A Common European Minimum Wage Policy – Realized at Last?

Following decades-long debate, the European Commission’s upcoming proposal for a harmonised minimum wage policy represents a watershed as the first EU legislative action directly addressing pay-setting. Before adoption, it nevertheless faces significant hurdles and may instead end up watered down. This article considers the case for a common policy, the debate surrounding it, and potential outcomes.

Ahead of her confirmation as European Commission president, Ursula von der Leyen set out her vision for the future of Europe. In her political guidelines, titled A Union that strives for more, she cited the European Pillar of Social Rights as one area in which more progress and ambitious efforts on the EU level are warranted.
Among other issues, von der Leyen pledged to propose a legal instrument to ensure that every worker in the Union receives a fair minimum wage. Since then, two rounds of Commission consultations have been completed with a view to take legislative action to establish a Europe-wide minimum wage scheme. On 28 October, the European executive laid down its final proposal for a legislative act, to be voted on in the European Parliament and the Council.

The case for minimum wages in the EU

Since the beginning of the 21st century, discussion has been growing on the issue concerning the harmonisation of minimum wages in Europe. The enlargements in 2004 and 2007 resulted in large-scale labour mobility from east to west and pegged the question of how workers’ rights can be guaranteed on the single market.
Competition between countries’ social security systems has thrown the spotlight on the need for upwards social convergence. Without common EU rules on employment conditions, workers and member states compete with each other by keeping wages and working conditions at a low level, a practice known as social dumping. Germany and France, in particular, have advocated for a Union framework to end state promotion of unfair wage competition between member states and guarantee citizens across the EU decent pay.
In light of the coronavirus pandemic, with member states plagued by insecurity about second waves and potential lockdowns, the proposal for minimum wages has received an additional push with proponents arguing it could protect workers against poverty. Indeed, Commissioner for Jobs and Social Rights, Nicolas Schmit, described the proposal as “an essential element of our recovery strategy”.
 [bctt tweet=”von der Leyen seems set on binding rules for minimum wage, but politico-legal hurdles may yet impose a soft law approach”]

The Nordic countries among the main contenders

Despite the initiative being years in the making, the Commission faces an uphill struggle in the introduction of common standards regulating pay-setting. Much of the reluctance to a harmonised minimum wage policy in Europe stems from the divergent regulatory mechanisms for compensation. Out of the 27 member states, 21 have statutory minimum wages whereas the remaining six rely exclusively on collective bargaining.
Within the latter group, the Nordic member states have expressed strong opposition to any common wage floor, seeing it as an encroachment of their labour market model. In particular, trade unions in Denmark, Finland and Sweden have taken an opposing stance. Perhaps most vocally, Therese Svanström, president of the Swedish Confederation of Professional Employees, has argued that “the need for a more social Europe cannot be met by legislation that runs the risk of destroying well-functioning national systems for industrial relations”.
In addition, among the partners needing the most convincing are many of the EU’s eastern member states, who see that the enforcement of a European minimum wage could put an end to a precious competitive advantage. Likewise, employers’ organizations, including Business Europe, oppose the proposal. Many opponents argue that the Commission has no competence in wage setting and, thus, any union attempt to regulate pay would be in breach of the treaties. For this reason, they maintain that the Commission should instead put forward a non-binding instrument and aim at supporting collective bargaining.

Compromise agreement or watered-down recommendation?

Against the backdrop of disparate wage-setting systems, the Commission faces the struggle of having to accommodate a diversity of traditions in a single policy instrument. To dissuade opposing parties, Commissioner Schmit has affirmed that there will be no mandatory introduction of minimum wage legislation in countries that do not already have such a system. Thus, instead of a “one-size-fits-all” model, the proposal will require different approaches depending on the national system in place.
On the one hand, countries with a legally binding minimum wage could be required to consider whether the existing level is adequate by comparing it to a number of parameters, including how it compares with the average national wage or the cost of living. If not attaining this standard, the minimum wage should be adjusted upwards. One commonly mentioned benchmark is the Kaitz index, according to which a minimum wage is adequate when it is at least 60 percent of the national median. In 2019, only four member states with statutory minimum wages met this standard: Bulgaria, Slovenia, France and Portugal.
On the other hand, where the wage level is agreed through negotiations between unions and employers, the coverage of collective agreements should be expanded to include a larger number of workers.
Ultimately, the issue will be decided on by a qualified majority vote in the Council. Although von der Leyen appears set on adopting a proposal for binding rules, legal and political hurdles may prevent the Commission from taking such an approach and instead forcing it to rely on soft law. Consequently, the idea of a common minimum wage policy relying on a binding directive may need to be changed in favour of a non-binding recommendation by the Council, potentially linked to the European Semester of economic policy coordination.
TEXT Ellen Petersén 
PICTURE European Union, 2020, European Commission audiovisual service
The author holds a Bachelor in European Studies and a Master in European Public Policy and Administration, both from Maastricht University. Currently she is completing a traineeship at the European Economic and Social Committee in Brussels.