Trade unions claim increase in minimum wage is insufficient

In July 2006, the government increased the hourly rate of the national minimum wage to €8.27. Although this represents a slight increase above the legal obligation, the trade unions expressed their disappointment over the small rise. Conversely, the employers consider it to be too high, even though the state will bear much of the cost of the increase rather than employers.

On 1 July 2006, the government increased the national minimum wage (salaire minimum interprofessionnel de croissance, SMIC) rate to €8.27 per hour, which is equivalent to a gross income of €1,254.28 per month or a net amount of €986 per month for a 35-hour working week.

According to the law, the rise in the SMIC rate should take into account at least two factors:

  • the inflation rate, namely the retail price index, excluding tobacco;
  • half of the increase in the purchasing power of the average basic hourly pay of manual workers.

In line with these factors, the hourly SMIC rate should have increased to €8.25 – the equivalent of a 2.75% increase. However, the government decided to add an extra two cents on top of the legal increase, in order to boost the income of SMIC recipients. The total therefore represents a 3.05% increase, or a 1.15% increase in purchasing power.

Reactions to wage increase

The unions unanimously denounced the rise as being far too small. National Secretary of the General Confederation of Labour (Confédération générale du travail, CGT), Maryse Dumas, declared that she was appalled by the effort and called on ‘all unions and employees to increase united industrial action’. CGT is demanding a minimum wage of €1,500 per month and believes that it is essential to ‘increase pay in order to boost growth and increase the income of the social protection schemes’.

National Secretary of the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO), Michelle Biaggi, admitted that she was ‘terribly disappointed. It amounts to a rise of 24 cents per hour for employees earning the SMIC – whereas they need an increase in purchasing power more than anyone else’. In addition, National Secretary of the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), Laurence Laigo, ‘demanded an immediate discussion on pay’, because ‘the measure regarding the SMIC does not meet employees’ demands and needs’.

Conversely, the employers consider that the increase is too high, although they expressed different views on the matter. Denis Gautier-Sauvagnac of the Union of Metallurgy and Mining Industries (Union des industries et métiers de la métallurgie, UIMM), who represents the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) in the collective bargaining commission, castigated it as ‘an electoral decision, which is marked by the political context’. A few days before the final decision was announced, Head of MEDEF, Laurence Parisot, spoke in a more moderate way: she considered that a 3% rise was ‘a tiny bit too high compared with the objective criteria’ of inflation and productivity.

Minister of Employment, Social Cohesion and Housing, Jean-Louis Borloo, stated that the increase in the SMIC was ‘a strong political decision. We have not forgotten the demonstrations that took place on 10 March 2005’. The minister also reminded critics that ‘over the last four years, the accumulated increase in the hourly SMIC rate has exceeded 20%’.

Growing state burden

The issue of the purchasing power of pay has been at the forefront for more than a year now – since the big protest movement in March 2005 (FR0504101N). After those demonstrations, the government encouraged the social partners to negotiate on minimum pay rates in the different sectors, as they are often below the SMIC. This reflects more generally the state of collective bargaining in France.

In this context, minimum pay plays a crucial role for those on low pay. Exemptions in employers’ social contributions for low-paid employees mean that the rise in the SMIC is hardly a burden for companies. These exemptions apply for all employees paid up to 1.6 times the value of the SMIC. However, according to a study carried out by the Ministry of Employment, the rise in the SMIC has hardly any effect on pay above 1.4 times the SMIC and therefore can even be advantageous for some companies.

On the other hand, each rise in the SMIC directly affects the government’s budget. Tax subsidies are awarded directly to those who are low paid via the ‘employment bonus’ tax credit (Prime pour l’emploi, PPE). The purchasing power of low-paid employees depends increasingly on this measure, especially as the PPE has been significantly incremented in recent years.

In fact, the trend over the past decade has been that the state has increasingly borne the costs of rises in the purchasing power of low-paid workers through subsidies for employers or tax credit for employees.

Pierre Concialdi, Institute for Economic and Social Research (IRES)

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