Minimum wage

Definition

The term ‘minimum wage’ refers to the regulatory restriction on the lowest rate payable by employers to workers. Statutory minimum wages are regulated by formal laws or statutes. Collectively agreed minimum wages are stipulated within collective agreements between trade unions and employers.

Eurofound reports on the evolution of minimum wages across the EU on a regular basis.

• Eurofound: Minimum wages in 2022: Annual review

Background and status

Most EU Member States have a statutory national minimum wage in place, although its level, adjustment mechanisms and coverage vary. Austria, Denmark, Finland, Italy and Sweden have minimum wages set within collective agreements, while Cyprus has statutory rates for different occupations. In December 2019, the European Commission announced a reform initiative for an EU minimum wage. On 28 October 2020, the Commission put forward a proposal for an EU directive on adequate minimum wages, following two rounds of consultations with the social partners. The directive was definitively adopted in October 2022.

Regulatory aspects

Proposal for an EU Directive

The proposal for a directive on adequate minimum wages in the European Union sought to implement Principle 6 of the European Pillar of Social Rights, which stipulates:

Adequate minimum wages shall be ensured, in a way that provides for the satisfaction of the needs of the worker and his/her family … [and] in-work poverty shall be prevented.

• European Commission: Proposal for a directive on adequate minimum wages in the European Union, COM(2020)682 final

The Commission based this initiative on the guidance of Article 153(1)(b) of the Treaty on the Functioning of the European Union, which provides that the EU should support and supplement the actions of the Member States in the field of working conditions and may adopt, ‘by means of directives, minimum requirements’ (Article 153(2)). The proposal therefore seeks to establish minimum requirements to ensure both ‘that minimum wages are set at [an] adequate level’ and that the largest possible number of workers will benefit as a result.

The proposal does not set an adequate level. Instead, it states that minimum wages are ‘considered adequate if they are fair in relation to the wage distribution in the country and if they provide a decent standard of living’ (recital 21).

Adoption of the directive

Some debates took place in relation to the legal basis as some Member States, mainly Nordic countries (and their social partners), challenged the legal basis chosen by the Commission. They considered that the Commission failed to comply with the subsidiarity principle, and, according to the Treaty on the Functioning of the European Union, cannot interfere in the setting of remuneration in the Member States. However, the directive on adequate minimum wages in the EU was finally adopted by the European Parliament on 14 September 2022 and by the Council on 4 October 2022, despite the opposition of Denmark and Sweden.

• European Parliament: Proposal for a directive of the European Parliament and the Council (COM(2020)0682 – C9-0337/2020 – (2020)0310(COD))

Three levels of measures

To promote adequate minimum wages, the directive provides for action on three levels.

1. Strengthening of collective bargaining: The directive requires that Member States where the number of workers covered by a collective agreement (collective bargaining coverage) is not at least 80% should establish ‘a framework for collective bargaining, either by law after consulting the social partners or by agreement with them’. This framework should then be supplemented by ‘an action plan’ that ‘shall set out a clear timeline and concrete measures to progressively increase the rate of collective bargaining coverage’. The 80% target is very ambitious: just 10 Member States have met it so far and 10 others are below 30%. However, the directive explains that this target ‘should only be construed as an indicator triggering the obligation to establish an action plan’. Furthermore, the directive is intended to protect social partners and affirms the European Parliament’s and European Council’s determination to safeguard collective bargaining. For instance, the directive stipulates that Member States must take measures, as appropriate, ‘to protect workers and trade union representatives from acts that discriminate against them in respect of their employment on the grounds that they participate or wish to participate in collective bargaining on wage setting’.
2. Improving the systems that regulate statutory minimum wages: The Commission proposes that the 21 Member States that introduced a statutory minimum wage should review the mechanisms they use to set and update it. These mechanisms must ‘be guided by criteria set to contribute to their adequacy, with the aim of achieving a decent standard of living, reducing in-work poverty, as well as promoting social cohesion and upward social convergence, and reducing the gender pay gap’. The Commission is asking social partners to become involved in setting and updating of statutory minimum wages. To assess the adequacy of minimum wages, Member states ‘may use indicative reference values commonly used at international level such as 60% of the gross median wage and 50% of the gross average wage, and/or indicative reference values used at national level’.
3. Covering all workers: The directive’s scope of application covers not only workers who have an employment contract (employees) but also all those who have an ‘employment relationship’ according to the criteria set out by the case law of the Court of Justice of the European Union: ‘workers in both the private and the public sector, as well as domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, trainees, apprentices and other non-standard workers, as well as bogus self-employed and undeclared workers’.

Commentary

When the Commission unveiled its initiative, the employer organisation BusinessEurope strongly rejected the proposal for a binding legal instrument, calling it ‘a legal monster’ that comes at a time when ‘companies are fighting for their survival and to save jobs threatened by the COVID crisis’. The European Trade Union Confederation has expressed satisfaction, though it has also highlighted a number of shortcomings. Overall, it welcomed the adoption, considering that ‘Europe took an important step towards ending poverty pay’.

• BusinessEurope: Proposed EU directive on minimum wages is a recipe for disaster
• ETUC: Minimum wage directive boost to struggling workers

Related dictionary terms

BusinessEurope ; ETUC ; living wage ; labour costs ; pay ; European Pillar of Social Rights ; wage drift ; wage spillover