The incoming European Commissioner for Employment and Social Affairs has only about one thing in common with yours truly: he’s Luxembourgish. Nicolas Schmit is a lifelong socialist and has been Minister of Labor in Luxembourg for as far as I can remember. Bureaucrat-made-politician, Schmit is a sworn enemy of the free market and no great fan of labor market flexibility. Wage precarity and income inequality are high on his agenda, as well is his loyalty to the trade unions, with which he used to march, even as a minister, in Luxembourg.
Schmit will be in charge of the introduction of an EU-wide minimum wage, which has been on the table since it was announced by newly elected Commission President Ursula von der Leyen. The aim: guaranteeing a livable wage to all citizens of the European Union, regardless of their country of residency.
There are a myriad of problems with this proposal that the Commission itself hasn’t ironed out in the least – one of which being the fact that a ‘living wage’ doesn’t have much meaning in the first place (if you cannot live off of it, you’re dead) – but let’s run through the biggest problems.
The minimum wage conundrum
Twenty-two out of twenty-eight member states currently have a national minimum wage. Set at €2,071 gross in Luxembourg, where it is the highest, it goes down to as little as €286 in Bulgaria, according to data collected by Eurostat on January 1. France, with its minimum wage at €1,521 gross (€1,171 net), ranks sixth, behind Germany, Belgium, the Netherlands and Ireland.
Unsurprisingly, three groups stand out: Western Europe, with thresholds above €1,000, Southern and Central Europe, where the amounts vary between €500 and 1,000, and the East, where they fall below €500. Spain, which was in the intermediate category, joined the top group after the 22% increase in the minimum wage between 2018 and 2019 set by the socialist government of Pedro Sanchez.
Moreover, incomes have grown much faster in Eastern than in Western Europe over the last 15 years. The minimum wage has increased by 25% in France since 2004, compared to 200% in Poland, 367% in Bulgaria or 556% in Romania. The lowest increase was recorded in Greece due to the 2012 crisis.
In Austria, Cyprus, Denmark, Finland, Italy and Sweden there is no nationally defined minimum wage. These six EU Member States have, however, set a minimum wage by branch or provide for minimum wages to be determined by negotiation between the social partners, such as trade unions.
As for plans for a European-wide minimum wage, the statement by Commission President von der Leyen is willfully ambiguous:
“Within the first 100 days of my mandate, 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.”
The problems are manifold: for one, an EU minimum wage cannot be uniform, because it wouldn’t reflect the economic diversity existing in the EU (they ought to realize that same fact about the euro, but we’re digressing). Also, if a minimum wage is voluntary, we would simply keep the status quo and von der Leyen will have ‘achieved’ nothing. And setting a minimum wage by GDP comparison, or a basket of goods (as it is in for indexation of wages) would spark a large debate in the European Council over definitions, especially when considering the influence of trade unions.
Trade union opposition
Speaking of trade unions: they are actually no fans of the idea. Three of Portugal’s four employer confederations and the CGTP, the largest trade union federation, have rejected the idea of the European Commission being involved in setting an EU minimum wage. The Danish trade union confederation opposes an EU minimum wage, explaining it would undermine the collective bargaining approach. Trade unions in Finland and Sweden also argue against the proposal. Finally, in Italy, unions are worried that the introduction of a statutory minimum wage could reduce the collective autonomy of social partners and employers’ interest in adhering to collective agreements and collectively agreed wages.
The have reason to: one of the floated options for this minimum wage would be the requirement of a minimum wage representing 60% of the median wage – which is not the case in Luxembourg despite having the highest in the union, but which is the case in Bulgaria, where, despite meeting the benchmark, living on the government-set minimum is still precarious. Trade unions would lose their position in collective bargaining or might have to fear that the EU would actually bring the legal limit down rather than up.
As Fr. Ben Johnson wrote recently, minimum wage increases fuel the automation phenomenon. Ultimately, the minimum wage is an arbitrary government set desired value, which might be beneficial for some workers, but which cuts out those who are already disadvantaged on the job market.
Trade unions are right to oppose the EU’s minimum wage proposal — if not necessarily for all the right reasons.
This article was first published by the Austrian Economics Center.
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