22 January 2020 #Employment
The past month has seen heated debate between certain Nordic countries and the EU, over the EU’s plans to implement a statutory minimum wage framework applicable across all member states.
The EU has been concerned for some time about the levels of wage inequality within the bloc, which have resulted in a “brain-drain” from east to west. 22 of the EU’s 28 member states have statutory national minimum wages in place but the setting of these wages is often not transparent, and the rates vary significantly from state to state. By way of example, the minimum wage in Bulgaria is €286 per month for a full-time worker, whereas in Luxembourg it is €2,071 per month.
The EU have been eager to address these wage discrepancies to stand a chance of reversing, or at least not exacerbating, the “brain drain” and volumes of cross-border social dumping.
Of particular concern to the EU is the level of salaries currently being paid to the lowest earners within the bloc. Approximately every 1 in 6 EU workers earns a low wage. This amount is only increasing, with the percentage rising from 16.7% in 2006 to 17.2% in 2014. The levels of in-work poverty are also rising. Despite the number of people in employment in the EU being at a record high, the percentage of workers who find themselves in poverty has risen from 8.1% in 2005 to 9.6% in 2018.
The EU is therefore keen to ensure that its workers receive fair wages that provide for decent standards of living, something they believe an EU statutory minimum-wage framework can deliver. The EU’s plan is not to set a specific wage applicable across all states. Instead certain criteria will be agreed which will need to be met by each member states’ governments when setting their minimum salaries. Each member state will need to set a minimum wage equivalent to 60% of the median salary in their country, in an attempt to support a race to the top which will boost the EU’s social market economy, and to stem the current race to the bottom.
However, this approach proved unpopular with Nordic countries such as Denmark, Sweden and Finland who have high ‘wage-setting’ standards in place already, by way of century-old systems of collective bargaining and strong social dialogue. These countries voiced their concerns that a statutory one-size-fits-all minimum wage framework would undermine the effective collective bargaining systems which are commonplace in their countries and that EU intervention of this nature could lead to lower wages amongst their workforces.
Currently countries such as Denmark, Sweden and Finland have no statutory minimum wage. Instead wages are negotiated by trade unions and employer organisations. Employees who are not union members tend to be covered by the collective agreements as well. The collective bargaining models in these countries work well as they are strongly supported by both workers and companies. As a result, most workers in the Nordics receive a wage that can provide a good standard of living, something other EU countries’ minimum wages do not always deliver.
The Nordic nations were quick to point out to the EU that countries with higher collective bargaining coverage tend to have a lower proportion of low paid workers. By way of example, some of the highest wage floors can be found in countries such as Denmark and Italy, where approximately 80% of workers are covered by collective bargaining systems. In 2018, workers in Denmark in fact received average salaries of £37 an hour (the highest average rate in the EU), with the lowest paid workers receiving around £15 an hour, still almost double the minimum wage rate in the UK. Like the Danes, Swedish and Finnish workers are similarly well paid.
It was feared by Nordic governments however that the implementation of a statutory minimum wage framework would give employers a reason to start challenging the current collective bargaining arrangements in place in their countries, on the basis that a reasonable pay threshold is on the statute books which need not be improved upon.
Nordic politicians, backed by the major unions in their respective countries, have therefore been very vocal in the past weeks, making clear to the EU Commission that they will not accept the proposed changes. Although they acknowledged the importance of achieving higher wages for those least well paid in Europe, such as workers in eastern-European countries, their message was explicit: the EU must respect national traditions and well-functioning models.
After intense debate, the EU last week announced that it agreed with the Nordics. The EU made clear that it recognises the success of the collective bargaining systems in these high-salary states, where wage setting is almost exclusively arranged through employer-employee negotiation. The EU therefore agreed that it would not force a statutory minimum wage framework on high-salary states where there is a high coverage of collective bargaining.