  obliged  by  law  to  apply  the  agreement  to  all  workers,  regardless  of  union 
membership.  In Sweden, a double  affiliation  principle213  applies.  In Austria, employers 
are mandatorily members in the relevant employers’ association; they are thus obliged to 
implement  the  collective  agreements.  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 and to  their employees. Although 
formal  extension  mechanisms  do  not  exist  in  Italy,  case  law  and  practice  have 
systematically  extended  coverage  to  non-unionised  workers.  The  rest  of  this  section 
provides  more  detail  on  the  existing  systems  in  countries  where  minimum  wage 
protection is provided by wages set in collective agreements. 

Wages  set  in  collective  agreements  are  generally  the  outcome  of  bipartite 
negotiations  by  social  partners.  Since  they  can  be  agreed  at  various  levels  (national, 
sectoral,  regional  or  firm  level),  the  number  of  co-existing  agreements  can  be  high. 
Agreements can, and often do, provide for quite complex pay schedules differentiated by 
occupation, age, seniority, region and other dimensions. 

In  Austria,  minimum  levels  of  pay  are  set  as  part  of  social  partners’  collective 
agreements  (CAs)  at  the  sectoral/industry  level.  Wages  set  in  collective  agreements 
are legally binding for all companies in a given sector or industry as, by law, employers 
hold  a  mandatory  membership  of  the  relevant  employers’  association  (WKO).  In  the 

213 Both the employer and the employee need to be members of the signatories of the collective agreement. 

125 

 
 
 
                                                           
public  sector,  collective  bargaining  forms  the  basis  for  legal  acts  updating  wages.  The 
Federal  Conciliation  Office  can  also  set  legal  wages  for  some  groups  not  covered  by 
CAs.  Moreover,  social  partners  at  the  peak  level  have  in  recent  years  set  framework 
agreements  on  raising  wages  across  all  sectors  while  pay-related  bargaining  between 
local  trade  unions  and  individual  companies  is  confined  to  questions  of  working  time, 
leaves and other entitlements in most cases.  

Cyprus has a mixed wage setting system that combines collective bargaining with a 
statutory minimum wage for a few occupations. Collective Agreements are not legally 
binding. In addition, minimum wages for selected occupations with “unreasonably low” 
salaries are regulated by ministerial decree, which, up until 2012 was updated following 
non-binding social partner consultations but has been frozen since then. 

In Italy, wages set in collective agreements are set by two-tier collective agreements 
at  the  sectoral  and  company/territorial  levels,  regulated  by  civil  law.  No  legal 
extension of collective agreements exists. The case law and national traditions have led 
companies  to  apply  collective  agreements  to  non-unionised  workers  too.  Wage  setting 
occurs  primarily  at  the  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 benefits and incentives. 

In Denmark, wages set in collective agreements are  based on collective bargaining 
conducted  voluntarily  by  the  social  partners.  There  is  no  legal  extension 
mechanism. Collective agreements that include wages are binding for both workers and 
companies.  There  are  three  wage  setting  systems:  In  the  “standard-wage  system”, 
sectoral  CAs  in  the  public  and  parts  of  the  private  sector  determine  wage  levels  with 
strict constraints on local bargaining. Other sectoral CAs in the private sector allow for 
workplace-level  negotiations,  either  setting  a  wage  floor  for  young/inexperienced 
workers  and  requiring  individual  supplements  or  without  wage  and  only  serving  as  a 
safety net to local negotiations. The state supports dispute resolution through the Official 
Conciliator and the Labour Court. 

In  Finland,  wages  set  in  collective  agreements  are  encompassing  thanks  to  a  legal 
“erga  omnes”  extension  set  by  law.  This  extension  mechanism  extends  CAs  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  applicability,  the  law  still  requires  wages  to  be  “usual  and 
reasonable”, which can be based on social partners’ recommendations. 

In  Sweden,  two-tier  collective  bargaining  sets  wages  in  collective  agreements 
primarily  at  the  industry/sectoral  level,  leaving  company-level  discretion  in 
practice.  Industry/sectoral  CAs  apply  with  binding  force  to  both  unionised  and  non-
unionised workers in the companies/organisations of a signatory employers’ association. 

126 

 
 
There is no legal extension mechanism for non-covered enterprises. The state’s function 
is  to  provide  the  legal  basis  for  the  negotiations  of  the  social  partners,  assigning  social 
partners  broad  rights,  and  supporting  enforcement  and  dispute  resolution  through  the 
National Mediation Office and the Labour Court. 

A6.2. Minimum wages set through legislative provisions  

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  (indexation)  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 
number of countries. Table A6.1 provides a summary of various minimum wage setting 
systems, while Table A6.2 provides an overview by country.  

Table A6.1: 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 

In 6 of the 21 countries (Belgium, France, Luxembourg, Malta, the 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 six countries, 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.   

127 

Gov't following the recommendation of MW specialised bodyGov't following  a tripartite decision making processGov't extends collective agreements by legislationDEBGPTLT 'BE*BECZATELESSI*PLEEFRCYIEHRROSKLUDKFR*HUMTFILVNLIT MT*SISEStatutory minimum wageMinimum wage setting relying on collective bargainingInstitutionalised decisionsAutomatic IndexationNon-institutionalised decisionsGov't following bilateral/tripartite  non-binding consultations process 
 
 
 
In  Germany,  Greece,  and  Ireland,  the  process  of  minimum  wage  setting  is  led  by  a 
minimum  wage  specialised  body.  In  these  countries,  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  Lithuania,  Poland  and  Slovakia,  the  minimum  wage  setting  system  takes  place  in  a 
structured tripartite system in which if an agreement is reached through the consultation 
process, then this is binding. 

In Belgium and Estonia, changes to the minimum wage are decided bilaterally between 
the social partners through collective agreements; the agreements are then extended into 
legislation by the government.  

In  many  Member  States,  the  government  makes  a  decision  about  minimum  wage 
updates  after  an  institutionalised  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, Latvia, 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,  social  partners  provide  non-
binding  recommendations;  the  government  can  set  the  minimum  wage  unilaterally.  In 
Czechia, 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.  

128 

 
 
 
 
Table A6.2: Summary of statutory national minimum wage setting systems 

129 

MSFrequency of updatesTimeliness of updatesSP InvolvementBEAutomatic 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 yearDiscretional changes: Bi-annual In practice: entry into force (July) SPs negotiate MW in binding collective bargaining agreements (still Gov discretion to adapt rules)BGNo criteria specified by lawTarget (in practice): MW level based on a fixed target level from Mid-Term Budget Forecast by the Ministry of FinanceNot specifiedNot specifiedSPs consulted in National Council for Tripartite Cooperation on non-binding basisCZList of criteria  defined by law. Adequecy target used in  practiceCriteria : wages and consumer price developments by law plus labour market developments in practice                                  Target: MW = 40% of average wagesAnnual, in practiceEntry into force (January) by lawNo involvement of SPs foreseen by law, unilateral decision by Gov possibleDECriteria defined 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)EENo criteria  defined by law but used in practice              Adequecy target used in  practiceCriteria: Δ MW = 2* Δ labour productivity Targets: lower limit: 40% of the projected national average wage; upper limit: 2* projected Δ real GDP growthAnnual, in practiceIn practice: entry into force (January) SPs negotiate MW in binding collective bargaining agreements (still discretion to increase)IEList of criteria  defined 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)ELList of criteria  defined 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 recommendationESList of criteria  defined 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 basisFRAutomatic 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                                                   Discretional change based on expert opinion and social partners agreement Annual, 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)HRList of criteria  defined by lawBroad economic conditions (e.g. unemployment and employment), prices (inflation), wages and incomesAnnual, by lawDetailed calendar, by lawSPs consulted directly by Gov on non-binding basisLVList of criteria  defined 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 
 
 
 
 
130 

MSFrequency of updatesTimeliness of updatesSP InvolvementLTList of criteria  defined by law.                      Adequecy target used in  practiceCriteria: Broad economic situation Target: average to minimum wage at 45-50%Annual, 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 agreementLUAutomatic indexation (prices), by practiceAutomatic indexation: if CPI  + or -2.5% over last 6mDiscretional change based on economic conditions and wage developmentsIn practice: Automatic indexation every 6mBy 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 GovHUList of criteria  defined by lawBroad economic and labour market situationAnnual, by lawIn practice: start of the process (second half of the year) SPs consulted in National Economic and Social Council on non-binding basisMTAutomatic 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 basisNLAutomatic indexation (wages)  plus discretional changes, by lawAutomatic indexation: 50% of wage growth (collectively bargained) + Δ predicted wage growthDiscretional 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)PLList of criteria  defined by lawBroad economic and labour market situation (e.g. labour productivity), prices, wages and incomes                                                         Target: average to minimum wage at 50%Annual (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 agreementPTList of criteria  defined 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 basisRONo criteria  specified by lawNot specifiedNot specifiedNot specifiedSPs consulted in National Tripartite Council for Social Dialogue on non-binding basisSIAutomatic indexation (prices)  plus discretional changes, by lawAutomatic indexation: to costs of living (min +20 % / max +40%) + taxes and social securityDiscretional 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 basisSKList of criteria  defined by lawBroad economic and labour market situation (e.g. employment), prices, wages and incomes:Annual, by lawDetailed calendar, by lawSPs negotiate binding recommendations in triparte Economic and Social Council (+ bilaterally), but unilateral Gov decision if no agreementUpdate mechanism 
 
 
 
 
 
Annex 7

  The profile of minimum wage earners 

A7.1. 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  education,  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  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 
wages  set  in  collective  agreements.  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.  Many  of  these 
workers 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 A7.1).   

Graph A7.1: 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 wages set in collective agreements. 
Source: European Commission based on EU-SILC 2017 for the Member States with a statutory minimum wage. 

The “typical” minimum wage earner in most Member States is older than 25 years, 
has  upper  secondary  education,  is  living  in  a  couple  and  is  predominantly  female 
(see  Graph  A7.2  (a)).  Although  young  workers  have  a  higher  likelihood  to  earn  the 

131 

 
 
 
 
minimum wage than other age groups, they do not represent the majority of the minimum 
wage earners (Graph A7.3 (a)), since young workers represent a relatively small share 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  of 
young workers is higher in the Netherlands and Malta, close to one in four.  

Graph  A7.2:    The  probability  of  being  a  minimum  wage  earner,  by  major 
individual and job characteristics in the EU, in percent, 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. 

132 

 
 
 
 
 
 
 
The majority of minimum wage earners are women, but the gender gap varies across 
Member States: being a woman doubles the likelihood of being a minimum wage earner 
in  Czechia,  Germany,  France,  Croatia,  the  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 A7.3 (b)).  

The  majority  of  minimum  wage  earners  are  medium-skilled  in  most  countries 
(Graph A7.3 (c)), despite the fact  that low-skilled workers have a higher probability of 
earning the minimum wage (see Graph A7.2 (a)). 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 is low-qualified in Portugal, Luxembourg and Malta. In turn, there is a relatively 
high  share  (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 (see Graph A7.2 (b)), but in most countries the majority of minimum wage 
earners work in standard jobs (Graph A7.3 (e) and (f)). This is because the share of 
temporary and part-time workers is low in the overall workforce. 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. 

Single  parents  have  a  relatively  high  probability  of  being  minimum  wage  earners 
(Graph A7.2 (b)). Nevertheless, most minimum wage earners live in households with at 
least  two adults, including a similar share of couples with  and without children (Graph 
A7.3 (d)). As in other cases, this is because of the relatively low share of single parent 
households among all households. 

133 

 
 
Graph A7.3: Characteristics of minimum wage earners by Member State (% of the 
MW earners), 2017 

(a) Age  

(b) Gender 

(c) Education level 

134 

 
 
 
 
 
(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 Commission calculations based on EU-SILC 2017. 

135 

 
 
 
 
 
 
A7.2. Where do minimum wage earners live and work? 

Workers  in  less  densely  populated  areas  have  a  somewhat  higher  chance  of  being 
minimum  wage  earners  but  the  differences  between  types  of  regions  are  small 
overall.  On average across  all 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 other 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 States  (Graph A7.4). 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 A7.4: 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 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. 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  distribution  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  A7.5).  Regions  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.   

136 

 
 
 
 
 
Graph A7.5: 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 Commission 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 A7.6). 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 minimum wage earners in 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 A7.7 (a)).   

137 

 
 
 
 
 
Graph A7.6: 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 A7.7 (a)), but it 
is  particularly  high  in  the  food  and  accommodation  sector,  about  twice  as  high  as  in 
services in general (see Graph A7.7 (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,  Luxembourg,  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 context of the discussions about labour mobility in 
the EU,214 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 Member States where this share is high: it is above 
15% in Luxembourg, Portugal and Romania (Graph A7.7 (c)). At the same time, while in 

214  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. 

138 

 
 
 
                                                           
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 be minimum wage earners than workers in the public sector in general, 
except in Estonia and Hungary.  

Graph A7.7: 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 

139 

 
 
 
 
 
 
(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 Commission calculations based on EU-SILC 2017.  

SMEs  comprise three  different categories of enterprises, namely  micro-enterprises 
(less  than  10  employees),  small  enterprises  (between  10  and  49  employees)  and 
medium-sized  enterprises  (between  50  and  250  employees).215  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 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  (Graph  A7.8). 
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.  

215    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.  

140 

 
 
 
                                                           
Graph A7.8: 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.  

141 

 
 
 
 
 
Annex 8

  Problem definition: Additional 
information 

A8.1. Adequate minimum wages protect low-wage earners 

Evidence  shows  that  minimum  wages  help  reduce  wage  inequality,  through  two 
effects.216 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, minimum wages also have “spill-over effects” on higher 
wages,  further  reducing  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.217 Research 
indicates  that  minimum  wages  reduce  wage  inequality  both  across  EU  Member  States 
and  in  the  US.218  Between  2006  and  2014,  the  share  of  low-wage  earners  rose  from 
16.7% in 2006 to 17.2% in 2014, with significant variation across Member States (Graph 
A8.1).  

Graph A8.1: Share of low-wage earners, 2006-2014 

216 Impacts on in-work poverty have been demonstrated both for EU Member States and in the US. 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  contribution  of  the  minimum  wage  to  US  wage  inequality  over  three  decades:  A  reassessment”,  American 
Economic Journal 8(1): 58–99. 
217  European  Commission  (2018):  “Labour  market  and  wage  developments  in  Europe,  Annual  Review  2018”, 
Directorate-General for Employment, Social Affairs and Inclusion, pp. 134-135.  
218 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  contribution  of  the  minimum  wage  to  US  wage  inequality  over  three  decades:  A 
reassessment”, American Economic Journal 8(1): 58–99. 

142 

 
 
 
 
 
                                                           
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 
employees.  
Source: Structure of Earning Survey [earn_ses_pub1s]. 

Graph A8.2:  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). 

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  poverty  are  related  to  the  composition  of  families. 
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  the  income  protection  provided  by  minimum 
wage  policies.219  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.220 In particular, previous analysis by the European Commission has found that a 
10%  increase  in  the  minimum  wage  would  reduce  aggregate  poverty  in  almost  all 
Member  States.221  Recent  academic  research  confirms  the  redistributive  effect  of 
minimum wages, taking into account second-round macro-economic effects, including on 
consumer prices.222  Finally, minimum wages may also  contribute to  a better safety and 
security  of  workers,  notably  insofar  as  an  adequate  minimum  wage  would  avoid 

219  For  an  overview  of  this  issue,  see  Brown,  C.  (1999):  “Minimum  wages,  employment  and  the  distribution  of 
income”, in: Ashenfelter O. and D. Card (eds.): Handbook of Labor Economics, Volume 3, Chapter 32.  
220 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. 
221  European  Commission  (2016):  “Labour  market  and  wage  developments  in  Europe:  Annual  Review  2016”, 
Directorate-General for Employment, Social Affairs and Inclusion, Section II.1.4. 
222 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. 

143 

 
 
 
 
                                                           
situations where workers have to cumulate several jobs or work extensive hours to make 
ends meet. 

Graph A8.3: 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]. 

A8.2. Adequacy of minimum wages: Additional indicators and analysis  

Minimum wage adequacy has two main dimensions. First, their fairness with respect 
to the wages of other workers in the same country and, second, their capacity to provide 
workers  with  a  decent  standard  of  living,  relative  to  the  income  of  other  groups  or  in 
absolute  terms.  Various  indicators  aim  to  measure  these  aspects  of  minimum  wage 
adequacy. Some adequacy indicators compare gross minimum wages to the gross median 
or  average  wage.  These  comparisons  allow  assessing  whether  a  minimum  wage  is  fair 
compared  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 following sections present a series of indicators, related 
to both dimensions of adequacy.  

In addition, in a number of Member States,  minimum wages also  fall short of the 
standard of decent living defined by the Council of Europe. 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  monitoring Committee (European Committee of Social Rights) proposed that wages 
should be at least 60% of national average net earnings, with a secondary target of 50%. 
The take-home pay of single workers earning the minimum wage is below 50% of the net 

144 

 
 
 
 
 
average  wage  in  Hungary,  Greece,  Malta,  Bulgaria,  Germany,  Estonia,  Czechia, 
Romania,  Latvia  and  Poland  and  below  60%  (but  not  below  50%)  in  Croatia,  Ireland, 
Slovakia,  Lithuania,  Luxembourg,  Portugal,  Spain,  the  Netherlands  and,  to  a  small 
degree, Slovenia (Graph A8.4).  

An  additional  variant of this indicator shows the take-home pay of single workers 
earning  the  minimum  wage  as  a  share  of  the  national  median  net  earnings.  This 
latter is below 50% in Germany, Malta and Greece and below 60% (but not below 50%) 
in Estonia, Czechia, Hungary, Latvia, Poland, Ireland and Croatia (Graph A8.4).  

Graph A8.4: Net minimum wage over net average wage and net median wage, 
single childless person not entitled to social assistance and housing benefits, 2019 

Source:  European  Commission  calculations  based  on  OECD  TaxBen  model.  Comparable  wages  set  in  collective 
agreements  in  Member  States  without  statutory  minimum  wages  (marked  by  *)  were  taken  from  Eurofound  (2020): 
Minimum wages in 2020 – Annual Report. 

Minimum wages interact with other policies, including taxes and benefits, to affect 
the  living  standards  of  minimum  wage  earners.  Personal  income  taxes  and  social 
security  contributions  can  significantly  reduce  the  take-home  pay  of  minimum  wage 
earners. Evidence shows that over the last decade (2008-2019), reforms of the tax-benefit 
system  tended  to  reduce  income  inequality  and  the  at-risk-of-poverty  rate.223  In 
particular,  the  total  tax  wedge224  at  the  minimum  wage  level  is  relevant  for  ensuring 
adequate  income  support  to  minimum  wage  workers  and  their  families  but  also  for 
avoiding a too high burden on employers, which can result in job losses. The tax wedge 

223 European Commission (2019): LMWD 2019 Report, DG EMPL; available at:  https://op.europa.eu/en/publication-
detail/-/publication/439aaf5c-0435-11ea-8c1f-01aa75ed71a1/language-en/format-PDF/source-119740004 
224 The tax wedge is defined as the sum of personal income taxes and social security contributions paid by employees 
and employers, divided by total wage cost. This indicator can be evaluated at various wage levels. 

145 

 
 
 
 
                                                           
level on minimum wage earners as well as the distribution of burden between employees 
and employers vary significantly in  the EU. The  tax wedge ranges from below 20% of 
the  total  wage  cost  in  Ireland,  France  and  the  Netherlands  to  45%  in  Hungary  (Graph 
A8.5). Romania is the country with the highest tax burden on employees while Estonia 
and Czechia have the highest burden on employers.  

Graph A8.5: The tax wedge at the minimum wage and its components, 2019 

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

E
I

R
F

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V
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P

K
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G
B

O
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Z
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I
S

E
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U
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*
Y
C

*
T
I

*
I
F

*
K
D

*
T
A

*
E
S

K
U

Effective tax burden on the employer, as a % of total wage cost
Effective tax burden on the employee, as a % of total wage cost
Total tax wedge

Note: * Comparable wages set in collective agreements in Member States without statutory minimum wages (marked 
by *) were taken from Eurofound (2020): Minimum wages in 2020 – Annual Report. 
Source: Commission calculations based on OECD TaxBen data. Total wage cost is evaluated for a single worker with 
no children.  

The distance between the net minimum income225 and the net minimum wage as a 
share  of  the  median  disposable  household  income  is  a  measure  of  financial 
incentives to seek a job. These depend on how much income an individual loses as he or 
she moves from inactivity (being eligible for minimum income benefits) to a job which 
pays  the  minimum  wage.226  Therefore,  it  is  beneficial  to  set  minimum  wages  and 
minimum  income  benefits  in  a  coordinated  way  in  order  to  maintain  work  incentives, 
while improving their impact on poverty reduction. In particular, if minimum wages are 
set at too low levels as compared to the attainable benefits, they risk becoming irrelevant 
as  firms  may  have  to  offer  higher  wages  to  attract  workers.  In  some  countries  (Malta, 

225 In line with indicators agreed by the EU Social Protection Committee  
(https://ec.europa.eu/social/main.jsp?catId=758)  for  minimum  income  benchmarking,  minimum  income  levels  are 
identified based on the OECD TaxBEN model (http://www.oecd.org/social/benefits-and-wages/). This model refers to 
minimum  income  benefits  as  cash  benefits  “that  aim  at  preventing  extreme  hardship  and  employ  a  low-income 
criterion as the central entitlement condition”.  
226 To be noted that the comparison between minimum income schemes and minimum wages is not the only possible 
comparison  relevant  for  the  incentive  effects  of  minimum  wages.  In  particular,  not  all  people  who  might  consider 
taking  up  a  minimum  wage  job  receive  minimum  income  benefits.  People  in  other  circumstances  include  those  on 
unemployment or disability benefits or those not eligible for the minimum income benefit (e.g. because their partner is 
working). 

146 

 
 
 
 
                                                           
Luxembourg,  Germany,  the  Netherlands  and  Ireland),  minimum  income  and  minimum 
wage levels are close to each other and therefore work incentives may be weak in some 
cases (Graph A8.6).227 In other countries (Romania, Greece and Portugal), the difference 
between  the  minimum  income  benefit  and  the  minimum  wage  is  high,  suggesting  that 
minimum  income  schemes  may  not  be  effective  as  income  replacement  systems.  In 
addition,  across  all  Member  States  but  Ireland,  and  the  Netherlands,  single  childless 
people  receiving  the  minimum  income  are  generally  at  risk  of  poverty  meaning  that 
minimum income schemes usually do not lift recipients out of poverty.  

Graph  A8.6:  Net  household  income  of  a  single  childless  person  receiving  the 
minimum income or earning the minimum wage relative to the  median disposable 
household income, 2018 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

e
m
o
c
n

i

l

i

n
a
d
e
m
e
b
a
s
o
p
s
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d
f
o
%

U
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E
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T S
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A

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D

K
U

minimum income / median income
minimum wage / median income
poverty line

Note: The single childless minimum income earner considered in the Graph is entitled to housing benefits (if available) 
which top-up the social assistance benefits. The single minimum wage worker is not entitled to social assistance and 
housing  benefits.  *Figures  for  countries  that  do  not  have  a  statutory  minimum  wage  in  place  refer  to  comparable 
collective agreements and are provided by Eurofound. 
Source: Own calculations based on OECD TaxBen model. Median incomes are based on Eurostat flash estimates for 
BE, DE, ES, FR, IE, LT, LU, MT, PT, SK, UK, CY and IT. For all other countries, official Eurostat median incomes 
have been used. 

A large proportion  of  minimum wage workers  say they find it hard to  make ends 
meet;  however,  there  is  a  wide  difference  across  countries.  The  proportion  of 
minimum  wage  workers  who  find  it  difficult  to  make  ends  meet  ranges  from  6%  in 
Denmark  and  above  10%  in  the  Netherlands  and  Austria  to  proportions  near  or  above 
50% in Croatia, Cyprus, Bulgaria and Greece (see Graph A8.5). 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 

227 The graph reflects the situation for single childless families. Clearly, the variation in minimum income benefits with 
family size play an important role for determining work incentives. 

147 

 
 
 
                                                           
 
 
 
 
 
the 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  A8.7:  Proportion  of  minimum  wage  workers  who  find  it  difficult  to  make 
ends meet, 2018 

Denmark 6.0%
Finland 6.0%
Sweden 8.2%
Germany 6.3%
Austria 12.7%
Netherlands 11.7%
Estonia 14.0%
Malta 19.8%
Czechia 24.0%
Slovenia 23.1%
Poland 22.2%
Belgium 28.7%
France 24.6%
Lithuania 24.5%
Luxembourg 27.8%
Spain 26.8%
Romania 31.5%
Italy 33.6%
Portugal 37.5%
Latvia 40.7%
Hungary 40.3%
Croatia 54.9%
Cyprus 58.1%
Bulgaria 55.4%
Greece 84.9%

[CELLRANGE] 

[CELLRANGE] 
[CELLRANGE] 

2% 
3% 
4% 
[CELLRANGE] 
4% 
8% 
8% 
10% 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

13% 

[CELLRANGE] 

19% 
19% 
20% 
21% 
21% 
21% 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 
[CELLRANGE] 

23% 
23% 

[CELLRANGE] 

[CELLRANGE] 

29% 

[CELLRANGE] 

31% 

[CELLRANGE] 

[CELLRANGE] 
35% 
36% 
37% 

[CELLRANGE] 

[CELLRANGE] 

50% 

[CELLRANGE] 

52% 
52% 

[CELLRANGE] 

[CELLRANGE] 

81% 

[CELLRANGE] 

Lower and upper confidence bands

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’. 
Minimum wage earners. As these estimates are based on a sample, the lower and upper confidence bands indicate the 
range  within  which  the  true  value  lies  at  a  95%  confidence  level.  For  some  countries,  this  interval  can  be  relatively 
large, due to smaller samples. Caution should therefore be exerted when interpreting and comparing these figures.  
Source: Eurofound calculations based on the EU-SILC 2018.  

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 lowest and highest statutory minimum wages is about one to three 
(Graph A8.8). Wages set in collective agreements for low-paid occupations in countries 

148 

 
 
 
relying  on  collective  bargaining  are  comparatively  high  when  compared  to  statutory 
minimum wages in other countries.228 

Graph  A8.8:  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 wages set in collective agreements 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. 

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  A8.9  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)  the  minimum  wage  significantly  lagged  behind  labour  productivity.229  In  a  few 
other countries (Belgium, Croatia, France, Greece, and Luxembourg), the minimum wage 
lagged  behind  productivity  growth  to  a  small  degree.  In  the  other  Member  States,  the 
minimum  wage  grew  faster  than  productivity,  especially  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.  

228 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. 
229 In the case of Ireland, this is partly due to statistical reasons, i.e. an upward revision of GDP in 2015. 

149 

 
 
 
                                                           
 
Graph A8.9: 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. 

Developments in the previous 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  A8.10).  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 lagged behind productivity in some Western European 
Member  States,  in  particular  in  the  Netherlands,  but  also  in  Belgium,  France,  and 
Portugal.  Despite  this  trend  towards  convergence  in  the  last  two  decades,  a  large  gap 
remains between the lowest and the highest nominal minimum wages in the EU (Graph 
A8.10).230    

230 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.   

150 

 
 
 
                                                           
Graph A8.10: 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. 

151 

 
 
 
 
 
Graph A8.11: Statutory minimum wages and labour productivity in EU Member 
States, 1999-2018, 1999=100 

Note: Both variables expressed 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 AMECO data. 

152 

 
 
 
Annex 9

  Internal drivers: Additional 
information 

A9.1. Declining trend in collective bargaining 

Collective bargaining affects both the adequacy and coverage of minimum wages. In 
countries  where  minimum  wage  protection  is  provided  by  collective  agreements,  the 
share  of  protected  workers  is  directly  determined  by  the  share  of  workers  covered  by 
collective bargaining agreements (“collective bargaining coverage”).231 In countries with 
statutory  minimum  wages,  collective  bargaining  has  a  strong  effect  on  minimum  wage 
adequacy,  often  ensuring  wages  above  the  minimum  level  set  by  law.  Moreover,  in  15 
Member  States  wage  updates  are  directly  or  indirectly  linked  to  general  wage 
developments,  which  in  turn  are  driven  by  collective  agreements.  Namely  in  Belgium, 
France,  Luxembourg,  the  Netherlands,  and  Slovenia,  the  automatic  indexation  of 
statutory  minimum  wages  takes  into  account  developments  in  wages  and  labour  costs, 
while  in  Germany,  Czechia,  Croatia,  Ireland,  Greece,  Latvia,  Malta,  the  Netherlands, 
Poland  and  Slovakia  the  law  defines  either  formulas,  variables  or  targets  to  update  the 
statutory minimum wage that take into account wages. 

Countries  with  a  higher  collective  bargaining  coverage  tend  to  have  lower  wage 
inequality and higher wages. Collective bargaining sets  the terms  of employment  and 
working  conditions  of  a  large  share  of  workers.  Sectoral  and  multi-level  collective 
bargaining  systems  are  associated  with  lower  wage  inequality,  by  around  20-25 
percent.232  As  a  result,  high  collective  bargaining  coverage  is  associated  with  lower 
shares of low-wage workers (Graph A9.1). In addition, decreases in collective bargaining 
coverage  have  been  found  to  have  a  negative,  although  transitory,  effect  on  wage 
growth.233  Correspondingly,  high  collective  bargaining  coverage  is  associated  with  a 
somewhat higher share of income going to labour (Graph A9.2).  

231 Measurement issues related to collective bargaining coverage are discussed in Annex A4.6.  
232 OECD (2018)," The role of collective bargaining for good labour market performance", Employment Outlook 2018, 
Paris. 
233 See European Commission (2018): “Labour market and wage developments in Europe, Annual Review 2018” DG 
EMPL, Chapter II.1.   

153 

 
 
 
 
 
 
 
                                                           
Graph A9.1: 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.  

Graph A9.2: Collective bargaining coverage and 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 Amsterdam. Variable AdjCov 
(# 111). Adjusted wage share: AMECO database of the European Commission. 

Collective  bargaining  coverage  shows  a  decreasing  trend  in  many  EU  Member 
States in recent years (Graph A9.3). In most of the countries where minimum wages are 
set through collective bargaining, the level of coverage is at or above 80%, and while a 
significant decrease can be seen in Cyprus, coverage has not declined on average in these 
countries. In countries with a statutory national minimum wage, the coverage rate is very 

154 

 
 
 
 
 
diverse, ranging from  less  than 20% in  Estonia, Lithuania and Poland to  above 80% in 
Belgium. The overall negative trend of collective bargaining coverage in the EU is driven 
by the structural shifts in the economy towards less-unionised sectors, notably services, 
and by a sharp decline in trade union membership related to the increase of non-standard 
forms of work. Coverage is high in those Member States where bargaining takes place at 
national  or  industry  level.  Key  to  attaining  high  coverage  are  well-organized  social 
partners with a broad support base.  

 Graph A9.3:  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 
excluded 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  2014)  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  differential 
effect on collective bargaining in various sectors.234 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 

234 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. 

155 

 
 
 
                                                           
increasing effect on wages set in collective agreements. 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.235  

Public  procurement  rules  and  practices  can  play  a  role  in  supporting  collective 
bargaining.236  Article  18(2)  of  the  Public  Procurement  Directive  2014/24/EU  provides 
that Member States shall take 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 the requirement to comply with obligations set by 
collective agreements in tender documents. Such obligations must always be applied also 
in accordance 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 applied as 
relevant.  However,  limited  information  is  currently  available  regarding  the  application 
and enforcement of this provision. 

A9.2. Insufficiently clear frameworks to set statutory minimum wages 

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,  which  use 
automatic  indexation  to  update  minimum  wages.237  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.238 In addition, some Member States have explicit targets for 
the adequacy of minimum wages. 

In many other Member States statutory minimum wage setting is not always based 
on clear and stable criteria (see Table A9.1). For example, in Lithuania, the minimum 
wage legislation only makes a general reference to the need for minimum wage setting to 
take  into  account  “broad  economic  conditions”  while  in  10  Member  States  (e.g.  in 
Germany,  Ireland,  Greece,  Spain,  Croatia,  Hungary,  Latvia,  Poland,  Portugal,  and 
Slovakia),  a  list  of  variables  or  factors  (including  among  others  exchange  rates,  hours 
worked, tax burden, household expenditure) is defined. In all these cases, no indication is 
provided on the way in which these variables should be used or on their interaction. For 

235 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. 
236 This point was also stressed by the European workers’ organisations in their reply to the first stage consultation. 
237 These Member States are Belgium, France, Luxembourg, Malta, the Netherlands, and Slovenia. 
238  In  Belgium  and  the  Netherlands,  automatic  indexation  is  applied  with  flexibility  under  adverse  economic 
circumstances. 

156 

 
 
 
                                                           
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,  and  Slovakia),  only  in  three  Member  States  does 
legislation make a direct link with specific indicators (Germany, the Netherlands, Malta).  

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 
provided  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  in  the  context  of  the 
European  Semester,  which  called  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 minimum wage updating. 

Table A9.1: National mechanisms for setting statutory minimum wages: 

Automatic 
Indexation 

Broad Economic 
situation and/or 
Variables 

BE 
FR 
LU 
MT 
NL 
SI 

CZ** 
DE 
IE 
EL 
ES 
LV 

LT 
HR 
HU 
PL 
PT 
SK 

Not 
specified in 
legislation 
BG 
RO 

Targets on 
MW levels 

CZ*  LT* 
PL 
EE* 

Notes: * Not by law, but in practice (e.g. tripartite agreement); ** Partly not by law, but in practice. 
Sources: Relevant national legislation; ILO Working Conditions Laws Database / Minimum wage fixing database.  

Periods  of  unpredictable  minimum  wage  developments  have  also  been  observed 
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,  in  parallel  with  a  GDP  growth  from  4.5%  to  4.7%.  As  a 
percentage of the median wage, the minimum wage increased from 36% in 2000 to 57% 
in 2002. With the fall of the GDP to 4.1% in 2003, the minimum wage was frozen and 
smaller increases followed in subsequent years, resulting in a ratio to the median wage of 
46% in 2005.   

Together with the lack of appropriate criteria referring to adequacy and to general 
socio-economic conditions, in some Member States, governments are not bound to a 
certain frequency or regularity of updates (Table A9.2). In particular, in Bulgaria and 

157 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Romania,  the  regularity  and  timeliness  of  the  updates  are  neither  defined  in  legislation 
nor  established  through  a  regular  practice.  Actually,  in  recent  years  minimum  wage 
increases occurred 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  update  at  the 
beginning 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 2015.239  

Table A9.2: Frequency of updates to the minimum wage 

 Frequency of updates 

Intra-
annual 

NL (Jan 
& July) 

Annual 

Every 2 
years 

Not 
specified 

PT 

SI 
SK 

BE*2 

DE 
LU2 

BG 

RO 

CZ* 

EE* 
EL 
ES 
FR2 
HR 

HU 

IE* 
LV 
LT 
MT 
PL1 

Notes: *Not by law, but in practice; 1: twice a year (Jan-July) if inflations exceeds 5%; 2: on top of indexation. 
Sources: Relevant national legislation; ILO Working Conditions Laws Database / Minimum wage fixing database.  

A9.3. Involvement of social partners in statutory minimum wage setting  

Social  partners  often  play  only  an  advisory  role  in  systems  where  the  minimum 
wage  setting  is  led  by  expert  bodies.  As  described  in  section  2.5.3,  in  some  Member 
States,  an  independent  specialised  body  makes  recommendations  to  the  government  on 
the  annual  minimum  wage  adjustment.  In  most  of  these  cases,  the  involvement  of  the 
social  partners  is  limited  to  an  advisory  or  consultation  role  (Greece,  Ireland).  In 
Germany, social partners play a crucial role in minimum wage setting which 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. 

239 In the June 2020 decision of the Minimum Wage Commission, it proposed a 10% increase in the minimum wage in 
four steps over the next 2 years. Prior to that, while the minimum wage was about 48% of the median and 43% of the 
average  wage  in  2015,  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. 

158 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
The  role  of  social  partners  in  the  decision-making  process  is  variable  in  Member 
States with automatic indexation. In all the Member States with automatic indexation 
(Belgium, France, Malta, Luxembourg, the Netherlands and Slovenia), it is also possible 
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  leads  to  non-binding  recommendations.  As  described  in  Annex  A6.2,  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 
(Bulgaria, Spain, Croatia, Hungary, Latvia, Malta, Portugal, Slovenia 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  influence  on  the  final  decision-making.  Only  in  a 
few Member States (Lithuania, Poland, and Slovakia) is a structured tripartite system in 
place240,  in  which,  if  an  agreement  is  reached  through  the  consultation  process,  it 
becomes binding for all the parties. However, 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 foresees 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.  

In a number of Member States,  there are  challenges related to the involvement of 
social partners 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 

240 A tripartite body consists of representatives of employers’ organisations, trade unions and the government.  

159 

 
 
                                                           
Country-Specific 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 context of measures taken during the Covid-19 pandemic.241  

A9.4. Variations and exemptions 

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,  and 
Ireland)  and  participants  in  active  labour  market  policies  (Belgium,  Germany,  and 
Croatia).  There  are  also  often  exemptions  for  relatives  employed  in  small  family 
businesses (Belgium and Ireland) and people performing voluntary work (Germany and 
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,  Estonia,  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  (“Heimarbeiter242”)  and  people  with  disabilities 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  Ireland  and  people  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 Table A9.3. 

In  many  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 (Belgium, Greece, Spain, France, and Portugal), variations can be 

241  Proposals  published 
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_901 
242  Workers  carrying  out  paid  work  in  the  location  they  choose  (e.g.  home)  which  results  in  a  product  or  a  service 
specified by and owned by the employer. 

the  European  Semester  on  20.05.2020,  ULR: 

‘Spring  package’  of 

the 

in 

160 

 
 
 
                                                           
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 Table A9.3. 

In  Member  States  where  minimum  wage  protection  is  provided  by  collective 
agreements,  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.  

A9.5. Lack of compliance with minimum wage provisions  

Workers  may  not  be  protected  by  minimum  wages  due  to  compliance  issues.  In 
some  Member  States  with  statutory  minimum  wages,  there  is  evidence  that  some 
workers,  even  though  they  are  covered,  receive  in  practice  a  remuneration  below  the 
minimum wage due to the non-respect of existing rules. For instance, labour inspections 
in Ireland found that 409 of the 4,747 employers (9%) inspected in 2017 were in breach 
of minimum 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.243  

Compliance  may also  be an issue in some of the Member States exclusively where 
minimum wage protection is provided by collective agreements.  For instance, it has 
been estimated that, in  Italy, more than 10% of  workers  are paid  below  the wage  floor 

243 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.  

161 

 
 
 
                                                           
established by their reference collective agreement and that such underpayment implies 
an average shortfall of 20-23% of the reference minimum wage.244  

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  occupations  (e.g.  domestic  work).245  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  pay  with  informal  payments  (envelope  wages).  While  this  may 
increase  the  net  income  of  some  workers,  it  reduces  their  future  (e.g.  pension) 
entitlements.  There  is  evidence  that,  in  a  context  of  income  underreporting  for  tax 
evasion  purposes,  envelope  wages  are  reduced  when  minimum  wages  are  increased.246 
Fighting  tax  evasion  has  been  the  stated  aim  of  some  minimum  wage  increases  in  the 
past,247  even  though  the  trade-off  with  the  risks  of  outright  undeclared  work  have  also 
been recognised.248 Moreover, the available information on the coverage of wages set in 
collective  agreements  is  diverse  and  not  complete  in  concerned  Member  States  (see 
Annex A4.6).   

244 See: Garnero, A. (2018): “The dog that barks doesn’t bite: Coverage and compliance of sectoral minimum wages in 
Italy”, IZA Journal of Labor Policy, Vol. 7, No. 1. 
245 See, e.g. ILO (2016): Minimum wage policy Guide, especially p. 89. International Labour Organisation, Geneva.  
246  See,  e.g.,  Tonin,  Mirco  (2011),  “Minimum  wage  and  tax  evasion:  Theory  and  evidence.”  Journal  of  Public 
Economics, vol. 95, no 11-12, p. 1635-1651. 
247 This is reported, for instance, by Harasztosi and Lindner (2019) related to Hungary, the country analysed by Tonin 
(2011,  see  previous  footnote).  See  Harasztosi,  P.,  and  A.  Lindner.  2019.  “Who  Pays  for  the  Minimum  Wage?” 
American Economic Review, 109 (8): 2693-2727. 
248  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 European and Black Sea Studies, 10:2, 123-145. 

162 

 
 
                                                           
Table A9.3: Summary tables of exemptions from and variations in, statutory 
national minimum wages 

163 

MSEducation/ 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).BGNANANANAEducation/ 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).NANAEducation/ training related People taking part in a statutory apprenticeship (except hairdressing apprentices).Family businessWorkers who are close relatives of the employer.OtherNon-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 peopleExemptionsELNACZNADEIENAVariationsNANA76 % for 17 years old; 70 % for 16 years old and below.Young people76 % for 17 years old; 70 % for 16 year olds and below. 
 
 
164 

MSEducation/ 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).NANALTPublic SectorCivil servants (remuneration is regulated by separate laws).NANALUNANAYoung people70% for under 18 years old; 80% for 18 years old  90% for 19 years old.HUNANAOtherWorkers in the Public Works Scheme (59.1% of MW).MTNANAYoung people95% 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.PLOtherPeople providing certain care services (foster / family home activities and family assistance home, home care services,  during leisure activities or excursions).NANAEducation/ 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.RONANANANASINANANANASKNANANANASales representatives: their working time cannot be controlled. Other provisions apply.ESPersons with disabilities working on “low performance contracts”: minimum 75% of the MW.OtherPTNAFROtherBy 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 disabilitiesExemptionsVariationsHRNA 
 
 
 
 
 
Table A9.4: Summary tables deductions from statutory national minimum wages 

165 

 
 
 
 
166 

 
 
Table A9.5: Summary table of internal drivers per Member State   

(a) Member States where minimum wage protection is provided by collective agreements 

167 

 
 
 
(b) Member States with Statutory minimum wages   

168 

Frequency of updatesVariationsDeductionsEnforcement Coverage rate (%)ObservationObservationsCurrent situationCurrent situationObservationsCurrent situationCurrent situationObservationsBE93Automatic 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)Automatic indexation: continuous through the yearDiscretional changes: bi-annual Automatic indexationDiscretional changes: formal obligation to consult social partners which lead to binding bipartite decision.                           Consultations in a bipartite body. Student contracts (variations by age for under 20 yrs old); Young people (variation by age for 16 and 17 yrs old); Workers in flexi-jobs YESLack of data on the implementation of the social clause in public procurementBG23Very low coverage of workers collective bargainingNo criteria specified by lawIn practice: based on a fixed target level from Mid-Term Budget Forecast by the Ministry of FinanceNo criteria specified by lawNot specifiedInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally.                                    Consultations in a tripartite body NAYESLack of data on the implementation of the social clause in public procurementCZ30Very low coverage of workers collective bargainingList of criteria defined by law. Adequacy target used in practiceCriteria: wages and consumer price developments by law plus labour market developments in practice                                  Target: MW = 40% of average wagesAdequacy target set too low - risk that they do not provide for sufficient adequacyAnnual, in practiceNon-institutionalised system of consultationsIn practice, tripartite non-binding consultation process. Consultations in a tripartite body NAYESLack of data on the implementation of the social clause in public procurementDE55Relatively low coverage of workers collective bargainingCriteria defined by lawWages and incomes (collective agreements), broad economic situation (competition, employment)The MW legislations make only a broad reference to economic conditions Bi-annual, by lawInstitutionalised: opinion of expert committeeMinimum wage specialised body makes binding recommendations. Social partners are members of the body NAYESLack of data on the implementation of the social clause in public procurementEE19Very low coverage of workers collective bargainingNo criteria defined by law but used in practice.             Adequacy target used in practiceCriteria: Δ MW = 2* Δ labour productivity Targets: lower limit: 40% of the projected national average wage; upper limit: 2* projected Δ real GDP growthNo criteria defined by lawAdequacy target set too low - risk that they do not provide for sufficient adequacyAnnual, in practiceInstitutionalised : bipartiteBinding bipartite decision. Consultations in a bipartite body NAYESLack of data on the implementation of the social clause in public procurementMember States with statutory minimum wages Collective Bargaining Update mechanismSP InvolvementCurrent situationMS 
 
 
169 

Frequency of updatesVariationsDeductionsEnforcement Coverage rate (%)ObservationObservationsCurrent situationCurrent situationObservationsCurrent situationCurrent situationObservationsIE34Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic situation (e.g. employment, competitiveness), prices (cost of living), wages and incomes (changes in earnings)The MW legislations make only a broad reference to economic conditions Annual, in practiceInstitutionalised: following expert committeeMinimum wage specialised body makes non-binding recommendations.                                  Social partners are not  members of the body   Young people (variation by age for 16 and 17 yrs old)YESLack of data on the implementation of the social clause in public procurementEL25Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic situation (e.g. employment, competitiveness), prices, wages and incomesThe MW legislations make only a broad reference to economic conditions Annual, by lawInstitutionalised: following expert committeeMinimum wage specialised body makes non-binding recommendations.                                  Social partners are not  members of the body  but provide views.Apprentices; Live-in domestic workersYESLack of data on the implementation of the social clause in public procurementES68Relatively low coverage of workers collective bargainingList of criteria defined by lawBroad economic situation (e.g. productivity), prices (CPI), wages and incomes (e.g. labour share)The MW legislations make only a broad reference to economic conditions Annual, by lawInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally .                             No consultation body. Apprentices; Temporary/seasonal workers (max. 120 days); Persons with disabilities working on “low performance contracts"YESLack of data on the implementation of the social clause in public procurementFR94Automatic 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                                                   Discretional change based on expert opinion and social partners agreement Annual, by law (automatic indexation + discretional change)Automatic indexationDiscretional changes: opinion of expert committee and law entitles SP to provide non-binding recommendations. Social partners are not  members of the body  but provide views.Young people (16 and 17 yrs old) with less than 6 months of experience; Some types of Apprentices; Mayotte overseas departmentYESLack of data on the implementation of the social clause in public procurementHR45Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic conditions (e.g. unemployment and employment), prices (inflation), wages and incomesThe MW legislations make only a broad reference to economic conditions Annual, by lawInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally.                       No consultation body.  By way of derogation, a collective agreement may set a minimum wage below the one stipulated by the government decree YESLack of data on the implementation of the social clause in public procurementLV24Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic and labour market situation (e.g. labour productivity, unemployment), prices (e.g. labour costs), wages and incomes (e.g. labour income)The MW legislations make only a broad reference to economic conditions Annual, by lawInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally.                    Consultations in a tripartite body.  NAYESLack of data on the implementation of the social clause in public procurementSP InvolvementCurrent situationMSCollective Bargaining Update mechanism 
 
 
170 

Frequency of updatesVariationsDeductionsEnforcement Coverage rate (%)ObservationObservationsCurrent situationCurrent situationObservationsCurrent situationCurrent situationObservationsLT8Very low coverage of workers collective bargainingList of criteria defined by lawAdequacy target used in  practiceCriteria: Broad economic situation Target: average to minimum wage at 45-50%The MW legislations make only a broad reference to economic conditionsAdequacy target set too low - risk that they do not provide for sufficient adequacyAnnual, by lawInstitutionalised: tripartite Binding tripartite decision if agreement reached, otherwise Gov can set MW unilaterally. Consultations in a tripartite body NAYESLack of data on the implementation of the social clause in public procurementLU59Relatively low coverage of workers collective bargainingAutomatic indexation (prices), by practiceAutomatic indexation: if CPI  + or -2.5% over last 6mDiscretional change based on economic conditions and wage developmentsIn practice: Automatic indexation every 6mDiscretional changes: bi-annual, by lawAutomatic indexationAutomatic indexation.                     No obligation to consult social partners.                                                       No consultation bodyYoung people (variation by age for 17,  18 and 19 yrs old)YESLack of data on the implementation of the social clause in public procurementHU20Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic and labour market situationThe MW legislations make only a broad reference to economic conditions Annual, by lawInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally. Consulations in a  advisory body.  Social partners are members of the body.Workers in the Public Works SchemeYESLack of data on the implementation of the social clause in public procurementMT50Relatively low coverage of workers collective bargainingAutomatic 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 lawAutomatic indexationDiscretional changes: formal obligation to consult social partners which leads to non-binding recommendations. Consultations in a tripartite body.Young people (variation by age for below 17 and 17 yrs old)YESLack of data on the implementation of the social clause in public procurementNL79Automatic indexation (wages)  plus discretional changes, by lawAutomatic indexation: 50% of wage growth (collectively bargained) + Δ predicted wage growthDiscretional change: broad economic situation (employment, social security costs)Twice per year (Jan & July)Automatic indexationAutomatic indexation.                     No obligation to consult social partners.                                                       No consultation bodyYoung people (variation by age for below 15-20 yrs old) resulting in very low youth minimum wages affecting many young workers YESLack of data on the implementation of the social clause in public procurementSP InvolvementMSCollective Bargaining Update mechanismCurrent situation 
 
 
171 

Frequency of updatesVariationsDeductionsEnforcement Coverage rate (%)ObservationObservationsCurrent situationCurrent situationObservationsCurrent situationCurrent situationObservationsPL17Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic and labour market situation (e.g. labour productivity), prices, wages and incomes                                                      Target: average to minimum wage at 50%The MW legislations make only a broad reference to economic conditionsAdequacy target set too low - risk that they do not provide for sufficient adequacyAnnual (if inflation below 5%) or twice a year (Jan & July), by lawInstitutionalised: tripartite Binding tripartite decision if agreement reached, otherwise Gov can set MW unilaterally. Consultations in a tripartite body.NAYESLack of data on the implementation of the social clause in public procurementPT74List of criteria defined by lawBroad economic situation (productivity), prices (cost of living), wages and incomes (income and price policy)The MW legislations make only a broad reference to economic conditionsAnnual, by lawInstitutionalised bilateral/tripartite consultation process defined by law Non-binding consultation, Gov can set MW unilaterally.                          Consultations in a tripartite body.Apprentices, trainees or workers in training (length of variation depends on qualification)YESLack of data on the implementation of the social clause in public procurementRO23Very low coverage of workers collective bargainingNo criteria specified by lawNot specifiedNo criteria specified by lawNot specifiedInstitutionalised bilateral/tripartite consultation process defined by lawNon-binding consultation, Gov can set MW unilaterally.                           Consultations in a tripartite bodyNAYESLack of data on the implementation of the social clause in public procurementSI71Automatic indexation (prices) plus discretional changes, by lawAutomatic indexation: to costs of living (min +20 % / max +40%) + taxes and social securityDiscretional change: Broad economic and labour market situation (e.g. economic growth, employment), prices, wages and incomesAnnual, by law (automatic indexation + discretional change)Automatic indexationDiscretional changes: formal obligation to consult social partners which leads to non-binding recommendations.                         No consultation bodyNAYESLack of data on the implementation of the social clause in public procurementSK30Very low coverage of workers collective bargainingList of criteria defined by lawBroad economic and labour market situation (e.g. employment), prices, wages and incomesThe MW legislations make only a broad reference to economic conditionsAnnual, by lawInstitutionalised: tripartite Binding tripartite decision if agreement reached, otherwise Gov can set MW unilaterally. Consultations in a tripartite bodyNAYESLack of data on the implementation of the social clause in public procurementCollective Bargaining Update mechanismSP InvolvementCurrent situationMS 
 
 
Annex 10

   Recent reforms in Member States: 

An overview  

Over the last decade, many Member States have implemented reforms in their minimum 
wage  setting  systems.  These  reforms  included  introductions  of  new  minimum  wage 
legislations,  reforms  in  the  minimum  wage  setting  systems  and  amendments  related  to 
variations in minimum wage levels.  

Introduction of new minimum wage legislation: 

  Germany introduced a statutory minimum wage law in 2015. The new law which 
entered  into  force  on  1  January  2015,  which  was  based  on  the  Minimum  Wage 
Law  of  2014  (“MiLoG”)  established  a  Minimum  Wage  Commission  (MWC), 
which assigned seats to social partners and recommends minimum wage updates 
to  the  government.  Furthermore,  legislation  designs  an  updating  mechanism, 
including the frequency, a timeline and a quantitative mechanism.  

  Greece introduced a new statutory minimum wage law in 2012, which specified, 
among others, a non-binding, multi-stage consultation process that involves social 
partners and expert bodies and variations in the minimum wage level for young 
workers  (<25  years),  which  were  later  abolished  (see  below).  It  is  worth  noting 
that this mechanism was first implemented in 2019 after the end of the financial 
assistance programme. 

  Cyprus  introduced  statutory  minimum  wages  on  1  January  2020  for  certain 
professions  in  the  hotel  industry  (13  professions),  to  be  applied  by  the  sector’s 
employers, independently of their adherence to the collective agreement.   

  Romania  introduced  in  2018  a  statutory  gross  minimum  wage  for  the 

construction sector. 

Reforms of existing minimum wage setting systems:   

 

In Slovakia, a new reform to the minimum wage legislation (Act No. 663/2007) 
was  introduced  in  2020.  The  reform  obliges  the  government,  when  updating 
minimum wages, to adopt the social partners’ bargaining outcomes, in case they 
reach  an  agreement,  or  otherwise,  to  apply  automatic  indexation  of  minimum 
wages to the average nominal wages (namely 60% of the average nominal gross 
wage  in  the  economy  from  the  previous  year).  The  new  mechanism  will  be 
applied for the first time for setting the minimum wage in 2021. 

172 

 
 
 
 
 

 

 

 

 

 

In Croatia, a new Minimum Wage law (Act 2018/118) was established in 2018 
which  set  an  annual  frequency  for  minimum  wage  updates,  defined  a  decision-
making deadline and specified that variables on the broad economic situation (e.g. 
prices,  wages  and  incomes)  should  be  taken  into  account  when  updating  the 
minimum wage. Additionally, following a ministerial decision in 2019, an expert 
Commission  (“Povjerenstva”)  was  set  up  which  is  responsible  for,  inter  alia, 
providing non-binding recommendations on future minimum wage updates. 

In  Slovenia,  a  new  reform  to  the  Minimum  Wage  Act  was  introduced  in  2018, 
which  formalised  the  existing  automatic  indexation  mechanism  (a  formula  was 
agreed for the update) and set respective upper and lower limits, effective as from 
2021. Additionally, from 2020 onwards, minimum wage workers are entitled to a 
seniority bonus on top of their salary as all other workers are. 

In Latvia, a new reform to the minimum wage legislation was introduced in 2016 
(Regulation 563/2016) which laid down new procedures for setting the minimum 
wage, including the updating mechanism to be used and the consultation process 
with social partners.  

In Ireland, a reform of the minimum wage law was introduced in 2015 (National 
Minimum  Wage  Act  2015),  which  established  a  Low  Pay  Commission 
the 
responsible  for  providing  annual,  non-binding 
government on minimum wage updates.  

recommendations 

to 

In  Bulgaria,  the  ILO  Minimum  Wage  Fixing  Convention  No.  131  (1970)  was 
ratified  by  a  special  law  adopted  on  24  January  2018,  supplementing  its 
regulatory  framework  for  setting  the  minimum  wage  on  clearly  structured  and 
pre-defined  criteria  (socio-economic  indicators).  On  20  March  2018,  the 
ratification  was  deposited  with  the  ILO.  According  to  Art.  8,  paragraph  3,  the 
Convention  entered  into  force  for  Bulgaria  on  20  March  2019,  12  months  after 
the date of ratification.  The Bulgarian  Government,  represented by the  Ministry 
of  Labour  and  Social  Policy,  together  with  the  social  partners,  continues 
discussions  on  the  development  of  a  transparent  mechanism  for  setting  the 
minimum wage. 

In  Estonia,  according  to  the  national  minimum  wage  agreement  that  was 
concluded  between  the  Estonian  Trade  Union  Confederation  (EAKL)  and  the 
Estonian  Employers  Confederation  (ETKL)  on  26  October  2017,  an  increase  in 
the  minimum  wage  would  be  calculated  annually  on  the  basis  of  labour 
productivity and economic growth until 2022. It was also agreed that in 2021, the 
national minimum wage will be 40% of average wage, and that by the summer of 
2021 an impact study about the minimum wage will be carried out, to serve as a 

173 

 
 
basis  for  agreeing  on  a  formula  to  calculate  the  minimum  wage  level  for  the 
coming years. 

 

In Lithuania, in 2012, Article 187 of the  Labour Code was amended to change 
the  procedure  of  the  determination  of  the  legal  minimum  wage,  allowing  the 
Parliament  to  determine  the  minimum  wage  if  the  government  and  the  social 
partners in the Tripartite Council fail to find an agreement before 1 June of each 
year. 

  France  created  in  2009  a  Minimum  Wage  Commission  formed  by  independent 
experts  that  provides  support  and  recommendations  on  the  evolution  of  the 
minimum wage. Moreover, since 2013 the indexation mechanism to calculate the 
SMIC includes clerks’ wages as a reference.249 

 

In Portugal, after a three-year freeze during the bailout programme, from 2014, 
the minimum wage is determined annually following consultation with the social 
partners  (Article  273,  N.  1  of  the  Portuguese  Labour  Code).  Additionally,  in 
2017, the government established a Commission to assess the development of the 
minimum wage through quarterly reports which are published and discussed with 
social partners.  

Reforms related to the coverage of minimum wages:   

In many Member States, reforms were implemented over the years related to variations 
in the minimum wage level for specific groups of people. For example: 

  Greece  and  Ireland  abolished  variations  for  young  people  in  2019  and  2018 

respectively. 

  Belgium abolished all variations in minimum wage for young people aged 18-20 

years in 2015.  

  Czechia  eliminated  variations  in  statutory  minimum  wage  levels  for  young 
people  and  people  with  disabilities  in  2013.  Since  January  2013,  the  statutory 
minimum  wage  is  thus  the  same  irrespective  of  the  worker  age  or  job  type.  In 
2019,  authorities  passed  legislation  to  facilitate  the  employment  of  non-EU 
nationals, in particular for skilled and qualified workers. The measure raised the 
quotas for a number of workers from selected countries and set minimum wages 
for foreign workers above the national minimum wage. 

249 The SMIC rate is calculated based on inflation, when it rises for at least 2 per cent, SMIC rises on the same amount, 
and growth as SMIC is raised annually by at least half of the increase in the purchasing power of blue-collar and clerks 
average  hourly  wage.  Until  2013,  the  growth  component  considered  only  blue-collar  workers’  wages.  (Gautié  and 
Laroche, 2018) 

174 

 
 
 
 
                                                           
  Germany established a minimum wage for temporary workers in 2016, following 
a  collective  agreement  that  was  declared  generally  binding.  This  was  in  force 
until  December  2019.  New  minimum  wages  have  been  agreed  for  the 
construction  sector,  the  roofing  trade  and  the  cleaning  of  buildings.  The  new 
minimum wages are based on collective agreements concluded at the end of 2017 
and are in force from March 2018 until the end of 2019 or 2020. The minimum 
wage  also  applies  to  employees  posted  to  Germany  from  abroad.  Moreover, 
collective  bargaining  distinguished  between  the  minimum  wage  and  the 
qualification  level.  Germany  has,  as  of  1  January  2020,  a  newly  introduced 
statutory minimum wage for apprentices and professional experience. 

  The  Netherlands  increased  the  minimum  wage  for  young  workers  in  2017.  In 
2018, the Minimum Wage Act was modified so that overtime needs to be paid (as 
part  of  the  employee’s  salary)  instead  of  being  compensated  by  extra  leave 
(holiday hours). The Minimum Wage Act now stipulates that an employee needs 
to  receive  the  hourly  minimum  wage  for  all  hours  worked  within  a  normal 
payment  period  (four  weeks  or  a  month).  Overtime  and  extra  hours  cannot  be 
compensated for by free time to be taken at a later date. 

 

In  Romania  in  2018,  the  Labour  Code  was  amended  so  that  the  level  of  the 
statutory minimum wage is differentiated for workers with higher education and 
work  experience.  In  2020,  coefficients  for  educational  attainment  were  set  to 
differentiate for all levels of education, from unqualified workers to those with a 
PhD. 

  Luxembourg: 

o 

increased the minimum wage for qualified or skilled workers aged 18+ as 
of January 2020. 

o  since  2019,  entitles  the  government  to  issue  acts  for  “structural 
adaptation” of the minimum wage in addition to the biannual reviews. 

  Slovakia  increased  wage  supplements  for  night  shifts,  holidays,  and  hazardous 

jobs in 2018. 

  Poland extended the coverage of the minimum wage to the whole health sector in 
2018.  The  amendment  also  modifies  and  clarifies  the  way  for  calculating  a 
gradual pay rise for all the employees covered by the law. In 2019, the “seniority 
allowance” was added to the list of components excluded in the calculation of the 
minimum wage (also, jubilee award, severance pay due to retirement or acquiring 
the  right  to  invalidity  benefits,  bonus  for  overtime  work  and  bonus  for  night 
work). The purpose of the modification is to eliminate the unfavourable treatment 

175 

 
 
that  workers  with  a 
circumstances. 

long  employment  record  suffer  under 

the  former 

 

In Malta, the government, the opposition and social partners exceptionally agreed 
on  increasing  the  minimum  wage  for  low  earners  who  have  been  employed  for 
more than one  year (or two years with the same employer). The agreement also 
included  temporary  supplements  to  indexation  increases  for  2018  and  2019 
(National  Minimum  Wage  National  Standard  Order  –  Subsidiary  Legislation 
452.17). This decision was taken in 2017 amid pressure from NGOs claiming the 
minimum wage was below subsistence level. 

176 

 
 
 
 
Annex 11

   Policy options: Additional 

information 

A11.1. Options related to collective bargaining  

Regulatory framework and enabling conditions for collective bargaining 

Setting  up  a  regulatory  framework  or  enabling  conditions  implies  taking  measures  in 
view  of  strengthening  collective  bargaining.  Such  measures,  implemented  at  a  national 
level, could include: 

  Mediation,  arbitration  and  peace  clauses  in  collective  agreements.  The 
compliance  and  enforcement  of  collective  agreements  is  crucial  for  their 
effectiveness.  Enforcement  needs  to  be  ensured  so  that  decisions  taken  at  the 
highest level are also applied at the lowest one. In this respect, peace clauses are 
provisions in collective agreements forbidding signatory unions to strike on issues 
regulated by the agreement. Similarly, mediation and arbitration can help find an 
agreement  within  the  framework  of  collective  bargaining,  thereby  smoothing 
negotiations and improving the governability of the system.250 Mediation uses the 
expertise  of  a  neutral  third  party  to  assist  negotiations  and  foster  agreement 
among  the  social  partners,  while  arbitration  goes  further  by  allowing  the  third 
party  to  end  the  conflict  based  on  his  assessment.  Mediation  bodies  are 
considered  as  a  prerequisite  for  decentralised  wage  formation  in  a  highly 
organised economy with powerful unions.251 

  Establish  representativeness  criteria  for  social  partner  organisations. 
Representativeness  criteria  are  mainly  aimed  at  increasing  the  effectiveness  and 
legitimacy of extensions. The representativeness of social partners provides them 
legitimacy for collective bargaining.252  

  Duration  of  collective  agreements.  An  important  characteristic  of  collective 
agreements  is  their  duration.  Duration  can  be  set  by  social  partners  (the  most 
common practice) or by law. Furthermore, duration can be different for different 
elements  of  the  same  agreement  (both  for  wage  and  non-wage  components).  A 
long  or  even  indefinite  duration  of  collective  agreements  favours  workers  as  it 
keeps them covered, ensuring stability and social peace.253 It is however possible 
that  indefinite  duration  reduces  the  incentives  to  renegotiate  an  agreement,  thus 

250 OECD, “Collective bargaining in a changing world of work”, Employment outlook 2017, 2017. 
251 Visser J., “What happened to collective bargaining during the great recession?”, IZA Journal of Labor Policy, 2016. 
252 Eurofound, "The concept of representativeness at national, international and European level", 2016. 
253 Hijzen A., Martins P and Parlevliet J., “Collective bargaining through the magnifying glass: A comparison between 
the Netherlands and Portugal”, DNB working paper, November 2017. 

177 

 
 
 
                                                           
making it difficult to adjust the conditions to changing labour market needs and 
socio-economic developments.  

  Length of validity of a collective agreement (retroactivity, ultra-activity). The 
length of validity is also defined by its validity before its signature (retroactivity) 
and beyond its expiry date (ultra-activity). The retroactivity of agreements seeks 
to  ensure  that  a  level  playing  field  is  preserved.  Retroactivity  clauses  mainly 
matter  for  wages,  as  they  usually  oblige  firms  to  pay  wage  arrears.254  Ultra-
activity of agreements is intended to protect workers preserving the continuity of 
wage  and  non-wage  conditions  should  employers  refuse  to  negotiate  a  renewal 
(ibid.).  They  strengthen  workers’  bargaining  power  and  may  contribute  to 
increasing  stability  and  social  peace.  However,  retroactivity  clauses  may  prove 
harmful for employment during a period of liquidity constraints for firms, as they 
may  need  additional  liquidity  to  pay  wage  arrears.  Ultra-activity  clauses  could 
reduce the responsiveness of the labour market to unexpected shocks as they may 
reduce the incentives for one of the signing parties to renegotiate agreements and, 
therefore, may become an obstacle to wage adjustment.253   

A11.2. Options related to adequacy indicators  

Table A11.1: Possible adequacy indicators and respective indicative reference 
values 

Indicators  
Gross median wage  
Gross average wage 
Net  median  wage  (i.e.  net  income  of  a 
single  worker  earning  the  gross  median 
wage) 
Net  average  wage  (i.e.  net  income  of  a 
single  worker  earning  the  gross  average 
wage) 
Median net household income, adjusted for 
household composition (“equivalised”)  

Indicative reference values  
50%, 55%, 60% 
40%, 45%, 50% 
60% or 70% 

50% or 60% 

the 

so-called 

60%  (Note:  This  reference  value  is  equal 
to 
“at-risk-of-poverty 
threshold”.  This  means  that,  if  the  net 
income  of  a  single  minimum  wage  earner 
is  above  this  reference  value,  then  he  or 
she is not at risk of poverty.) 

254  Hijzen  A.  and  Martins  P.,  “No  Extension  without  Representation?  Evidence  from  a  Natural  Experiment  in 
Collective Bargaining”, IMF Working Paper WP/16/143, July 2016 

178 

 
 
 
 
  
                                                           
A11.3. Composition of policy packages: Overview 

Package/ 
Dimension 

Strengthening 
collective 
bargaining in 
wage setting 

Enforcement 
and monitoring 

Member States 
where minimum 
wage protection is 
provided by 
collective 
agreements 

Baseline 

Package A 

Package B 

Package C 

Measure 1.1: Capacity building for 
social partners and encouraging 
negotiations on wages.  

Measure 1.1: Capacity building for social 
partners and encouraging negotiations on 
wages. 

Measure 1.1: Capacity building for 
social partners and encouraging 
negotiations on wages. 

Measure 1.2: Administrative 
extensions of collective agreements, 
when agreed with social partners.    

Measure 5.1: Strengthen enforcement 
of wage clauses in collective 
agreements. 

Measure 5.2: Ensuring compliance in 
public procurement with collectively 
agreed wages. 

Measure 5.3: Enhancing monitoring 
and data collection mechanism on 
wages set in collective agreements. 

Measure 1.3: Member States with 
collective bargaining coverage below 70% 
to provide for a regulatory framework or 
enabling conditions, as well as an action 
plan to promote collective bargaining.    

Measure 5.1: Strengthen enforcement of 
wage clauses in collective agreements. 

Measure 5.2: Ensuring compliance in 
public procurement with collectively 
agreed wages.                        

Measure 5.3: Enhancing monitoring and 
data collection mechanism on wages set in 
collective agreements. 

Measure 1.3: Member States with 
collective bargaining coverage below 
70% to provide for a regulatory 
framework or enabling conditions, as 
well as an action plan to promote 
collective bargaining.    

Measure 5.1: Strengthen enforcement 
of wage clauses in collective 
agreements. 

Measure 5.2: Ensuring compliance in 
public procurement with collectively 
agreed wages.                         

Measure 5.3: Enhancing monitoring 
and data collection mechanism on 
wages set in collective agreements. 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
Package/ 
Dimension 

Strengthening 
collective 
bargaining in 
wage setting 

National 
frameworks for 
statutory 
minimum wage 
setting and 
updating 

Member States 
with statutory 
minimum wages 

Baseline 

Package A 

Package B 

Package C 

Measure 1.1: Capacity building for 
social partners and encouraging 
negotiations on wages. 

Measure 1.1: Capacity building for social 
partners and encouraging negotiations on 
wages. 

Measure 1.1: Capacity building for 
social partners and encouraging 
negotiations on wages. 

Measure 1.3: Member States with 
collective bargaining coverage below 70% 
to provide for a regulatory framework or 
enabling conditions, as well as an action 
plan to promote collective bargaining 

Measure 1.3: Member States with 
collective bargaining coverage below 
70% to provide for a regulatory 
framework or enabling conditions, as 
well as an action plan to promote 
collective bargaining 

Measure 2.1: Clear and stable criteria to 
guide minimum wage setting and its 
regular updating, defined in national 
legislation, and consultative bodies to 
advise authorities established. 

Measure 2.2: Automatic indexation to 
update statutory minimum wages at 
least annually, based on a formula 
defined at the national level. 

Measure 2.3: Indicators and reference 
values to guide the assessment of the 
adequacy of statutory minimum wages.  

Measure 2.3: : Indicators and 
reference values to guide the 
assessment of the adequacy of statutory 
minimum wages 

Measure 1.2: Administrative 
extensions of collective agreements, 
when agreed with social partners.    

Measure 2.4: Benchmark the 
minimum wage level against a 
measure of decent living standards, 
defined at the national level. 

180 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Involvement of 
social partners in 
setting statutory 
minimum wages 

Variations, 
deductions and 
exemptions from 
statutory 
minimum wages 

Member States 
with statutory 
minimum wages 

Measure 3.2: Setting up a bipartite or 
tripartite body with decision-making 
power. 

Measure 4.2 Banning variations, 
deductions and exemptions from 
statutory minimum wages. 

Measure 3.1: Ensuring the timely and 
effective involvement of social partners in 
minimum wage setting and updating. 

Measure 3.1: Ensuring the timely and 
effective involvement of social partners 
in minimum wage setting and updating. 

Measure 4.1: Limited and justified use of 
variations in and deductions from statutory 
minimum wages, decided by Member 
States in consultation with social partners. 

Measure 4.1: Limited and justified use 
of variations in and deductions from 
statutory minimum wages, decided by 
Member States in consultation with 
social partners. 

Measure 5.1: Strengthening the 
enforcement of statutory minimum 
wages and wage clauses in collective 
agreements. 

Measure 5.1: Strengthening the 
enforcement of statutory minimum wages 
and wage clauses in collective agreements. 

Measure 5.1: Strengthening the 
enforcement of statutory minimum 
wages and wage clauses in collective 
agreements. 

Enforcement and 
monitoring  

Measure 5.2: Ensuring compliance 
in public procurement with wages set 
by collective agreements and with 
statutory minimum wages. 

Measure 5.2: Ensuring compliance in 
public procurement with wages set by 
collective agreements and with statutory 
minimum wages. 

Measure 5.2: Ensuring compliance in 
public procurement with wages set by 
collective agreements and with 
statutory minimum wages. 

Measure 5.3: Enhancing monitoring 
and data collection mechanism on 
statutory minimum wages and of 
wages set in collective agreements. 

Measure 5.3: Enhancing monitoring and 
data collection mechanism on statutory 
minimum wages and of wages set in 
collective agreements. 

Measure 5.3: Enhancing monitoring 
and data collection mechanism on 
statutory minimum wages and of wages 
set in collective agreements. 

181 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annex 12

    Impacts of policy measures and 

policy packages: Additional information 

A12.1. Statutory  minimum  wages,  wages,  and  the  share  of  workers 

affected  

To  estimate  the  magnitude  of  increasing  minimum  wage  levels  on  social  and 
economic  outcomes,  a  microsimulation  exercise  has  been  conducted  using  the 
Euromod  model.255  The  hypothetical  scenarios  simulated  correspond  to  situations  in 
which Member States with statutory minimum wages below a certain threshold raise it to 
this level. These hypothetical scenarios are defined in terms of ratios to the median and 
average  wages.  This  section  reports  impacts  on  statutory  minimum  wages  in  Member 
States that have them, the share of workers earning the minimum wage, and the increases 
in the wages of affected workers as well as aggregate wages.  

Impact on statutory minimum wages 

Minimum  wage  increases,  in  percentages,  implied  by  various  indicative  reference 
values are shown in Graph A12.1 and Table A12.1 presents the implied increases in 
nominal terms. The highest reference values are close to the highest statutory minimum 
wages  currently  observed  in  the  EU.  According  to  Eurostat  estimations  for  2019,  only 
Portugal  has  a  statutory  minimum  wage  above  60%  of  the  median  and  50%  of  the 
average wage. Bulgaria, France and Slovenia are at or close to 60% of the median, while 
countries approximating 50% of the average wage are France, Slovenia and Spain.256  

In  contrast,  the  lower  reference  values  would  imply  a  gap  to  be  closed  for  about 
one-quarter to one-third of Member States. A reference value of 50% of the median 
wage  would  imply  increases  for  9  Member  States  from  their  2019  levels  (Czechia, 
Croatia, Estonia, Germany, Greece, Ireland, Latvia, Malta, the Netherlands; the implied 
increase would be small in Croatia, Greece and the Netherlands). Meanwhile, a reference 
value of 40% of the average wage would imply increases for 6 Member States: Czechia, 
Estonia, Hungary, Ireland, Latvia and Malta. 

Intermediate reference values would imply gaps to close for one-half to two-thirds 
of  the  Member  States.  In  particular,  an  intermediate  reference  value  of  55%  of  the 
median wage would imply increases for 15 Member States. These are, in addition to the 
ones  below  50%  in  2019:  Belgium,  Slovakia,  Hungary,  Lithuania,  Luxembourg  and 

255 For a description of the methodology, see Annex A4.3. 
256 See also Error! Reference source not found. on page 5. 

182 

 
 
 
 
 
                                                           
Poland. Meanwhile, an intermediate reference value of 45% of the average wage would 
imply increases for 17 Member States. These are, in addition to the ones below 40% in 
2019:  Belgium,  Bulgaria,  Croatia,  Germany,  Greece,  Lithuania,  Luxembourg,  the 
Netherlands, Poland, Romania and Slovakia.   

Graph  A12.1:  Implied  minimum  wage  increases  for  various  indicative  reference 

values (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Source: Euromod simulations based on Eurostat data. 

183 

 
 
 
 
 
 
Table  A12.1:  Implied  minimum  wage  increases  for  various  indicative  reference 

values, nominal monthly values, (Euro) 

Countries 

Statutory MW 
(2019) 

40% of 
average 
wage  

45%  of 
average 
wage 

50% of 
average 
wage  

50% of 
median 
wage  

55%  of 
median 
wage 

60% of 
median 
wage  

Level 

Level  Gap  Level  Gap  Level  Gap  Level  Gap  Level  Gap  Level  Gap 

Belgium 

1594 

1434  -160  1613  19  1792  199  1584 

-10  1742  148  1900  307 

Bulgaria 

Czechia 

286 

519 

266 

-21  299 

13 

332 

46 

239 

-48  262 

-24  286 

0 

545 

26 

613 

94 

681  162  580 

61 

638  119  695  177 

Germany 

1557 

1537 

-20  1729  172  1921  364  1680  123  1848  291  2016  459 

Estonia 

Greece 

Spain 

France 

Croatia 

Hungary 

540 

758 

601 

61 

676  136  751  211  636 

96 

699  159  763  223 

695 

-63  782 

24 

869  111  761 

3 

837 

79 

914  155 

1050 

893 

-157  1005 

-45  1116  66 

952 

-98  1047 

-3  1142  92 

1521 

1243  -278  1399  -122  1554  33  1288  -233  1417  -104  1546  25 

506 

464 

478 

-28  538 

32 

598 

92 

510 

4 

561 

55 

611  106 

469 

5 

528 

63 

586  122  451 

-13  496 

32 

541 

77 

Ireland 

1656 

1757  101  1977  321  2196  540  1886  230  2074  418  2263  607 

Lithuania 

555 

532 

-23  598 

43 

665  110  538 

-17  591 

36 

645 

90 

Luxembourg 

2071 

1888  -183  2124  53  2360  289  1919  -153  2110  39  2302  231 

Latvia 

Malta 

430 

762 

470 

40 

529 

99 

588  158  470 

40 

517 

87 

564  134 

798 

36 

898  136  997  235  871  109  958  196  1045  283 

Netherlands 

1616 

1545 

-71  1738  122  1931  315  1662  46  1828  212  1994  378 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

523 

700 

446 

887 

520 

506 

-17  570 

46 

633  110  505 

-18  555 

32 

606 

82 

561 

-139  631 

-69  701 

1 

499 

-201  549 

-151  599 

-101 

440 

-6 

495 

49 

551  105  402 

-44  443 

-3 

483 

37 

748 

-138  842 

-45  935 

49 

771 

-116  848 

-39  925 

38 

498 

-22  560 

40 

622  102  515 

-5 

566 

46 

618 

98 

184 

 
 
While  more  or  less  stringent  reference  values  can  be  defined  both  in  terms  of  the 
average and the median wage, both indicators have somewhat different implications 
for  individual  Member  States.  In  particular,  reference  values  based  on  the  average 
wage  are  somewhat  more  stringent  for  Member  States  with  generally  lower  or 
intermediate  wage  levels  such  as  Bulgaria,  Hungary,  Portugal  and  Romania,  while 
reference  values  based  on  the  median  wage  are  somewhat  more  stringent  for  some 
intermediate-to-higher  wage  countries  such  as  Belgium,  Germany,  Greece,  Malta,  and 
the Netherlands. 

Hypothetical minimum wage increases affect different shares of workers depending 
on the generosity of the minimum wage increases. In a majority of EU countries, more 
than 10% of workers would be affected by the largest minimum wage increase simulated 
in  terms  of  the  median  wage  (14  countries,  see  Graph  A12.12).  The  largest  share  of 
workers affected would be observed in Greece, Poland, Spain and Ireland, with shares of 
workers between 30% and 20% affected in case of a minimum wage increase at 60% of 
the median wage.257 

These  shares  can  be  used  to  obtain  estimates  of  the  number  of  beneficiaries  of 
various  hypothetical  scenarios.  In  particular,  to  obtain  these  estimates,  the  share  of 
workers  affected,  as  simulated  in  Euromod,  has  been  multiplied  by  the  number  of 
employees in  the affected Member States in  2019.  The results indicate that, if Member 
States  increased  their  minimum  wages  to  the  highest  reference  values,  wages  could 
increase for 22 million workers (at 60% of the median wage) or 24 million workers (at 
50%  of  the  average  wage).  At  intermediate  reference  values,  the  number  of  direct 
beneficiaries is estimated to be 11 million (55% of median wage) and 12 million (45% of 
the  average  wage).  The  difference  is  larger  between  both  low  reference  values:  if 
statutory  minimum  wages  were  increased  to  50%  of  the  median  wage,  this  would 
increase  wages  for  5.4  million  workers,  while  increases  to  40%  of  the  average  wage 
would benefit 0.7 million workers.    

The  increase  in  the  wages  of  beneficiaries  would  reach  20%  in  a  number  of 
countries  under  all  scenarios.  The  average  wage  increase  for  the  workers  affected 
depends mainly on the initial level of the statutory minimum wage and the shape of the 
wage  distribution  close  to  the  minimum  wage,  i.e.  the  number  of  workers  above  the 
statutory  minimum  wage  that  are  affected  when  the  minimum  wage  increases.  For  the 
highest scenario of minimum wages in terms of gross median income, the average wage 
increase would peak at 30% in Estonia and at 25% for Germany, Greece and Ireland (see 
Graph A12.3).  

The simulated increase of the wage bill depends on both factors: the share of workers 
affected and the average increase in earnings triggered by the new minimum wage. The 

257 Please keep in mind that the share of workers in the baseline simulation may not be identical to the share of workers 
earning  the  minimum  wage  in  the  descriptive  statistics  (Graph  A7.1).  This  is  because  the  methodology  makes 
imputations about the working hours of some workers (see Annex A4.3). 

185 

 
 
                                                           
largest  increase  in  the  wage  bill  would  be  recorded  in  Greece  for  a  minimum  wage  at 
60%  of  the  gross  median  wage,  i.e.  a  wage  bill  increase  by  more  than  4%.  Other  EU 
countries displaying a large increase in the wage bill are Ireland, Estonia and Poland, in 
the  light  of  the  high  number  of  workers  affected  and,  in  the  case  of  Estonia,  of  the 
relatively low initial statutory minimum wage (see Graph A12.4).  

These  country-specific  results  imply  that  higher  reference  values  have  a  higher 
impact  on  aggregate  wages  at  the  EU  level.  These  calculations  are  based  on 
multiplying the estimated increases in the wage bill shown in Graph A12.4 by the wage 
bill  in  EU  Member  States  in  2019.  These  calculations  imply  that  minimum  wage 
increases to the level of the highest reference values (60% of the median wage or 50% of 
the  average)  would  imply  increases  in  overall  wages  of  about  1%  at  the  EU  level. 
Increases to  intermediate reference values (i.e. 55% of the median wage  or 45% of the 
average) would imply an overall wage increase of about 0.4%, while the lower reference 
values imply smaller increases: The estimated increase in the EU wage bill is about 0.2% 
with  all  statutory  minimum  wages  at  50%  of  the  median  wage,  while  the  increase  is 
0.01% at 40% of the average wage.  

186 

 
 
 
 
Graph A12.2: Share of workers affected by increases of the minimum wage (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline  scenario  reflects  minimum  wages  in  2019.  Countries  sorted  alphabetically.  Countries  with  actual  minimum 
wages above the hypothetical scenarios were excluded. 

187 

 
 
 
 
Graph  A12.3:  Average  increase  in  the  wages  of  those  affected  by  increases  in  the 

minimum wage (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline  scenario  reflects  minimum  wages  in  2019.  Countries  sorted  alphabetically.  Countries  with  actual  minimum 
wages above the hypothetical scenarios were excluded. 

188 

 
 
 
 
Graph A12.4: Change in the total wage bill as a result of changes in the minimum 

wages (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline scenario reflects minimum wages in 2019. Countries sorted alphabetically. Countries with actual minimum 
wages above the hypothetical scenarios were excluded.  

189 

 
 
 
 
 
 
A12.2. Wage inequality, in-work poverty, gender pay gap  

To estimate the magnitude of social impacts of increasing minimum wage adequacy, 
a  microsimulation  exercise  has  been  conducted  using  the  Euromod  model.258  The 
hypothetical  scenarios simulated correspond to  situations in  which Member States with 
statutory  minimum  wages  below  a  certain  threshold  raise  it  to  this  level.  These 
hypothetical scenarios are defined in terms of ratios to the median and average wages.   

A  reduction  of  at  least  10%  in  wage  inequality  would  be  observed  in  12  Member 
States if the minimum wage were raised to 60% of the median wage. These countries 
are  Czechia,  Germany,  Estonia,  Spain,  Ireland,  Luxembourg,  Latvia,  Malta,  Poland, 
Romania,  Slovenia  and  Slovakia  (see  Graph  A12.5).  This  decrease  occurs  from  low 
initial values of wage inequality (as measured by the D5/D1 ratio) in Czechia, Poland and 
Slovakia  and  from  high  initial  values  in  Spain  and  Ireland.  The  highest  reduction  in 
absolute  terms  of  the  D5/D1  wage  ratio  would  be  indeed  achieved  in  Spain  (over  0.6 
reduction  in  the  D5/D1  wage  ratio).  This  inequality  reduction  is  mainly  due  to  the 
increase of the minimum wage level and the number of workers affected by the increase.  

Eight  EU  countries  would  witness  a  reduction  by  more  than  20%  in  in-work 
poverty should they increase their statutory minimum wage to a reference value of 
60%  of  the  median  gross  wage  or  50%  of  the  average  (see  Graph  A12.6).259  The 
most significant reductions in in-work poverty would be observed in Estonia, Greece and 
Romania  were  this  would  imply  a  decline  in  in-work  poverty  of  more  than  2  pps,  but 
decreases  reach  20%  also  in  Germany,  Hungary  and  Luxembourg,  albeit  from  a  lower 
baseline.  Reductions  would  be  lower,  the  most  significant  ones  typically  between  10% 
and 20% if minimum wages were increased to the intermediate reference values (45% of 
the average wage or 55% of the median), while they would remain close or below 10% 
for the lower values (40% of the average wage or 50% of the median).   

In some countries such as Slovenia and the Netherlands, minimum wage increases 
do  not  always  reduce  in-work  poverty  in  the  simulations.  This  is  due  to  increased 
taxes  (in  the  Netherlands)  and  reduced  means-tested  benefits  (in  Slovenia)  for  some 
beneficiary  households.  It  is  possible  that  households  would  adjust  their  behaviour 
(working hours) in reaction to the minimum wage increase in such a case; however, such 
reactions  are  not  modelled  in  these  simulations.  Alternatively,  it  is  possible  that 
parameters  of  tax-benefit  systems  are  adjusted  by  governments,  to  keep  incentives 

258 For a description of the methodology, see Annex A4.3. 
259 The indicator measures the share of persons aged 18 or over who are employed and have an equivalised disposable 
income  below  the  at-risk-of-poverty  threshold,  which  is  set  at  60  %  of  the  national  median  equivalised  disposable 
income  (after  social  transfers).  For  the  purpose  of  this  indicator,  an  individual  is  considered  as  being  employed  if 
he/she was employed for more than half of the reference year.  

190 

 
 
 
 
                                                           
unchanged  in  the  wake  of  adjusted  minimum  wages.  Such  adjustments  are  also  not 
modelled if they are done in a discretionary, rather than automatic way.260  

The pay gap in average wages between men and women declines in all EU countries 
as the minimum wage increases. For higher simulated increases of the minimum wage 
(for example 60% of the median wage), the gender pay gap declines by more than 10% in 
Greece, Spain, Romania and Slovakia (see Graph A12.7). More generally, the reduction 
in  the  gender  pay  gap  is  significant  in  a  large  majority  of  countries  according  to  the 
simulated increases of minimum wage levels, including in some EU countries where the 
gap in average wages between men and women is high (e.g. Czechia, Latvia, Germany).   

260 Such adjustments may affect the fiscal impact of minimum wage increases. Accordingly, in the current simulations, 
minimum wage increases improve the budget balance in the Netherlands and Slovenia. Adjusting tax and benefit rules 
to keep social benefits of minimum wage increases positive would likely reduce these positive fiscal impacts. 

191 

 
 
 
 
                                                           
Graph  A12.5:  Reduction  in  wage  inequality  in  simulated  hypothetical  minimum 

wage scenarios, D5/D1 indicator (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline  scenario  reflects  minimum  wages  in  2019.  Countries  sorted  alphabetically.  Countries  with  actual  minimum 
wages above the hypothetical scenarios 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% of all workers (D1).  

192 

 
 
 
 
 
 
Graph A12.6: Reduction in in-work poverty in simulated hypothetical minimum 
wage scenarios (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline  scenario  reflects  minimum  wages  in  2019.  Countries  sorted  alphabetically.  Countries  with  actual  minimum 
wages above the hypothetical scenarios were excluded. 

193 

 
 
 
 
Graph A12.7: Reduction in the gender pay gap in simulated hypothetical minimum 
wage scenarios (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: European Commission (JRC) calculations based on simulations with the Euromod microsimulation model. The 
baseline scenario reflects minimum wages in 2019. Countries sorted alphabetically. Countries with actual minimum 
wages above the hypothetical scenarios were excluded. The gender pay gap is the difference between average gross 
hourly wages of male and female employees as % of male wages, unadjusted for individual characteristics. 

194 

 
 
 
 
 
 
A12.3. Work incentives: Simulation results 

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 
incentives are weaker 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 paid by minimum wage earners are 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.261  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 worker keeps 50% or more of a hypothetical  minimum 
wage increase (Graph A12.8).  

In  countries  where  the  tax-benefit  system  already  supports  low-wage  earners  to 
take  up  work,  the  net  gain  of  these  workers  from  increasing  minimum  wages  is 
lower.  This  is  because,  in  such  systems,  as  in-work  benefits  are  gradually  withdrawn, 
income tax rates increase with increasing wage incomes. In particular, the net gains from 
a  hypothetical  minimum  wage  increase  are  below  30%  in  Luxembourg  and  the 
Netherlands.  In  contrast,  the  net  gain  is  highest  in  systems  where  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  hypothetical  minimum  wage 
increase,  and  vice  versa.  In  particular,  the  net  gain  is  above  70%  in  Bulgaria,  Croatia, 
Estonia, Greece, Hungary, Malta, Portugal, and Spain.  

261 Ad-hoc simulations conducted by the OECD based on the TaxBEN model. For more detail on the methodology, see 
Annex A4.4. 

195 

 
 
 
 
                                                           
Graph A12.8:  Net income gains as a share of net household income by 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. 

A12.4. Impacts on employment 

The  effect  of  the  minimum  wage  on  employment  is  assessed  based  on  Euromod 
simulations.262 The relative magnitude of the employment effect is determined by a so-
called  “elasticity”:  the  ratio  of  the  percentage  change  in  employment  to  the  percentage 
change in the wages of minimum wage earners. The following simulations estimate the 
possible reduction in employment as triggered by increases in labour cost.  

The calculations are based on an elasticity of -0.16, based on a central estimate of 48 
international  studies,  including  on  EU  Member  States.263  This  elasticity  means  that 
when  the  wages  of  minimum  wage  earners  increase  by  10%,  their  employment  is 
estimated  to  decrease  by  1.6%,  implying  that  the  minimum  wage  raises  wages  of  low-
wage earners much more than its possible negative impact on jobs.  

Possible negative employment effects would remain below 0.2% in most cases if all 
Member States increased their  minimum wages to the lower reference values. The 
employment  effect  would  exceed  this  in  Estonia  and  Ireland  in  the  case  of  40%  of  the 
average wage and, in addition, in Germany, Greece and Luxembourg in the case of 50% 
of the median (see Graph A12.9).  

262 For a more detailed description of the methodology, see Section A4.4 in Annex 4. 
263 The survey of recent academic studies has been compiled by Dube, A. (2019): “Impacts of minimum wages: review 
of the international evidence”, report presented to the UK Low Pay Commission. A more detailed explanation of the 
simulation methodology of employment effects is provided by Annex A4.4. 

196 

 
 
 
 
                                                           
Graph A12.9: Estimation of possible negative employment effects in simulated 
hypothetical minimum wage scenarios (%) 

(a) Scenarios of minimum wages as a proportion of the median wage 

(b) Scenarios of minimum wages as a proportion of the average wage 

Notes: Calculations are based on Euromod simulation outputs by the European Commission (JRC). The baseline 
scenario reflects minimum wages in 2019. Countries are sorted alphabetically. Countries with actual minimum wages 
above the hypothetical scenarios were excluded. 

197 

0,0%0,2%0,4%0,6%0,8%1,0%1,2%1,4%BEBGCZDEEEELESFRHRHUIELTLULVMTNLPLROSISKMW=40% of the average wageMW=45% of the average wageMW=50% of the average wage 
 
 
 
 
A12.5. Impacts on consumption and prices   

a)  Impact on consumption 

This section presents the results of the analysis undertaken to provide a tentative estimate 
of the impact of the minimum wage on mean consumption expenditure by consumption 
quintile  for  17  Member  States  and  the  UK.264  There  is  a  positive  relation  between 
minimum  wage  increases  and  consumption.  The  impact  differs  across  the  consumption 
distribution  and  is  the  highest  for  the  bottom  of  the  consumption  distribution  and 
gradually  increases  across  the  distribution.  This  is  not  surprising  as  the  low-income 
households  are  mostly  affected  by  the  minimum  wage  hike  and  most  likely  to  be 
concentrated at the bottom of the consumption distribution.265 

Data and econometric approach 

Data on the percentage change in mean consumption expenditure per adult (adjusted for 
household  composition,  in  PPS)  between  2005  and  2010  by  quintile  and  country  is 
obtained  from  the  Household  Budget  Surveys.  The  main  explanatory  variable  is  the 
percentage  change  in  the  monthly  minimum  wage  in  PPS.  In  order  to  test  whether  the 
effect  of  an  increase  in  the  minimum  wage  varies  between  consumption  quintiles, 
interaction terms between quintile dummies and minimum wage growth are included. To 
isolate  the  effect  of  minimum  wage  changes  from  changes  due  to  average  wages,  the 
percentage change between 2005 and 2010 in annual net earnings (in PPS) for a single 
individual  earning  100%  of  the  average  wage is  introduced  in  the  regression  as  control 
variable. As a robustness check, the average wage is replaced with the percentage change 
in GDP per capita (in PPS) between 2005 and 2010 obtained from Eurostat.  

Results 

Table A12.2 shows the results obtained from four different specifications. The first two 
columns present the result of a simple model that includes no interaction effects with the 
consumption quintile, but controls for respectively the average wage growth (Model A) 
and GDP per capita growth (Model B). The last two columns present estimations of the 
full  model,  including  interaction  terms  with  the  consumption  quintiles  and  respectively 
average  wage  growth  (Model  C)  and  GDP  per  capita  growth  (Model  D).  Interaction 
terms allow identifying the effect that is specific to each quintile. 

264The  Member  States  included  are  Belgium,  Bulgaria,  Czech  Republic,  Estonia,  Greece,  Spain,  France,  Ireland, 
Lithuania, Latvia, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, and Slovenia.  
265 European Commission (2016): LMWD 2016 Report, DG EMPL, p. 92. 

198 

 
 
 
 
                                                           
Table A12.2: Econometric evidence:  Impact of the minimum wage on consumption 
by income quintile 

Notes: (1) OLS estimates. Robust standard errors. Model A and C which include the percentage change in the average 
wage  as  an  explanatory  variable  do  not  include  Estonia  and  Slovakia  because  of  missing  data.  Asterisks  indicate 
estimated  coefficients  that  are  statistically  significant  at  the  1%  (***),  5%  (**),  or  10%  (*)  level.  Data  on  the 
percentage change in mean consumption expenditure per adult equivalent (in PPS) between 2005 and 2010 by quintile 
and country are obtained from the Household Budget Surveys. 
Source: Commission services, based on Eurostat. 

The  results  indicate  that  there  is  a  positive  impact  on  aggregate  consumption.  Yet,  this 
impact  is  more  precisely  estimated  when  the  response  of  aggregate  consumption  is 
conditional  to  different  income  quantiles.  The  effect  of  a  minimum  wage  increase  is 
found  to  be  larger  for  the  lowest  quintile  and  gradually  decreasing  across  the  income 
distribution.  The  results  presented  by  Model  C  and  D  show  that  a  1%  increase  in  the 
minimum wage leads to an increase in consumption in the ballpark of 0.7% in the bottom 
quintile and of 0.6% in the second quintile. The effect decreases rapidly to respectively 
0.4%-0.3% in the third quintile. There is no significant effect of minimum wage hikes on 
consumption  for  the  two  highest  quintiles  of  the  consumption  distribution  at  a  5% 
significance level. Graph A12.10 summarizes the impact of the minimum wage showing 
the effect per quintile and the corresponding confidence interval. 

199 

(1)(2)(3)(4)Model AModel BModel CModel DMinimum wage (MW), % in change in PPS0.48**0.33**(0.19)(0.14)Average wage, % in change in PPS0.73***0.73***(0.20)(0.19)GDP per capita, % in change in PPS1.16***1.16***(0.17)(0.11)First quintile*  MW0.80***0.67***(0.20)(0.13)Second quintile* MW0.67***0.53***(0.21)(0.11)Third quintile* MW0.48*0.31***(0.25)(0.11)Fourth quintile* MW0.340.19*(0.25)(0.11)Fifth quintile* MW0.12-0.04(0.26)(0.12)Constant-0.087**-0.059**-0.087***-0.059***(0.033)(0.026)(0.032)(0.024)Observations80908090R-squared0.560.640.630.73Dependent variable: Mean consumption expenditure per adult equivalent, % in change in PPS 
 
 
 
 
 
Graph A12.10: Impact of the minimum wage on consumption by income quintile 

Note: OLS estimates based on the results reported in Model C in Table A12.1, using the percentage change in the 
average wage as an explanatory control variable.  
Source: Commission services, based on Eurostat. 

A  potential  caveat  of  the  analysis  is  that  it  does  not  include  some  time-varying  factors 
that  differ  between  countries,  such  as  budgetary  restrictions,  which  may  affect  both 
consumption and minimum wages. This may create endogeneity bias. An additional bias 
could come from the exclusion of factors that affect consumption in a specific quintile, 
such as indexation of benefits in line with minimum wage changes affecting incomes in 
the lowest  quintiles. As result, the estimates can be biased and potentially overestimate 
the  effect  of  the  minimum  wage.  Yet,  they  show  that  minimum  wage  changes  have  a 
stronger  impact  on  consumption  at  the  bottom  rather  than  at  the  higher  part  of  the 
consumption distribution. 

b)  Impact on prices  

The analysis looks at the impact of the minimum wage on consumer prices for 12 product 
categories266  in  19  EU  Member  States  (plus  UK)267  with  a  statutory  national  minimum 
wage.  

266 The product categories (COICOP categories  - one digit) included are  alcoholic beverages, tobacco and narcotics; 
clothing  and  footwear;  communications;  education;  food  and  non-alcoholic  beverages;  furnishings,  household 
equipment and routine household maintenance; health; housing, water, electricity, gas and other fuels; miscellaneous 
goods and services; recreation and culture; restaurants and hotels; and transport. 
267  The  EU  Member  states  included  are  Belgium,  Bulgaria,  Czech  Republic,  Estonia,  France,  Croatia,  Hungary, 
Ireland, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia, and Spain. 

200 

-0.6-0.4-0.20.00.20.40.60.81.01.21.4FirstquintileSecondquintileThirdquintileFourthquintileFifthquintileImpact of a 1% increase in minimum wage on consumption  (in %) 
 
 
                                                           
The analysis covers the period January 2005-March 2016. Price changes (increases and 
decreases)  after  an  increase  in  the  minimum  wage  are  tabulated.  Two  cases  are 
considered:  (1)  an  increase  in  the  minimum  wage  in  the  last  two  months  and  (2)  no 
increase in the minimum wage in the last two months. The impact in a specific month of 
a  minimum  wage  change  on  prices  is  estimated  using  an  econometric  model  lining  the 
percentage change in consumer prices for a specific product category in a given country 
on the percentage change in the national statutory minimum wage of that country.   

In  addition  to  the  contemporaneous  and  lagged  percentage  changes  in  the  minimum 
wage, the model also includes the change in the minimum wage of the following year to 
control  for  potential  expectations  firms  may  have  on  future  changes  in  the  minimum 
wage.  Further,  the  model  controls  for  the  lagged  change  in  prices  (to  account  for 
persistency  overtime  of  price  changes)  and  product–country,  month–country,  month-
product and year fixed effects. These fixed effects are introduced to net out the remaining 
unobserved components affecting price changes and isolate the effects due to minimum 
wage  changes.  The  analysis  also  estimates  the  impact  of  minimum  wage  hikes  on  the 
price of the consumer basket by income level.  

Table A12.3 presents the results of the descriptive evidence on price changes following 
an increase in the minimum wage. The results show that in case there was an increase in 
the minimum wage in the two months before, there were significantly more increases in 
prices (60.1%) compared to periods when there was no increase in the minimum wage in 
the past two months (53.4%). The reverse holds for price decreases (i.e. price decreases 
are  less  frequent  in  two  months  that  follow  minimum  wage  rises).  With  respect  to  the 
magnitude of the price changes, the results suggest that price changes (both increases and 
decreases) are larger after minimum wage hikes but quite rare compared to the case of no 
minimum wage change. 

Table  A12.3:  Descriptive  evidence:  Impact  of  minimum  wage  increases  on 
consumer prices 

Notes: 1) Asterisks indicate estimated effects that are statistically significant at 1% (***), 5% (**), or 10% (*) level.  
Source: Commission services, based on data from Eurostat and national statistics. 

201 

Minimum wage increase in the past two monthsYesNoPercent increases60.153.4***Percent decreases27.529.7***Mean price change (%) increase0.740.82**Mean price change (%) decrease-1.72-1.09***A. Share of price changesB. Size of the price changes  
 
 
 
Table  A12.4  presents  the  results  of  the  regressions  for  different  specifications  of  the 
baseline model. The results are relatively robust across the estimations.268  

Table  A12.4:  Econometric  evidence:  Impact  of  minimum  wage  increases  on 
consumer prices 

The effect of the contemporaneous change in the minimum wages on prices is significant 
in all specifications except model A, which includes the least  control  variables and can 
therefore be considered as less reliable. In case it is significant, its effect ranges between 
0.021 (model including month-country fixed effects) and 0.062 (model including month-
product  fixed  effects).  In  addition,  in  case  of  model  E,  which  includes  month-country 
effects, the effects of the lagged and lead minimum wage increase are also found to be 
significant. The combined effect of a 10% increase in the minimum wage is expected to 
lead to a price increase of roughly 0.4%.269 Hence, overall the results imply that a 10% 
increase in the minimum wage leads to 0.4% to 0.6% increase in consumer prices.  

In order to provide some insights on the impact of minimum wage increases on prices for 
Graph  A12.11  the  results  of  the  combined  effect  (including  the  coefficients  for  the 
contemporaneous  time  period,  lagged  time  period  and  lead  period  if  significant)  of  a 

268 In an additional robustness check, the probability of a price increase is used at the place of the price increases as 
outcome  variable.  Results  are  in  line  with  expectations;  an  increase  in  the  minimum  wage  significantly  lowers  the 
probability of a price increase.  
269 Note that in the model that includes month-country fixed effects, the effect of a minimum wage increase is lower 
than  in  the  other  models.  Month-country  fixed  effects  allow  controlling  for  country-specific  seasonality  of  prices. 
However, in case for example minimum wage increases happen in January and price increases also mainly happen in 
January, this specification will attribute price increases to the seasonal price change (i.e. occurring every 1 January), 
rather than to an increase in the minimum wage. 

202 

(1)(3)(2)(5)(4)Model AModel BModel CModel DModel ELagged consumer prices, % change-0.052-0.153-0.049-0.148(0.11)(0.12)(0.11)(0.12)Minimum income, % change0.00480.021***0.062***0.021***0.061***(0.012)(0.0070)(0.013)(0.0070)(0.012)Lagged minimum income, % change0.010**-0.012(0.0047)(0.0085)Two period lagged minimum income, % change-0.0012-0.013(0.0046)(0.0086)Future minimum income, % change0.0051*0.0044(0.0031)(0.0042)Product-country fixed-effectsYesYesYesYesYesMonth-country fixed-effectsNoYesNoYesNoMonth-product fixed-effectsNoNoYesNoYesYear fixed-effectsNoYesYesYesYes0.202***-0.0990.089*-0.0870.108*Constant(0.0052)(0.121)(0.054)(0.123)(0.056)Observations3215832158321583143931439R-squared0.0000.0730.3350.0730.337 
 
 
                                                           
minimum wage increase on prices of particular product categories using a regression that 
includes month and year fixed effects and is equivalent to model E. 

The combined impact  ranges  from  0.087 for clothing and  footwear to  0.020 for health. 
No significant effect is found for education and housing, water, electricity, gas and other 
fuels. The effect of the minimum wage on consumer prices is found to be the highest for 
the following three product categories: clothing and footwear; recreation and culture; and 
furnishings, household equipment and routine household maintenance.  

Graph  A12.11:  Combined  effect  of  the  minimum  wage  variables  on  prices  by 
product category 

Notes: (1) Based on an estimation of equation that includes month-country fixed effects and year fixed effects. Only 
effects significant at 10% (*) or lower levels are included in the combined effect.  
Source: Commission services, based on data from Eurostat and national statistics. 

203 

0.0200.0270.0300.0300.0360.0450.0510.0540.0750.0870.000.020.040.060.080.10HealthFood and non-alcoholicbeveragesTransportRestaurants and hotelsCommunicationsMiscellaneous goods andservicesAlcoholic beverages, tobaccoand narcoticsFurnishings, householdequipment and maintenanceRecreation and cultureClothing and footwearCombined coefficient on the minimum wage variables 
 
 
 
 
A12.6. Introduction  of  the  statutory  minimum  wage  in  Ireland  and 

Germany  

Ireland  

In Ireland, a statutory minimum wage was introduced in 2000, affecting more than 20% 
of  employees.  An  evaluation  of  the  introduction  of  the  minimum  wage  based  on  a 
company  survey  found  little  to  no  effect  on  employment.  In  particular,  “employment 
growth among ﬁrms with low-wage workers prior to the legislation was no different from 
that  of  ﬁrms  not  affected  by  the  legislation.”  There  was  some  evidence  of  negative 
employment effects in the case of a small group of firms that did not originally intend to 
increase their wages towards the new minimum wage level. 270   

Analyses of the impact of the Irish minimum wage on wage inequality and poverty found 
that the minimum wage reduces wage inequality at the bottom of the wage distribution, 
including by so-called “spill-over effects”, whereby workers earning above the minimum 
wage also experienced a wage rise. These spill-overs extend to the 30th percentile of the 
wage distribution.271  

More  recent  studies  found  that  the  minimum  wage  is  a  relatively  blunt  tool  to  reduce 
poverty, but still effective to protect the wages of low-skilled workers. It has been shown 
that  17  per  cent  of  minimum  wage  employees  belong  to  a  household  that  is  at  risk  of 
poverty,  compared  to  3.3  per  cent  of  non-minimum  wage  employees.272  At  the  same 
time, some minimum wage workers in Ireland are located in high-income households.273 
It has also been suggested that the Irish minimum wage is an effective tool in protecting 
the income of low-skilled workers, particularly during recessions.274 

Germany 

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.275 

Hourly wages of employees earning less than the 2015 minimum wage increased by 14% 
on  average  between  2014  and  2016.  This  increase  affected  around  15%  of  the  German 

270 O’Neill, D., B. Nolan, and J. Williams (2006). “Evaluating the introduction of a National Minimum Wage: evidence 
from a new survey of firms in Ireland”, Labour: Review of Labour Economics and Industrial Relations, Vol. 20, no. 1, 
pp. 63–90. 
271 Redmond, P. (2020): Minimum wage policy in Ireland. Budget perspectives 2021 paper 2, May 2020.  
272 Maitre, B., S. McGuinness, and P. Redmond (2017). “A study of minimum wage employment in Ireland: the role of 
worker, household and job characteristics”, Dublin: Economic and Social Research Institute.  
273 Redmond, P., K. Doorley and S. McGuinness (2020). “The impact of a minimum wage change on the distribution 
of wages and household income”, IZA Discussion Paper No. 12914, Bonn: IZA. 
274 Holton, N. and D. O’Neill (2017). “The changing nature of Irish wage inequality from boom to bust”, Economic 
and Social Review, Vol. 48, No. 1, pp. 1–26.  
275 For an overview of findings, see: Bruttel, O., “The effects of the new statutory minimum wage in Germany: a first 
assessment of the evidence.” Journal for Labour Market Research, 53(1), 10, 2019. 

204 

 
 
 
                                                           
workforce.276  This,  however,  did  not  appear  to  translate  into  a  significant  impact  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  decline  in  marginal  part-time 
employment  (so-called  ‘Minijobs’)  could  be  observed.277  Another  study  with  more 
detailed data confirms that there were no employment effects and emphasises that many 
workers moved to better jobs after the introduction of the minimum wage.278 

No negative effects for businesses could be observed in terms of overall company profits, 
increased  competition  or  market  exits.279  At  the  level  of  firms  directly  affected  by  the 
minimum wage, however, labour costs increased on average by 6 percent more than the 
labour  costs  of  non-affected  firms.280  Reactions  of  employers  have  included  increasing 
qualification  and  proficiency  requirements,  reducing  working  hours,  increasing  work 
intensity  and  increasing  prices.  There  does  not  seem  to  have  been  an  impact  on 
productivity.281 

A12.7. Youth minimum wages and youth employment: A survey  

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.282  

Recent studies of policy episodes in specific EU Member States find a variety of results 
but,  in  contrast  to  the  cross-country  evidence,  most  do  not  support  significant  negative 
employment  effects  of  youth  minimum  wages.283  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).  

276 Dustmann, Ch., A.Lindner, U. Schönberg, M. Umkehrer, and Ph. vom Berge. (2020). “Reallocation Effects of the 
Minimum Wage: Evidence From Germany”, CREAM Discussion Paper 07/20, University College London. 
277 See Bruttel (2019), cited above. 
278 Dustmann, et al. (2020, op. cit.) 
279 Mindestlohnkommission, “Zweiter Bericht zu den Auswirkungen des gesetzlichen Mindestlohns“, 2018. 
280  Bossler,  M.,  Gürtzgen,  N.,  Lochner,  B.,  Betzl,  U.,  Feist,  L.,  Wegmann,  J.,  “Auswirkungen  des  gesetzlichen 
Mindestlohns  auf  Betriebe  und  Unternehmen“,  IAB-Forschungsbericht,  No.  4/2018,  Institut  für  Arbeitsmarktund 
Berufsforschung (IAB), Nürnberg, 2018. 
281 See Bruttel (2019), cited above, and the references therein.  
282 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). 
283 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.   

205 

 
 
 
                                                           
Sharp increases in the youth minimum wage in Portugal in the late 1980s were found not 
to have negative employment effects by Portugal and Cardoso (2006).284 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.285  Despite  the  significant  increase  in  the  youth  minimum  wage,  they 
find  no  significant  impact  on  youth  employment  (European  Commission)  and  only  a 
limited  effect  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.  

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.286 
They find only a very small effect on employment (0.3 to 0.4 pps), which they relate to 
the fact that employers are partially 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.   

284 P. Portugal, A.R. Cardoso (2006): “Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions 
and Separations”, Journal of the European Economic Association, Vol. 4, No. 5 (Sep., 2006), pp. 988-1013.  
285  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. 
286 Van der Werff, S., Zwetsloot, J. and B. ter Weel (2018), “Verkenning effecten aanpassing minimum(jeugd)loon: De 
invloed van de verhoging van het wettelijk minimumloon voor 18- tot en met 22-jarigen op de werkgelegenheid en bbl-
instroom”,  SEO Economisch Onderzoek, Amsterdam. 

206 

 
 
 
 
                                                           
A12.8. Impacts on public budgets: Results from Euromod simulations  

Minimum wages affect public budgets in 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  the  case  that  a  share  of  public-sector  employees  earn  the  minimum 
wage.  Higher  minimum  wages  may  also 
the  cost  of  some  public 
procurements.287  This  effect  is,  however,  likely  more  than  counterbalanced  by  indirect 
effects on public revenues. 

increase 

An  increase  in  the  minimum  wage  raises  revenues  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 5.288 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  may  increase  in  countries  (e.g.  in  the 
Netherlands  and  Lithuania)  where  some  social  benefits  are  automatically  linked  to  the 
minimum wage.289  
Further  impacts  may  accrue  through  taxes  on  corporations  and  consumption,  as 
well as second-round effects. Depending on the 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  from  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.290 In scenarios in 
which  Member  States  raise  their  minimum  wages  to  50%,  55%  or  60%  of  the  median 
wage, or 40%, 45% or 50% of the average wage, these fiscal effects are estimated to be 
positive  in  most  cases,  driven  by  increases  in  tax  revenues  and  reductions  of  benefit 

287 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”.  
288 K. Zandvliet, E. de Vleeschouwer, R. van Oostenbrugge, R. Rey (2019): “Budgettaire effecten van verhoging van 
het minimumloon”, SEOR BV, Rotterdam.  
289  The  links  between  minimum  wages  and  benefits  may  in  some  cases  not  be  automatic.  In  such  cases,  impact 
assessments may differ based on the assumptions they make on these links. 
290 For a description of the methodology, see Annex 4. 

207 

 
 
 
                                                           
expenditure (Graph A12.11). Possible second-round effects are not taken into account in 
the simulations, nor are impacts on company taxation. The magnitude of these effects is 
small; the overall improvement of public budgets is smaller or close to 0.1% of GDP in 
the scenarios implying smaller changes (50% of the median or 40% of the average wage), 
while  it  reaches  0.4%  of  GDP  in  a  few  cases  where  minimum  wages  are  increased  to 
60% of the median wage (in Estonia, Germany, Greece, and the Netherlands) or 50% of 
the average (in the Netherlands, Poland, and Romania). In turn, the simulations imply a 
small  negative  impact  on  the  public  budget  balance  for  Hungary  and  Spain.  Negative 
fiscal effects are driven by lower tax revenues in Hungary and by lower revenues from 
social  security  contributions  in  Spain.  Results  may  be  sensitive  to  modelling 
assumptions.291   

Graph A12.12: Impact of hypothetical minimum wage scenarios on public budgets, 
change in fiscal balance as % of GDP 

(a) Scenarios of minimum wages as a proportion of the median wage 

291 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 in a negative overall effect on the public budget balance.  

208 

 
 
 
                                                           
(b) Scenarios of minimum wages as a proportion of the average wage 

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. 

A12.9. The choice between possible indicative reference values 

A12.9.1. Options  

The  policy  options  presented  in  Section  5.4.2  include  a  measure  providing  for 
indicative  reference  values  of  minimum  wage  adequacy  to  be  used  when  setting 
statutory  minimum  wages.  Two  of  the  policy  packages  presented  in  Section  5.6 
includes  this  measure.  This  section  explains  the  options,  the  impacts  and  the  choice 
between possible indicative reference values. 

Possible indicators to base such reference values on are presented in Annex A11.2. 
Two indicators have been retained among the options:  

1)  the gross minimum wage as a percentage of the gross average wage and  

2)  the gross minimum wage as a percentage of the gross median wage. 

Other  options,  based  on  the  net  income  of  minimum  wage  earners,  are  discarded  in 
Section  5.5  for  their  complexity  and  the  lack  of  transparency  this  may  result  in  for  the 
implementation of the initiative. 

209 

-0,3-0,2-0,10,00,10,20,30,40,50,60,7BEBGCZDEEEELESFRHRHUIELTLULVMTNLPLROSISKMW=40% of the average wageMW=45% of the average wageMW=50% of the average wage 
 
 
 
 
For  both  indicators,  three  options  for  reference  values  have  been  assessed.  These 
are: 40%, 45% and 50% of the gross average wage, and 50%, 55% and 60% of the gross 
median wage.292   

A12.9.2. Choice of the indicator 

The  median  wage  is  a  widely  used  indicator  to  compare  minimum  wages  across 
countries.  It  is  a  more  accurate  indicator  of  the  inequality  of  low  wages  and  is  more 
related  to  possible  effects  on  employment.  This  is  because,  as  opposed  to  the  average 
wage, the median wage is not affected by top incomes. For this reason, it is preferred by 
some analysts (including the OECD) to the comparison to the average wage.  

The average wage is also a widely used indicator to compare minimum wages across 
countries. It is based on a simpler statistical concept than the median wage. In addition, 
in  four  Member  States  (Czechia,  Estonia,  Lithuania  and  Poland),  targets  have  been 
formulated in terms of the average wage. For some Member States (primarily in Central 
and Eastern Europe, in particular Bulgaria, Hungary, Portugal and Romania), it provides 
for  more  ambitious  guidance  than  the  median  wage.  At  the  same  time,  since  this  more 
ambitious  guidance  may  be  driven  by  rapid  growth  of  high  wages,  it  may  be  divorced 
from developments relevant for low-wage earners.  

Based  on  these  arguments,  both  the  median  wage  and  the  average  wage  can  be 
useful  in  guiding  the  policies  of  Member  States.  The  median  wage  may  be  more 
closely  related  to  developments  relevant  for  low-wage  earners.  At  the  same  time,  the 
average wage is based on a simpler concept which makes it easier to communicate to the 
public.  In  addition,  some  Member  States  already  have  adequacy  targets  based  on  the 
average wage. 

A12.9.3. Choice of the reference value 

Higher reference values are more effective in reaching the goals of the initiative. The 
highest  options  (60%  of  the  median  wage  or  50%  of  the  average  wage)  have  very 
significant  positive  social  impacts  (and  are  preferred  by  workers’  organisations);  the 
intermediate  options  (55%  of  the  median  wage  or  45%  of  the  average  wage)  have 
significantly positive social impacts, while the lowest options (50% of the median wage 
or 40% of the average wage) are not expected to have a very significant positive social 
impact.  

In the quantitative simulations, social benefits are proportional to possible costs in 
terms of employment and more broadly to the economic costs. This is ensured by the 
methodology used to  simulate employment  effects: the employment impact  is  linked to 
the  increase  in  the  wages  of  minimum  wage  beneficiaries  by  a  parameter  (called  the 

292 Statistical definitions and issues related to the concepts of the average and median wage are discussed in Annex 
A4.7.  

210 

 
 
                                                           
“own-wage  elasticity”).  More  broadly,  the  social  benefits  are  proportional  to  the 
economic  costs  of  higher  minimum  wages  since  an  increase  in  beneficiaries’  wages 
means increased labour cost for the firm. This cost may be shared between employers (in 
the form of reduced profits) and consumers (in the form of higher prices) but this does 
not loosen the close link between social benefit and economic cost. See Table A12.4 for 
summary  information  of  some  benefits  costs,  based  on  simulations  presented  in  more 
detail in previous sections of this Annex.293 

293 Countries and number of workers affected, as well as the increase in the wage bill is based on calculations shown in 
Annex A12.1. Impacts on wage inequality, in-work poverty, and the gender pay gap are based on calculations shown in 
Annex A12.2. Employment impacts are based on calculations shown in Annex A12.4. Costs for consumers, firms and 
SMEs are based on calculations shown in Annex A12.12. 

211 

 
 
 
                                                           
Table A12.4: A summary of costs and benefits associated with various reference values 

Countries  affected 

Median Wage  

Average wage 

50% of median 
wage 

55% of median 
wage 

60% of median 
wage 

40% of average 
wage 

45% of average 
wage 

50% of 
average wage 

9 MS: CZ, DE, 
EE, EL, HR, IE, 
LV, MT, NL 

15 MS: all 
statutory MS but 
BG, ES, FR, PT, 
RO, SI 

19 MS: all 
statutory MS but 
PT and BG 

6 MS: CZ, EE, 
HU, IE, LV, MT 

17 MS: all 
statutory MS but 
ES, FR, PT, SI 

20 MS: all 
statutory MS 
but PT 

Number of workers affected 

5 million 

11 million 

22 million 

0,7 million 

12 million 

24 million 

Increase in the EU wage bill 

Impact on wage inequality  

Impact on in-work poverty  

Gender pay gap  

Impact on total employment  

0,2% 

-2% 

-2% 

-0,7% 

-0,1% 

0,4% 

-5% 

-6% 

-2% 

-0,2% 

1,0% 

-8% 

-12% 

-5% 

-0,4% 

0,01% 

-1% 

-1% 

-0,2% 

-0,01% 

0,4% 

-6% 

-7% 

-2% 

-0,2% 

1,0% 

-10% 

-13% 

-5% 

-0,5% 

Annual cost borne by consumers  

EUR 8 billion 

EUR 17 billion 

EUR 40 billion 

EUR 0,6 billion 

EUR 15 billion  EUR 38 billion 

Annual cost borne by firms  

EUR 3 billion 

EUR 6 billion 

EUR 13 billion 

EUR 0,2 billion 

EUR 5 billion 

EUR 13 billion 

  --Of which: costs borne by SMEs 

EUR 2 billion 

EUR 5 billion 

EUR 12 billion 

EUR 0,2 billion 

EUR 4 billion 

EUR 11 billion 

212 

 
 
 
  
Very  high  reference  values  could  increase  the  risks  in  terms  of  economic  impacts, 
but other elements in the preferred package mitigate the risks. As it has been pointed 
out by the academic literature, most evidence related to the impacts of minimum wages 
has been gained on the basis of moderate levels of minimum wages, i.e., those observed 
now  in  the  EU.  Research  remains  inconclusive  about  the  threshold  up  to  which  the 
minimum wage can be increased without causing a significant loss in employment. The 
highest reference values among the options (i.e. 60% of the median wage and 50% of the 
average wage) are close to the currently highest  minimum wages in the EU. Therefore, 
there could be some risks in terms of employment and economic impacts at these levels, 
especially  for  some  (low-wage)  sub-national  regions  and  sectors.  Such  risks  have  been 
also  emphasised  by  the  European  Commission  in  its  guidance  to  Member  States  in  the 
European  Semester.  At  the  same  time,  the  preferred  package  includes  sufficient 
flexibility to  allow Member States to  determine the pace of improving the adequacy of 
minimum wages in light of economic conditions and risks, including to specific sectors, 
regions  and SMEs. This means that higher risks are not  necessarily  associated with  the 
highest  reference  values  (i.e.  60%  of  the  median  wage  or  50%  of  the  average  wage). 
However,  this  can  imply  some  risks  to  the  degree  of  implementation  for  the  options 
related to the highest reference values. 

In  sum,  the  intermediate  and  high  reference  values  (55%  or  60%  of  the  median 
wage  and  45%  or  50%  of  the  average  wage)  are  chosen  as  possible  preferred 
options.  They  are  very  effective  in  attaining  the  adequacy  goals  of  the  initiative,  as 
opposed to the lower reference values (50% of the median or 40% of the average wage), 
while  they  can  have  high  efficiency.  The  choice  between  them  involves  trading  off 
higher  expected  social  benefits  against  higher  economic  costs  and  higher  risks  both  in 
terms of these costs and in terms of the degree of implementation. The reference values 
based on the median and the average wage similar guidance to most Member States, but 
there are differences for individual Member States (see Box 1 in Section 6.1.4 as well as 
the discussion in this Annex on the choice of the indicator).  

Finally, a combination of reference values based on both indicators is also possible, 
whereby  Member  States  could  be  asked  to  take  into  account  either  the  highest  or  the 
lowest of both reference values (60% of the median and 50% of the average wage, if the 
highest  reference  values  are  combined;  or  55%  of  the  median  and  45%  of  the  average 
wage  if  the  intermediate  reference  values  are  combined).  This  may  imply  small 
differences  in  guidance  for  individual  Member  States,  but  very  small  changes  in  the 
overall expected impacts as shown in the overview table above. 

213 

 
 
 
 
 
A12.10.

Capacity building actions  

Capacity  building  is  a  key  tool  for  supporting  collective  bargaining.  Measures 
promoted  in  this  regard  aim  at  providing  financial,  legal,  analytical,  institutional  and 
political  support  in  view  of  ensuring  that  social  partners  are  effectively  engaged  in 
collective  bargaining  on  wage  setting.  Such  measures  include,  inter  alia,  providing 
financial  and  organisational  resources,  promoting  knowledge-building  through  mutual 
learning, identification and exchanges of good practices and providing qualified training 
and  counselling.  Capacity  building  also  depends  on  the  will  and  efforts  of  the  social 
partners  themselves  who  are  best  placed  to  identify  their  needs.  These  efforts  can  be 
supported by public authorities, also by making use of public funding, while respecting 
the social partners' autonomy. 

Capacity building initiatives for more effective social dialogue help social partners 
to improve their membership basis and their human and administrative capacities; 
to  promote  their  process-oriented  capacities;  and  to  support  their  organisational 
development. Typical promoting capacity-building initiatives contribute to strengthening 
organisation-oriented  capacities  of  social  partners  (e.g.  membership,  human  resources 
and  administrative  capacities)  and  their  process-oriented  capacities.  The  lists  below 
provide more information in this regard.294 

Organisation-oriented  capacities 
administrative capacities): 

(e.g.  membership,  human  resources  and 

  Set up, maintain or expand a stable membership  

 

Inform, organise and protect current and potential members 

  Provide  qualified  training  and  counselling,  information  and  communication  for 

their members, partners, management and administrative staff  

  Provide and diversify services for members  

  Obtain or maintain appropriate equipment 

  Adapt organisational structures and work practices according to changing labour 

markets, globalisation and their impact on industrial relations 

Process-oriented capacities: 

  Set up structures for social dialogue  

  Effectively engage in collective bargaining, social dialogue and dispute resolution  

294 Eurofound (2019), “Exploring how to support capacity-building for effective social dialogue”. 

214 

 
 
 
                                                           
 

(Co)regulate the employment relationship 

  Mobilise members for industrial action.  

  Participate in policymaking at different levels 

  Participate in international cooperation and interregional/cross-border activities 

  Engage in advocacy 

215 

 
 
 
 
 
A12.11.

Coherence 

The options considered in this Impact Assessment are coherent with the European 
Semester  and  with  the  Country  Specific  Recommendations  issued  within  its 
framework.  This  section  presents  a  summary  of  the  European  Semester  processes,  the 
EU framework for the coordination of economic policies across the European Union as 
well as detail of the CSRs issued to Member States during the last years.  

a)  European Semester  

Wage  policies  (including  those  related  to  minimum  wages)  are  subject  to  multilateral 
surveillance  within  the  European  Semester,  the  annual  cycle  of  economic  policy 
coordination  in  the  EU.  Specifically,  at  the  beginning  of  each  Semester  cycle,  wage 
developments  are  analysed  in  the  frame  of  the  Annual  Sustainable  Growth  Strategy 
(ASGS),  the  Alert  Mechanism  Report  (AMR)  and  –  more  in  detail  –  in  the  Joint 
Employment  Report  (JER)  and  the  Labour  Market  and  Wage  Development  Report 
(LMWD).  The  recommendation  for  the  euro  area  (EAR)  also  includes  policy  advice 
linked  to  wage  developments.  Next,  EU  governments  present  to  the  Commission  their 
National  Reform  Programmes,  and  as  from  2020,  their  Resilience  and  Recovery  Plans, 
which detail the specific policies and reforms each country will implement to boost jobs 
and growth, the green and digital transitions, and prevent/correct imbalances, as well as 
their  concrete  plans  to  comply  with  the  EU's  country-specific  recommendations  and 
general fiscal rules. Later in the cycle, the Country Reports analyse wage (and minimum 
wage)  developments  in  all  Member  States  and  also  present  an  assessment  of  the 
implementation  of  the  Country-specific  recommendations  (CSRs)  as  well  as  of  the 
Resilience and Recovery Plans. Subsequently, in 2021 the Commission will present each 
country  with  implementing  decisions  regarding  the  RRF  [and  in  subsequent  years  also 
CSRs]. During the last  years, a number of CSRs have been issued to Member States in 
the area of wages, and also more specifically on minimum wages (see section b) below).  

Minimum  wages  will  also  continue  to  be  monitored  through  the  European 
Commission’s benchmarking frameworks. These frameworks, which are developed in 
close  cooperation  with  the  Member  States,  are  analytical  frameworks  which  support 
structural  reforms,  promote  the  exchange  of  best  practice  and  foster  multilateral 
surveillance. In September 2019, the European Commission presented to Member States 
a  draft  discussion  paper  on  benchmarking  minimum  wages.295  This  benchmarking 
framework  proposes  indicators  to  monitor  outcomes,  policy  performance  and  policy 
levers related to minimum wage policies. It does not establish quantitative thresholds for 
good  performance  or  reference  values.  Discussions  in  the  Employment  Committee 
remained in an early stage.  

295  This  work  stream  follows  up  on  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. 

216 

 
 
 
                                                           
b)  Brief  overview  of  Country  Specific  Recommendation  (CSRs)  issued  to 

Member States  

CSRs on minimum wages (since 2011) 

Ten  Member  States  have  received  CSRs  related  to  minimum  wages  in  the  last  decade. 
While the situation has not improved overall, the recommendations on minimum wages 
has decreased as the number of CSRs was drastically  reduced in  recent  years  and their 
focus  shifted  to  addressing  the  macroeconomic  imbalances  and  investment  shortfall 
resulting from shortfalls in the aftermath of the 2008-2012 economic and financial crisis.  

  Bulgaria and Romania: The CSRs addressed to these countries in 2014-19 have 
consistently  emphasised  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  minimum  wage 
updating. However, no sufficient action has been very limited progress over years 
and challenges persist. 

  Belgium  (2011-14),  Luxembourg  (2011-14),  Malta  (2011-12),  and  Slovenia 
(2014)  received  CSRs  calling  for  a  reform  in  the  wage  indexation  systems,  in 
consultation  with  social  partners  and  along  national  practice,  to  better  reflect 
productivity  developments  or  take  into  account  competitiveness  concerns. 
Moreover, Cyprus also received a CSR to reform its system of wage indexation 
(2011-12),  consulting  social  partners  and  following  national  practices,  to  better 
follow productivity trends. 

  France  has  received  CSRs  (2012-13,  2015-18)  emphasising  the  need  for 
minimum wage setting to be supportive of job creation and competitiveness. 

  Germany  and  Portugal  received  CSRs  directly  focused  on  the  statutory 
minimum  wage,  regarding  its  legal  introduction  in  the  former  (2014)  and  its 
updating according to employment and competitiveness in the latter case (2014-
17). 

CSRs on wages (since 2011) 

Five  Member  States  have  received  CSRs  related  to  overall  wage  growth.  These 
recommendations focused on addressing imbalances within the euro area and improving 
the competitiveness of Member States economies, rather than on adequacy aspects. 

  Germany has been recommended to  support real  wage  growth more broadly in 
the  CSRs  of  2017-19  with  a  view  to  strengthening  domestic  demand  and 
contributing to euro-area rebalancing. 

217 

 
 
  
 
 
 
  The Netherlands was recommended to differentiate wage growth (2014) and to 
support  wage  growth  (2017-19),  respecting  social  partners’  role,  to  strengthen 
domestic demand and help to rebalance the euro area. 

  Spain was recommended in 2011 to continue reforming collective bargaining and 

wage indexation, in line with social partners and national practices. 

  Croatia  was  recommended  (2015-19)  to  reform  its  wage  setting  framework 
across  the  public  administration  and  public  services,  in  consultation  with  the 
social partners. 

  Spain  and  France  (in  2014-15  and  2013,  respectively)  have  received  CSRs 
calling  for  real  wage  developments  in  line  with  job  creation  and  productivity 
developments. 

A12.12.

Costs for firms and SMEs 

Social  benefits  in  terms  of  higher  wages  mean  increased  labour  costs  for  firms. 
Table  A12.5  summarises  the  estimated  increase  in  the  wage  bill  as  simulated  with  the 
Euromod model for various scenarios in which Member States with statutory minimum 
wages  comply  with  various  non-binding  reference  values  as  a  ratio  of  the  median  or 
average  wage  (see  country-specific  estimations  in  Annex  A12.1).  At  the  highest 
reference values, the overall increase in the wage bill is about 1% at the EU level, which 
translates  to  about  EUR  51-53  billion  of  total  economic  cost  for  consumers  and  firms. 
The increase of the wage bill is about 0.4% at intermediate reference values (translating 
into about EUR 20-22 billion of economic cost), while the lower reference values imply 
smaller increases. Ultimately, most of this cost is borne by consumers in terms of higher 
prices, while a smaller share is borne by firms in terms of reduced profits. According to 
the estimation of a pioneering academic study, consumers bear about 75% of the cost.296 

Table A12.5: Summary of wage increase and implied costs for firms in scenarios of 
compliance with various indicative reference values 

MW = 
40% 
avg.  
wage 

MW = 
45% 
avg. 
wage 

MW = 
50% 
avg. 
wage 

MW = 
50% 
median 
wage 

MW = 
55% 
median 
wage 

MW = 
60% 
median 
wage 

Increase in the wage bill, EU, % 
 -- Same, expressed in billion EUR  
   -- Costs for firms, bn EUR 
   -- Costs for consumers, bn EUR 
Note: Calculations based on Euromod simulations conducted by the European Commission, Joint Research 
Centre. 

0,01 
0,7 
0,2 
0,6 

1,0 
51 
13 
38 

0,2 
11 
3 
8 

0,4 
19 
5 
15 

0,4 
23 
6 
17 

1,0 
53 
13 
40 

296 This figure is based on the estimation of Harasztosi, P. and A. Lindner (2019): “Who pays for the minimum wage?” 
American Economic Review, Vol. 109(8): 2693–2727. Since most of these consumers are not minimum wage earners, 
the minimum wage has a clear redistributive effect. 

218 

 
 
 
 
 
 
 
                                                           
This total cost for firms can be apportioned by categories of firm size based on the 
share of minimum wage earners by firm size. This is done in Table A12.6. The share 
of minimum wage earners by Member State and firm size is estimated from EU-SILC, as 
shown in Annex A7.2.297  

Two  thirds  of  the  costs  of  increased  minimum  wages  fall  on  micro  and  small 
enterprises, divided almost equally. This corresponds to the share of these categories of 
firms in the employment of minimum wage earners. As a comparison, micro and small 
enterprises have a share in total employment of about 50% in the EU.298 The remaining 
third  of  the  costs  falls  on  medium  and  large  enterprises,  with  about  60%  of  this  third 
borne by medium-sized ones (see Table A12.6 and Graph A12.12).   

Table  A12.6:  Breakdown  of  annual  costs  for  firms  by  firm  size,  scenarios  of 
compliance with various indicative reference values, billion EUR 

MW = 
40% of 
average 
wage 

MW = 
45% of 
average 
wage 

MW = 
50% of 
average 
wage 

MW = 
50% of 
median 
wage 

MW = 
55% of 
median 
wage 

MW = 
60% of 
median 
wage 

Costs borne by firms 

0,2 

4,8 

12,8 

2,8 

5,7 

13,4 

Costs borne by SMEs (less 
than 250 employees) 

Costs borne by small 
companies (less than 50 
employees) 
Costs borne by firms  
with more than 250 
employees 

Costs borne by firms  
with 50-250 employees 

Costs borne by firms  
with 10-49 employees 

Costs borne by firms  
with less than 10 employees 

0,2 

4,2 

11,2 

2,4 

4,9 

11,6 

0,1 

3,2 

8,8 

1,8 

3,7 

9,0 

0,0 

0,6 

1,6 

0,4 

0,8 

1,7 

0,0 

1,0 

2,4 

0,6 

1,2 

2,6 

0,1 

1,7 

4,4 

0,8 

1,8 

4,4 

0,1 

1,5 

4,3 

0,9 

1,9 

4,6 

Note: Calculations based on Euromod simulations conducted by the European Commission, Joint Research 
Centre. 

297 While EU-SILC does not allow a differentiation between medium enterprises (between 50 and 250 employees) and 
large ones (more than 250 employees), information from the EU-SES was used to calculate this breakdown. For 
Member States for which this ratio was not observed in EU-SES, the EU average ratio of minimum wage earners 
between medium and large enterprises was used to calculate this breakdown.  
298 Eurostat, structural business statistics, URL : https://ec.europa.eu/eurostat/statistics-
explained/index.php/Structural_business_statistics_overview.  

219 

 
 
  
 
 
                                                           
A12.13.

The SME Test – Summary of results 

(1) Preliminary assessment of businesses likely to be affected  

Measures of the preferred package apply to all Member States and to 
all firms who employ workers at the minimum wage.  

There are some differences across countries based on the system of 
minimum  wage  setting.  In  countries  where  minimum  wage 
protection is provided by collective agreements, firms are bound by 
collective agreements setting such minima. In these countries, firms 
are  affected  by  strengthened  collective  bargaining  and  enforcement 
of  wages  set in  collective agreements.  In  countries  with a  statutory 
national minimum wage, all firms are bound by this.  

While  SMEs  employ  about  two-thirds  of  all  workers,  they  employ 
almost  90%  of  minimum  wage  earners.  Of  this,  micro  and  small 
enterprises  employ  about  two-thirds  of  minimum  wage  earners,  as 
compared to about one-half of all workers, but there is a variety of 
patterns across the EU.299 Micro enterprises (firms with less than 10 
employees) employ a majority of minimum wage earners in Greece 
(73%) and Slovakia (51%) and more than 40% in Croatia, Portugal 
and  Spain.  In  contrast, their  weight  is  only  about  20%  in  Bulgaria, 
Lithuania and Romania. In small enterprises (10-49 employees), the 
share  of  minimum  wage  earners  ranges  from  63%  in  Bulgaria  and 
52% in Latvia to about 20% in Slovenia and Greece.  

(2) Consultation with SMEs’ representatives 

Social  partners,  including  representatives  of  SMEs,  were  consulted 
during the two-stage social-partner consultation.  

In particular, SMEUnited pointed out that minimum wages can help 
prevent unfair competition and social dumping on the labour market, 
which  is  a  key  concern  for  SMEs.  However,  they  expressed  the 
belief that there was an added value for an EU action but this should 
be of a non-binding nature300.  

See Section 2.1.3 on the profile 
of  minimum  wage  earners  as 
well  as  Annex  A7.2,  and 
especially  Graph  A7.8  on  the 
distribution  of  minimum  wage 
workers by firm size. 

See  Annex  2  for  the  summary 
of  responses  received  in  the 
partner 
two-stage 
consultation.  

social 

299 On the distribution of minimum wage earners by firm size, see Annex A7.2, and in particular Graph A7.8. 
300  In  their  reply  to  the  second  stage  consultation  SMEUnited  stated  that  “A  well-adapted  minimum  wage  level 
contributes to strengthen internal demand and economic growth. It also reduces poverty and social exclusion as well as 
prevents unfair competition and social dumping on the labour market, a key concern for SMEs.” A the same time they 
also stated that “Since Art 153 (5) of the TFEU explicitly states that pay is not a competence of the European Union, 
the setting of appropriate minimum wages, taking into account national economic and social conditions, lacks in  our 
view the legal basis. Therefore issuing a directive on “statutory minimum-wage setting guided by national frameworks 
based on clear and stable criteria with reasonably frequent and regular updates” is not the right way forward. Instead 
the  European  action  should  concentrate  on  promoting  social  dialogue  and  supporting  social  partners  to  engage  in 
collective  bargaining,  be  it  at  national  or  sectoral  level  […]  A  possible  instrument  could  be  the  involvement  of  the 
social partners in wage determination, within the framework of the European Semester”. SMEUnited (2020): Response 
to first phase consultation of social partners under Art 154 TFEU on a possible action addressing the challenges related 
to fair minimum wages. See Annex 2 for a summary of consultations. 

220 

 
 
 
 
                                                           
See  Section  6.2.2  and  6.2.4  on 
the expected economic impacts 
of  various  packages  on  SMEs, 
as  well  as  section  7.2  on  the 
distribution  of  minimum  wage 
workers by firm size. 

In terms of policy options, SMEUnited considered that the reference 
to the median wage or average wage for fixing the adequate level of 
minimum wage is not the most suited reply to balance a fair level of 
income for workers and the conditions for business competitiveness. 

SMEUnited  stated  that  the  involvement  of  social  partners  in 
minimum  wage  setting  should  be  ensured  all  over  Europe,  also  to 
ensure more transparent and predictable minimum wage setting and 
improve the business environment.301 

(3) Measurement of the impact on SMEs 

Many small firms are active in sectors that are sensitive to domestic 
demand,  which  may  reverse  possible  negative  effects  of  minimum 
wage  policies  on  them  for  two  reasons:  First,  they  are  likely  to  be 
able  to  pass  on  increased  labour  costs  to  consumers  by  increasing 
prices.  Second,  increased  minimum  wages  may  also  increase 
demand  for  their  services.  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.302  

Whether  minimum  wages  have  a  more  negative  impact  on  SMEs 
than  on  larger  firms  depends  on  the  broader  economic  context, 
including their sectoral specialisation.  

SMEs  are  expected  to  face  higher  wage  costs  as  a  result  of  higher 
minimum  wages.  Costs for  SMEs are proportional  to  their share in 
the  employment  of  minimum-wage  earners.  The  preferred  package 
implies, under full compliance with the non-binding reference value 
of minimum wage adequacy, additional annual costs for SMEs in the 
EU of about EUR 12 billion (reference value of 60% of the median 
wage)  or  EUR  5  billion  (reference  value  of  55%  of  the  median 
wage).   

On  the  other  hand,  firms  (SMEs  included)  are  expected  to  profit 
from  more  stable  and 
transparent  minimum  wage  setting 
mechanisms based on objective criteria and guidelines for minimum 
wage  updating.  This  will  help  SMEs  to  anticipate  developments  in 
the minimum wage and mitigate any negative impacts.  

301 They provide input to the Commission ahead of the adoption of the Annual Sustainable Growth Strategy (ASGS), 
and  participate  in  the  ensuing  discussions.  They  also  provide  input  to  the  Commission’s  analysis  of  economic  and 
social  developments  in  each  Member  State,  which  feeds  into  both  the  Country  Reports  and  the  Country-Specific 
Recommendations. 
302 See, e.g. Card, David and Alan B. Krueger. 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 minimum 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.  “The 
effect of the minimum wage on the fast-food industry,” ILR Review, 46(1): 6-21. 

221 

 
 
 
 
                                                           
A12.14.

Implication of the packages on Member States 

(a) Member States where minimum wage protection is provided by collective agreements 

222 

 
 
 
 
(b) Member States with national statutory minimum wages 

  Collective Bargaining  

223 

 
 
 
 
 
224 

 
 
 
 
225 

 
 
 
  National frameworks for setting/updating minimum wages  

226 

 
 
 
 
227 

 
 
 
228 

 
 
 
  Social Partners involvement, Variations, deductions and exemptions  

229 

 
 
 
 
230 

 
 
 
231 

 
 
 
  Enforcement 

232 

 
 
 
 
 
Annex 13

  Monitoring and Evaluation 

Table A13.1: Proposed indicators for monitoring the implementation of the 
initiative   

(a) for statutory minimum wages 

Monitoring areas  

Core indicators 

Source 

Minimum wage 
levels 

Level of statutory minimum wages, 
gross monthly figures  

Eurostat data (earn_mw_cur), 
Eurofound 

Workers covered by 
minimum wages   

Collective bargaining 
coverage  

Share of workers covered by statutory 
minimum wages 
The existing variations and the share 
of workers covered by them 
The existing deductions 
The rate of collective bargaining 
coverage 

Eurostat (EU-SES), or 
national data  

National data  

National data 

OECD/National data  

(b) for minimum wage protection provided by collective agreements 

Monitoring areas  

Core indicators 

Source 

Minimum wage 
levels 

Collective bargaining 
coverage 

Adequacy and 
coverage 

The distribution in deciles of such 
wages weighted by the share of 
covered workers 

The rate of collective bargaining 
coverage 
The level and adequacy of wages for 
workers not having minimum wage 
protection provided by collective 
agreements 

National data 

OECD/National data 

National data  

These  statistics  and  information  would  be  disaggregated  by  gender,  age  group,  and 
sector. 

233