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The European Union to Approve Law on Minimum Wage

On June 7th, the members of the European Council and the European Parliament agreed upon a provisional political agreement on the proposed directive on adequate minimum salaries in the EU. Once enacted, the new law will encourage the sufficiency of statutory minimum salaries. This will contribute to the substantial achievement of decent working and living conditions for European workers.

The directive is based on Article 153 of the Treaty on the Functioning of the EU (TFEU) on working conditions. It was first proposed in 2020 under the German presidency that, in collaboration with the Commission, released details on the future directive. During a meeting held in December 2020, further details were discussed with the Employment and Social Council. Additional steps were taken under the Portuguese and Slovenian presidencies, where several points were introduced. Some of these concerned harmonizations among the EU countries, like ensuring that member states retain the authority to determine minimum wages while safeguarding the various national labor arrangements and wage-setting systems.

The directive establishes procedures for determining the adequacy of statutory minimum wages to encourage collective wage bargaining and effective access.  This will strengthen wage protection for workers who are entitled to one under national law, such as through a statutory minimum wage or collective agreements. The directive promotes collective bargaining as the primary mechanism for ensuring that workers receive adequate minimum wages. As a result, the co-legislators agreed that the EU member states should increase social partners' capacity to engage in collective bargaining, along with the preservation of workers' representatives.

In particular, the interim agreement between the Council and the European Parliament stipulates that member states with a collective bargaining coverage rate of less than 80%, should develop an action plan to encourage collective bargaining. The action plan should include a clear schedule and specific actions to gradually improve collective bargaining coverage.

To assess the minimum wage's adequacy, the EU may create a basket of products and services at real prices. Member states may alternatively utilize suggestive reference figures such as 60% of the gross median wage and 50% of the gross average wage, which are regularly used internationally. Furthermore, deductions or changes to the minimum wage must be fair, reasonable, and have a justifiable goal, and they must be overseen by a judicial or administrative authority.

The proposal also stresses the importance of a good monitoring system. The approved text requires EU countries to establish an enforcement mechanism, including reliable monitoring, controls, and field inspections. This will help combat illegal subcontracting, phony self-employment, non-recorded overtime, and increasing work intensity. Additionally, employees whose rights are being infringed upon will have the option to seek recourse from national authorities. Authorities should also take the appropriate precautions to safeguard workers and trade unionists.

This decision was not accepted unanimously by all member states. Sweden and Denmark have always opposed the plan. The Swedish and Danish administrations and the trade union movements have resisted the legalization of the minimum wage as they cannot accept any kind of governmental intervention in wage bargaining. The danger is that the directive can destabilize Nordic wage models, in which wage levels are decided through discussions between participants in the labor market. The new directive, though, will ensure that those countries with well-rooted national traditions where social partners enjoy strong autonomy will not be affected. Besides Sweden and Denmark, this will also apply to Italy, Cyprus, Austria, and Finland as the minimum wage is negotiated between the employers and the trade unions in these countries. Accordingly, the new directive will require the member states neither to introduce a statutory minimum wage nor to set a common minimum wage.

The European Parliament's proposal needs now to be ratified by the Employment and Social Affairs Committee, followed by a plenary vote. The agreement must also be approved by the European Council.





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Tags: Equality European Union Minimum Wage


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