Minimum wage trends examined

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The Dutch government has announced that the statutory minimum wage will not be increased in 2004, following agreement with the social partners on a general pay freeze. This article examines the government decision, as well as looking at related issues such as the effects on social security benefits, minimum wage rates for young people, compliance and the relationship between the statutory minimum wage and the minimum wages specified in collective agreements.

On 15 October 2003, agreement was reached between the government and the social partners on a wage freeze for 2004 and 2005 (NL0310103F and NL0311101N). In past years, the statutory minimum wage has been raised on 1 January and 1 July each year in line with a percentage based on indexation, as specified in Article 14 of the Minimum Wage and Minimum Holiday Allowance Act (Wet minimumloon en minimumvakantiebijslag. WML). However, on 11 November 2003, Minister Art Jan de Geus of the Ministry of Social Affairs and Employment announced that there would be no increase in the minimum wage in 2004, referring to the wage freeze agreed with the social partners. The statutory minimum wage will thus remain at the same level as set from 1 July 2003 - EUR 1264.80 per month gross for adults.

The minister had earlier reached the conclusion in August 2003 that there were no grounds to implement an exceptional adjustment to the statutory minimum wage. The WML legislation imposes an obligation to conduct studies into the need for such a rise every four years. On this occasion, the minister concluded that:

  • over recent years, both contractual wages and the associated minimum wage have developed in relation to actual wages earned;
  • the spending power of people receiving the minimum wage or minimum social benefits has not deteriorated in relation to the spending power of other categories over recent years;
  • the statutory minimum wage is in line with the minimum wage in other countries in Europe; and
  • amendment of the statutory minimum wage has only a limited impact on employment opportunities.

The minister therefore did not see it as necessary to apply any adjustment.

Minimum youth wage

As with many other European countries with a national minimum wage (TN0208101S), the Netherlands applies a lower rate to younger workers. However, it is unusual in that it sets the age from which workers receive the full adult rate at 23 years. Furthermore, the youth rate is considerably lower than the adult rate, falling from 85% of the adult rate for 22-year-olds to 30% for 15-year-olds (the lowest rate). However, it should be added that this is compensated for to some extent by specific clauses in collective agreements. Roughly half of all collective agreements set the age for receiving adult pay rates at less than 23 years, varying from 18 to 22. Additionally, the collectively agreed scales for young workers' wages are on average well above the statutory minimum youth wages for the relevant age group, to the tune of between 13% and 21% (according to the Labour Inspectorate's 2003 autumn report).

Until 1996, 13- and 14-year-olds were forbidden from working. Following implementation of the new Working Hours Act, though, the situation was relaxed somewhat. On 11 December 2002, at the request of the youth wings of the Federation of Dutch Trade Unions (Federatie Nederlandse Vakbeweging, FNV) and Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV), the Court of The Hague ruled that within 18 months the Netherlands must introduce a minimum youth wage for 13- and 14-year-olds (judgment JAR 2003/10). The Court considers the fact that the Dutch legislator allows 13- and 14-year-olds access to work as an interpretation of the options included under Article 7 ('The right of children and young persons to protection') of the Council of Europe's European Social Charter aimed at allowing children under the age of 15 years old access to the labour market in order to carry out light work. However, given the structure of Article 7, the state is also obliged to give shape to Article 7.5 of the Charter, which requires that a fair wage be set in place for this age category too. Thus, in the light of international treaties, differentiation in terms of application of a minimum wage between 15-year-olds on one hand and 13- and 14-year-olds on the other is considered unwarranted.

Linkage with benefits

The government's freeze of the statutory minimum wage not only has an impact on the working population, it also affects those receiving social security benefits whose levels are linked to wage trends. Freezing the statutory minimum wage therefore serves to inhibit any increases in benefit levels as well.

Aside from the freeze, the Minister of Social Affairs and Employment has announced that he wishes to alter the make-up of the linkage between minimum wages and benefits. The law states that the link can be severed in the event of serious economic deterioration or unfavourable movements in social security expenditure volumes. Over time, these criteria have in practice been reduced to the ratio between the inactive and active population. The explanatory memorandum accompanying the 1991 Wage-Benefit Linkage and Exceptions Act (Wet koppeling met afwijkingsmogelijkheid ,WKA) states that as long as this ratio remains below a standard value of 82.6%, linkage will be applied. In September 2003, the Minister proposed lowering this figure to 70%. In the light of forecasts concerning developments in the ratio (rising from 66.3% in 2002 to 72.5% in 2004), this would mean an end to the linkage. The tripartite Social and Economic Council (Sociaal Economische Raad, SER) has been called upon for advice on the issue. The government's plans and request for an SER recommendation have, at least in the short term, been rendered redundant to some extent following the conclusion of the 2004-5 wage freeze agreement.

Compliance

Statutory regulation of the minimum wage is one thing; compliance is an entirely different matter. The most recent study into compliance carried out by the Labour Inspectorate (Arbeidsinspectie) relates to the situation in October 2001 (Werknemers met een bruto-loon op en onder het wettelijk minimumloon in 2001[Employees with a gross wage equal to or less than the statutory minimum wage in 2001], PM Venema, Labour Inspectorate, March 2003). At that time, an estimated 68,000 employees earned less than the statutory minimum wage, or 1.1% of all employees. The gross wage earned by these employees was on average 1% less than what they were legally entitled to. The extent of the pay shortfall varied sharply: a third were paid only EUR 10 less a month; while 12% were paid at least EUR 100 less. A high proportion of employees receiving too little pay were women and young people in part-time work, employees in positions involving care or service provision, employees in small-scale businesses, and employees in the retail, repair, hotel, restaurant and catering and farming sectors. Around 130,000 employees (2.1% of the total) received a gross wage equal to that specified in the minimum wage legislation. They largely had the same characteristics as those earning less than the minimum wage.

Prompted by the study, the Minister of Social Affairs and Employment adopted a number of measures, which were reported on to the Lower House of the parliament on 28 November 2003:

  • improved information provision;
  • presentation of the findings of the study to the sectoral social partner organisations in those sectors most affected; and
  • checking if small-scale employers can be approached in a structured manner.

Reducing the lowest wage scales

Traditionally, the lowest wage scales laid down in collective agreements are higher than the statutory minimum wage. This applies to the adult wage as well as the youth wage, as noted above. From the mid-1990s, the lowest agreed scales for adults gradually declined, under government pressure, to stand at an average of 106.1% of the statutory minimum wage level in 1999 (Labour Inspectorate, 1999 spring report on collective agreements). In 2003, the average agreed figure appears to have dropped even further to a level of 105.2% of the statutory minimum wage. The government’s argument was that reducing the lowest scales would stimulate employment opportunities for disadvantaged groups. It remains unclear how well this has worked out in practice. The differences between sectors are also quite considerable, with the lowest wage rates varying from 112% of the minimum wage in farming to 101.1% in the 'other services' sector.

It seems that the downward pressure on the lowest collectively agreed wage scales for adults may well be repeated for youth wages. In the light of rapidly increasing unemployment among the young people, on 10 December 2003 a member of the Lower House of parliament representing the the right-wing populist List Pim Fortuyn (Lijst Pim Fortuyn, LPF) proposed that the collective bargaining parties should be obliged to use the statutory minimum wage scales for young people as the lowest youth wage scales in collective agreements. If they failed to do so, the collective agreement should not be extended and made binding on the whole sector (NL0211104F).

Commentary

Compared with the EU as a whole, it is striking to note that the Netherlands cannot easily be characterised as a 'minimum wage haven'. Regulation of the youth mimimum wage (for employees aged 22 or under) is in fact quite thin, even if the 'edge' is taken off in some respects through collective agreements. However, the latter observation may well soon be outdated. The chances are that in the years ahead more pressure will come to bear on the actual minimum youth wages paid out under collective agreements. The proposal to compel collective bargaining parties to set the lowest pay level for young employees in collective agreements at the same level as the applicable statutory minimum would seem to reinforce this notion. Exactly how this will affect employment opportunities remains to be seen however, certainly since the government itself believes the impact will not be significant. (Robbert van het Kaar, HSI)

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