Pay

Pay: For workers, the reward for work and main source of income; for employers, a cost of production and focus of bargaining and legislation.

Jump to: Wage-setting mechanisms, Equal pay, Variable pay, Low pay, Minimum wages

Pay is the foundation of the relationship between employer and employee. Level of pay, to a great extent, influences the job satisfaction, quality of work and standard of living of employees. For employers, pay is the most significant part of labour costs, and accounts for a proportion of the price of goods and services.

The position of pay in the EU policy framework is ambivalent. The treaties deny the EU competence on matters of pay and recognise the autonomy of the social partners in pay bargaining. At the same time, the EU has made several interventions on issues of pay, most notably the explicit commitment to equal pay for women and men in the Treaty on the Functioning of the European Union.

Pay has come very much under the spotlight at European level in the wake of the economic crisis and the increased emphasis on enhancing macroeconomic policy coordination across Member States. It is viewed as a key variable in recovering competitiveness. Through the European Semester and other policy instruments, the Commission has repeatedly urged Member States to ensure that pay develops in line with productivity and to reform wage-setting systems to ensure their compatibility with this goal.

Eurofound reports annually on pay developments across the EU, monitoring how pay outcomes adjust alongside changes in economic circumstances. Pay is also central to Eurofound’s research in assessing quality of work, where it is one of the four indicators of job quality. EurWORK monitors pay developments in relation to the themes outlined below, and provides access to a database of wages, working time and collective disputes.

Regular reports on collectively agreed pay  (2016, 2015, 2014) and for earlier years (2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000).

(Read the recent article: Developments in collective wage bargaining in the European Union 2015 (2016)

The issue of wages has attracted particular attention at European level since the onset of the economic crisis. Changes in economic governance, notably within the European semester, have prompted discussions on wage‑setting mechanisms. While, overall, wage‑bargaining regimes have remained relatively stable over time in many countries, the most substantial changes were seen in Member States facing more difficult economic circumstances.

This issue of Foundation Focus looks at issues surrounding pay, wages and income in Europe in the face of sustained difficult economic circumstances. For example, what sort of hardship are ordinary people experiencing? Which workers are being most affected by wage cuts? Are wage cuts the best way to achieve competitiveness? Given the pressure on pension systems, how many Europeans are returning to work after retirement?  Etc.

See also: Eurofound (2012) - Wages and working conditions in the crisis

Wage-setting mechanisms

Wage-setting in the Member States is a complex process, with many different approaches to how wages are negotiated, how minimum wages are set, and how wages are indexed or adjusted. Wage-setting takes place at different levels: centrally in the form of government recommendations, in cross-sectoral negotiations, at sector level, or at company level. There can be many forms of interlinkages or ways of ‘articulation’ between the levels, different degrees of coordination, and rules for extending agreements or opting out. Both the economic crisis and the policy response to it have had an impact on these arrangements.

National wage-bargaining institutions are crucial in achieving pay outcomes that help to increase employment and economic growth within the context of avoiding macroeconomic imbalances within the European Monetary Union. Using a large set of empirical macroeconomic data from a variety of sources, including Eurofound and the European Commission AMECO database, this report analyses how the institutional features of national wage bargaining regimes influence pay outcomes. 

Read also: 

• EurWORK topical update - Developments in collectively agreed pay 2016
• EurWORK topical update - Wage setting mechanisms - Q3 2014
• Eurofound (2014) - Developments in collectively agreed pay 2013
• Eurofound (2014) - Changes to wage-setting mechanisms in the context of the crisis and the EU’s new economic governance regime
• Eurofound (2009) - Wage formation in the EU

Equal pay

Equal pay for men and women has been established as a principle of the EU since the founding treaties. Despite this, and the numerous legislative initiatives and campaigns that have been undertaken to implement the principle, the gender pay gap remains significant. An overview of other forms of pay inequalities which are regulated at EU level is available in Developments in working life in Europe: EurWORK annual review 2016 below.

Read also:

• EurWORK topical update: Pay inequalities experienced by posted workers: Challenges to the ‘equal treatment’ principle
• Eurofound (2010) - Addressing the gender pay gap: Government and social partner actions

Variable pay

Workers’ pay often includes variable components. Variable pay can take a number of forms: payments for results (such as piece rates and commissions); other forms of performance-related pay linked to the individual or collective team or group performance (mainly bonuses); or payments linked to the company’s financial results (in profit-sharing schemes). The European Company Survey gathers comprehensive data on performance-related and profit-sharing pay schemes, enabling analysis of the characteristics of companies that use this form of pay.

The use of supplementary employee reward systems has increased across Europe in recent decades, both in terms of the number of companies using them and the number of employees covered. Supplementary reward systems include performance-related pay, profit-sharing, payment by results and benefits in kind. These forms of remuneration can help to motivate and reward workers and to link pay to company results.

This report analyses data from Eurofound’s European Company Survey of 2009 to examine the incidence of performance-related pay (PRP) in European establishments and what determines it, with a specific focus on the role of employment relations. Larger establishments, those in foreign ownership, in the financial intermediation and commerce sectors, and those located in some central and eastern European countries are more likely to have a PRP scheme based on the performance of individuals.

Read: Eurofound (2009) - Wage flexibility

Low pay

Employment is often claimed to be the best protection against poverty. However, part of the employed population in the EU falls into the category of ‘working poor’ – those who are employed but whose disposable income puts them at risk of poverty. Low pay is associated with in-work poverty. Eurofound research has found that the proportion of working poor varies markedly across Member States and social groups.

Read: Low-wage jobs – an efficient tool to combat unemployment? (EurWORK topical update 2017)

Read: Eurofound (2010) - Working poor in Europe

Being in work greatly reduces the risk of poverty. Nevertheless, in the European Union, 8% of the employed population fell into the category of ‘working poor’ in 2007, in the sense of having an income below 60% of the national average. The proportion varies markedly across countries and social groups. In most countries, the issue of working poor is not a policy priority of either the government or the social partners, although it can be included in general policies to combat poverty and social exclusion.

Minimum wages

The majority of European countries have a statutory national minimum wage in place, although this varies in terms of its level, uprating mechanisms and coverage. Some countries set collectively agreed minimums in sectoral agreements; others do not have any statutory or formally agreed minimum wage mechanisms in place. Most recently, in Pay in Europe in the 21st century, Eurofound explored the implications of a hypothetical scenario of a minimum wage coordinated at EU level and set at 60% of the median national wage.

Read: Statutory minimum wages in the EU (EurWORK topical update 2017).  Similar articles are available for 2016, 2015.