[Intro]
00:00:32 Mary McCaughey
Good morning and welcome to this edition of Eurofound Talks. Today, we’re going to discuss minimum wage; what it is, what it means, how it is going to be implemented and what impact we think it will have across the European Union. We’re talking about this at a time when there is much discussion about a living wage, a social wage, minimum income, and we are doing it at a time when clearly the European Union is in a high degree of flux, not least with the impact of post pandemic economics, but also with the war which is, sadly, ongoing in Ukraine. We’re also looking at it in the context of the current situation where there is a proposal on the table for a directive on minimum wages from the European Commission. So I am delighted to be joined by our resident expert on this subject on minimum wage, Christine Aumayr.
00:01:29 Christine Aumayr-Pintar
Hi, Mary. Hello.
00:01:30 Mary McCaughey
Good morning, Christine. So Christine, first, can you talk to me about what do we mean when we talk about minimum wage?
00:01:37 Christine Aumayr-Pintar
A minimum wage is a basic wage floor that a worker is supposed to receive for their work. And in Europe you have basically two different systems. You have countries that have legislated minimum wages, so called statutory minimum wages whereby this is usually the new universal and you would have a certain number, say €12 per hour, whereas in other countries you have collectively agreed minimum wages and they’re typically then set in collective agreements at sector level or at company level and that then defines the wage floor for the worker.
00:02:14 Mary McCaughey
And those two different types of minimum wage these talk about, do they do they differ greatly?
00:02:20 Christine Aumayr-Pintar
They differ in two regards, yes. On the one hand, as I mentioned, the statutory minimum wages are in most of the countries universally covering, so covering most workers except for a few exceptions like younger workers who might have lower rates or trainees who might get different rates. Whereas the sectorally-agreed minimum wages, they would only cover those workers who fall under a sector related or company-related collective agreement. And this means that some workers in those countries that do not have a statutory minimum wage are not covered by such a wage floor.
00:03:01 Mary McCaughey
OK. Thank you, Christine. And just with respect to what I mentioned earlier on, what would be the difference for us to ensure that there was a minimum wage coverage across the European Union and all Member States and the introduction of a living wage or a minimum income – or what we’re calling a social wage.
00:03:01 Christine Aumayr-Pintar
We need to be careful here with these words; they all mean very different things. A living wage is normally defined as a wage which allows a worker and their families a good and socially accepted life. And it is something which originated in the Anglo-American sphere. Countries such as the UK have advanced that; it is more a voluntary concept in these countries, whereas statutory minimum wage is something which is legally binding. And now, there are efforts to bring the levels of statutory minimum wages or of collectively agreed minimum wages closer to a living wage. And if you’re talking about minimum income, I think we have to be very careful there because this is really distinct from wages as it does not depend on your working. It’s not something paid by an employer, but it is an income which could derive from other sources, including social benefits for instance.
00:04:22 Mary McCaughey
And in recent times, the work that you have been focused on has looked very clearly on the rise, the trend if you like, rise and fall of minimum wage over the years. And we have noticed that last year, for example, most countries settled for a cautious increases in minimum wages, whereas in 2022 it has been proportionally much longer. Why this change?
00:04:45 Christine Aumayr-Pintar
In 2020 when the pandemic first hit and economies were going into lockdown, minimum wage setters during that year were really very cautious in their increases and they postponed larger increases whereas then one year into the pandemic in 2021, when the rates for 2022 were decided, there was already some kind of recovery visible. Unemployment rates went down, fewer people were in short-time work, so there was more room for minimum wage setters to increase the rates.
00:05:19 Mary McCaughey
Slightly more optimism, in fact.
00:05:21 Christine Aumayr-Pintar
Exactly. But then the second explanation is that also during 2021 we started to see the rise in inflation because of all the disruptions on the supply side and some of the minimum wage setters in some countries, not all, did already take this rise in inflation into account and that also explains why we have larger nominals.
00:05:43 Mary McCaughey
There was some degree of economic foresight going on there when they were introducing these increases.
00:05:48 Christine Aumayr-Pintar
Yes, whereby we also see that increases in real terms were lagging far behind in at least two thirds of the Member States. So in at least two thirds of the Member States if you look at the developments between January 2021 and 2022 workers lost purchasing power so they saw the value of their minimum wages decline.
00:06:17 Mary McCaughey
I wanted to raise that, with respect to the Eastern European Member States, that we’ve seen much higher percentage increases there over recent years. Can you talk to me a little bit about that? Is that, one, is there a reason behind that? And two, what kind of impact do you think that’s going to have on wage convergence across Europe?
00:06:39 Christine Aumayr-Pintar
Yes. So we don’t really have crystal balls to say what will be in terms of the trend and how it will continue. But we do know that many of the central and eastern European countries already had very low relative minimum wages if you compare them to the average wage or the median wage in these countries. There is a lot of room in many of those countries to increase the minimum wages further, which was a push factor for these wage convergences in minimum wages. The other push obviously came from EU level, EU policy on adequate minimum wages, which is clearly targeting countries with very low relative minimum wage level to increase theirs. But it would also see that coming from this push from, for instance, the Posted Workers Directive that obliges the sending country to pay the wages to the posted worker of the receiving country.
00:07:38 Mary McCaughey
Yes. The receiving country.
00:07:38 Christine Aumayr-Pintar
Another kind of internal push for higher wages in these countries is that relying solely on wage related competitiveness. I think that’s not a sustainable way in the long run and not in a single market. So I think companies need to boost their productivity and then they can come to a higher wage path.
00:08:04 Mary McCaughey
These decisions as to how to revise minimum wage, are they political or are they based on a rule-based system?
00:08:14 Christine Aumayr-Pintar
I’d say half and half. You do have countries where this can be a very ad hoc political decision still and in other countries it is already very rule-based setting. We see that over the past years there was probably a tendency to more robust setting. We saw an increase in so-called expert committees entrusted with guiding the minimum wage setting process. The first country that implemented that in the early 2000s was the UK with the Low Pay Commission and then this was really followed by Germany, Ireland, now also France, Greece, Croatia have joined this club and they’re the experts, debate on the rate and guide the process. And we also see that now going forward Malta and Spain has set up a similar ad hoc group. And then we also see countries that started to introduce new ways of agreeing the rates on new criteria. For instance, in Estonia, the social partners have agreed on a formula that guides them in the next upgrade. Slovenia has now an approach in which they’ve defined a minimum basket of goods that are required living income and then they topped this up with a certain percentage to arrive at the statutory minimum wage.
00:09:40 Mary McCaughey
On the European Commission Proposal for a Directive that we talked about earlier and it recommended among other things adequate minimum wages and action to ensure higher collective bargaining coverage. What do you think that the impact of this directive will have when it’s implemented?
00:10:00 Christine Aumayr-Pintar
Yeah, I think we just talked about this tendency to more rule-based setting and I think this will clearly be an impact of the directive because in Article 5 on adequacy, countries have to adhere to a certain number of minimum criteria which they should look at when they set the rate. That’s for sure one effect that it will have. But then also I think in certain countries where minimum wages are particularly low, it will have a push effect on minimum wages and we already see some countries advancing this agenda even before the directive has been agreed upon and is being implemented. So the most prominent case at the moment is Germany, where they have announced to increase the current minimum wage to €12 per hour in October and this equates more or less to 60% of median wages.
00:10:58 Mary McCaughey
Could it have an impact in a positive way on the gender issue?
00:11:02 Christine Aumayr-Pintar
To the extent that women are overrepresented among minimum wage workers, it will clearly have an effect on their wages. For this segment of workers, I’m very sure that we will see a narrowing of the gender pay gap. The question is to what extent this will then carry over to the average gender pay gap, and obviously, the effect on the average gender pay gap will be lower, but minimum wage increases do tend to spill over to some of the higher wages, but still in the below average category.
00:11:39 Mary McCaughey
When we’re looking at what we talked about earlier in terms of inflation this year and it looks set to continue with the war in Ukraine, what do you think minimum wages can do in terms of playing a role to help workers deal with these rising prices?
00:11:59 Christine Aumayr-Pintar
Workers across the board, no matter whether they’re on a minimum wage or not, they are losing purchasing power at the moment when prices increase. The question is how quickly will the wage sectors be able to react; the minimum wage setters, but also those that bargain collectively. My guess is that workers who are covered by such a wage, they will be better off than the workers who have to negotiate themselves, because I think it’s much more difficult for an individual to claim that rise.
00:12:33 Mary McCaughey
Can I ask you though, as the expert, Christine, at the end of these sessions, we say ‘“talk to me in three.” What are the three main points that you would like to make?
00:12:44 Christine Aumayr-Pintar
My first point would be: make sure that there’s really a clear system for operating and if you have that clear system agreed with the social partners then stick to it in normal times. Make sure to also include social partners which represent low-paid workers, low-paying companies. That’s very important in this process. My second point is: please promote evaluation research on minimum wages. Do not only look into the employment effects of minimum wage increases, but also look beyond that. What impacts do minimum wages have on the company profitability and productivity? What impacts do they have on prices, on working hours? What happens to the retention of workers, to workers’ satisfaction? How do they continue to participate in training more or less than before they got their minimum wages increased? What happens to wage inequalities, the gender pay gap, etc? And then my third point would be, especially now that we see this huge increase in prices: try to have a good understanding of who the minimum wage workers are and what they’re consuming and who are the most vulnerable ones. What part of their income goes on to the products that have seen the largest price increases - housing, energy, food? And then probably try to look beyond increases in average inflation.
00:14:11 Mary McCaughey
Thank you, Christine. Certainly from what I’m hearing, more research and that we should continue to do that and certainly Eurofound is well placed to continue that. Indeed with the pilot project that we’re running on minimum wage at the moment; that should also help feed into a better understanding of who these groups are as you talked about. Thank you for joining me today, Christine.
00:14:33 Christine Aumayr-Pintar
You’re very welcome, Mary.
00:14:34 Mary McCaughey
For those of you listening today, you can find all of this information on minimum wage and indeed a lot of the related issues that we talked about today in including gender equality, the labour market access, etc. You can find it on our website. You can tune in to our social media channels, you can follow us via our newsletters so until next time when Eurofound talks to you.
[Outro]
