Today, the European Parliament adopted the Directive on Adequate Minimum Wages in Europe. The move is an enormous success for labor, as it provides not only a European framework for the establishment of adequate minimum wages, but also the promotion of sectoral collective agreements, identified as an essential tool in the fight against poverty and inequality. The directive thus marks a paradigm shift in European labor policy.
Debates on a European minimum wage are about as old as the European project itself. The right to a “fair” wage was already enshrined in the Social Charter adopted in 1961. However, initiatives to harmonize wages or improve mechanisms for determining wages remained unsuccessful. The discussion only really gained momentum with the introduction of the single European market at the start of the 1990s. Debate ignited around the project’s basic neoliberal assumption holding that a common market would lead to an automatic equalization of wages and a fair distribution of wealth. As against this assumption, the French left and the European Trade Union Confederation in particular advocated a European minimum wage to mitigate the common market’s negative pressure on wages and to pull up the incomes of lower earners.
Proposals varied. Some argued for a uniform minimum wage encompassing all EU member states, others for varying rates for different groups of countries, or else a harmonization of relative minimum wages, with each member state setting a rate relative to its own median income. The latter proposal seemed easiest to implement at the European level, also considering the economic inequality among EU member states.
In 2005, a German-French-Swiss group of researchers led by labor scholars Thorsten Schulten and Reinhard Bispinck, close to the German trade unions, published fourteen theses for a European minimum wage. They proposed a criterion inspired by the debate on a living wage in English-speaking countries: namely, that “all European countries should aim for a national minimum wage standard of at least 60 percent of the national average wage.” A minimum wage at this level not only enables social participation, but also ensures an adequate pension. Accordingly, a European minimum wage at 60 percent of average wages henceforth became a central demand of the European left.
A Long Struggle Reaches Its Conclusion
However, the demand long had no prospect of realization. For it was not only the European Commission and the member states that blocked any attempt to enact regulations to strengthen wage development in the EU. Within the European trade union movement, too, there were enduring reservations about minimum wages in general and European regulation in particular. The strong northern European unions resisted this demand for years and prevented the European Trade Union Confederation from making an EU-wide minimum wage a central issue. German trade unions — especially from the industrial sectors — were also long skeptical, even though they supported the introduction of a statutory minimum wage in Germany. Among other reasons, unions feared an encroachment on their autonomy to set wages — and hence the negative effects on their collective agreements.
The European minimum wage directive was successfully pushed through not least because the German industrial trade unions have now abandoned their opposition. The German trade unions became a central and influential proponent of the measure, especially after former Commission president Jean-Claude Juncker announced in 2014 that he would establish uniform criteria for minimum wages in Europe. Given the success of right-wing populist parties, Juncker had deliberately linked this sociopolitical push to working on the EU’s legitimacy deficit. A European minimum wage was intended as a symbolic project to partially counteract the social damage suffered in member states after the euro crisis.
In spring 2020, the Commission under Ursula von der Leyen began a consolation with the European collective bargaining partners and for the first time formulated the intention of stipulating the 60 percent criterion in a directive. Before this, only a rather nonbinding communication from the Commission on the subject had been discussed, so the draft directive published in October 2020 was something of a surprise. This is because a directive has a specific binding force, which can result in infringement proceedings and severe penalties if not properly implemented. The Commission thus ventured into legally uncertain territory. However, the draft directive has already been classified as legally secure — despite threats from business associations — because it neither directly intervenes in the determination of the minimum wage level nor prescribes a specific minimum wage system, but merely formulates uniform European criteria.
After the European Parliament adopted an ambitious resolution on the Commission’s proposal in November 2021, there came negotiations including member states. An alliance of northern and eastern European states had come together to block an agreement. The fact that one was nevertheless reached primarily owes to the French presidency of the Council and the European Parliament’s negotiating delegation. In particular, the explicit emphasis that member states without a statutory minimum wage are not obliged to set one up cleared the way for an agreement in June 2022.
Accordingly, the directive essentially only affects the twenty-one out of twenty-seven EU states that already have such regulations — including the two largest member states, France and Germany. The exceptions are mainly northern countries such as Denmark and Sweden — both voted against the directive in the Council — where minimum wages are only set for individual sectors and occupational groups through collective agreements. In Austria, Italy, and Cyprus, minimum wages are also regulated through a comprehensive collective agreement system, although in Italy and Cyprus there are today intensive discussions about introducing a statutory minimum wage.
This outcome is nevertheless remarkable, since various observers — including myself — had expected the original Commission draft to be significantly weakened. This did not happen. On the contrary, not only was its thrust retained, but essential key provisions were even expanded. For example, the directive aims to “achieve an adequate standard of living, reduce in-work poverty, promote social cohesion and upward social convergence, and reduce the gender pay gap.” At the same time, in addition to the framework for defining national minimum wages, it also includes regulations to strengthen national collective bargaining systems and protect employees and trade unions.
Specifically, the framework defines four general criteria that must be considered as a minimum when setting the national minimum wage. These are the general levels of wages and their growth rates, the purchasing power of statutory minimum wages, and long-term developments in national productivity. Member states can include other criteria in the indexation of the minimum wage, but only if these are in line with the objective of the directive — and don’t lead to the minimum wage being reduced. For the indicative definition of the minimum wage level, the directive recommends the “internationally customary . . . reference values of 60 percent of the gross median wage and 50 percent of the gross average wage,” which is a significant improvement on the Commission proposal.
On the one hand, this is because the reference values have been moved from the recitals to the directive and have thus once again become significantly more binding on the member states. But the new wording makes it possible to combine the above mentioned separate criteria (median and average wage), thus creating a de facto double criterion.
Overall, both changes mean that the directive develops a normative frame of reference against which national minimum wage policies will have to be measured in the future. According to scholars Thorsten Schulten and Torsten Müller, meeting the double criterion would mean an increase in wages for more than twenty-five million European workers in the EU. To ensure this, the directive also stipulates that member states take measures to ensure access to the minimum wage and to create legal certainty for workers when they report violations.
What at first sounds very technical and legalistic is indispensable for nationwide implementation, as the German example shows that companies circumvent the minimum wage if there is neither an official and anonymous reporting office nor effective sanctions. For example, Victor Perli, a member of the German Parliament for left-wing party Die Linke, found out through a self-operated reporting office that even soccer club FC Bayern Munich had paid its employees below the minimum wage level. The directive aims to put a stop to such offenses, requiring member states to introduce “effective, proportionate and dissuasive” sanctions against minimum wage violations. A remarkable formulation that, contrary to the usual EU-speak, avoids the word “proportionality” and thus tries not to provide the European Court of Justice and other national courts with a starting point to water down the directive afterward.
The second focus of the directive is to strengthen collective bargaining. In this area, there have been enormous improvements compared to the Commission’s draft. For example, member states are required to award public contracts only to companies that comply with the obligations set out in collective agreements. In addition, all member states whose collective-bargaining coverage is below 80 percent will be required to promote collective bargaining. This is linked to the development of concrete measures to gradually increase collective-bargaining coverage, as well as a specific timetable for their implementation. This action plan is to be monitored regularly by the Commission and revised every five years by the member states. Since collective-bargaining coverage currently exceeds 80 percent only in Sweden, Finland, Belgium, Austria, and France, this regulation will affect many member states.
A third focus is on the protection of employee rights and trade unions. For example, the directive obliges member states to take measures to ensure that trade unions’ work is not disrupted. Quite explicitly, the directive requires member states to prohibit and criminalize any form of union busting.
An Elementary Turnaround
The positive reference to collective bargaining marks a paradigm shift in European labor policy — especially against the backdrop of decades of economic and competition policy that saw collective labor relations as an obstacle to competition and, during the euro crisis, to improving competitiveness. For the first time in three decades, labor policy at the European level is seen as a correction to the market, and collective agreements are understood as an essential instrument for combating poverty.
However, the directive remains vague in some parts, leaving — for better or worse — the definition of the concrete minimum wage level up to the individual member states. There is still plenty of scope here for the member states to water down the directive during national implementation. Preventing this will be primarily the task of the progressive forces in the respective EU states.
At the European level, it will be important to examine whether the quantitative recommendations relating to minimum wage levels and collective bargaining coverage can be translated into a framework that allows for more binding monitoring. For example, the indicators could be integrated into the Commission’s Social Scoreboard and monitored in the Semester process, which provides European oversight over national budgets. At the same time, they should play a greater role in the country-specific recommendations in order to prevent “economic policy” recommendations that see wages primarily as cost factors and collective bargaining as a barrier to competition.
An Important Step
Nevertheless, it remains to be said that the minimum wage directive represents an elementary step in the direction of a social Europe. Against the backdrop of wage-based crisis management and the establishment of a New European Labour Policy, the minimum wage directive represents a realignment of labor policy. It can lead not only to a strengthening of national minimum wages, but also offers progressive forces in all European member states the opportunity to push for a strengthening or reestablishment of sectoral collective bargaining.
How sustainable this turnaround is will ultimately depend on the national and European balance of power. Here, it will be the task of the Left and labor to defend the minimum wage directive — in its implementation at the national level and against the lawsuits already announced by business associations at the European level. However, the directive seems to be having an effect even before its official adoption by Parliament. Already on June 14, the Irish minister of labor announced that the national minimum wage is to be expanded into a living wage. We can hope that other countries will follow.