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European Minimum Wage – Towards an Ever Closer Union?

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This is a guest post by Molly O’Casey, foreign law intern in the Global Legal Research Directorate, Law Library of Congress. Molly has recently graduated from a dual law degree (civil law/common law) program between University College Dublin, in Ireland, and Université Paris II Pantheon-Assas, in France.

According to statistics published by Eurostat, the European Union (EU)’s statistical office, 122.3 million people within the EU population are at risk of poverty or social exclusion, an increase of 24.5% compared to 2013. There has been a commensurate rise in non-standard forms of employment and low-paying jobs, growing numbers of working poor, and worsening social inequality. In 2014, the disposable income of 17.2% of the EU’s population was below their national at-risk-of-poverty threshold.

Income-related law is not harmonized across the EU. The European Commission’s recent legal action against France and Germany’s imposition of national minimum wage legislation on the international transport sector demonstrates the legal complexities caused by this lack of harmonized law. A European minimum wage has been suggested as one solution to these social and structural difficulties.

Political and Economic Philosophies

As the minimum wage is a major socio-political issue, it can be a challenge to divorce the political from the factual. During the 1980s, the consensus was that minimum wages had a negative impact on employment. Ten years later, studies had found the negative effects were small or non-existent. As the empirical evidence is inconclusive in determining the desirability of a minimum wage, individual opinion tends to be based on political and economic philosophies. (Vaughan-Whitehead 2010)

The main competing theories are neoclassical labor market theories and Keynesian theories. Neoclassical labor market theories historically framed the opposition to the minimum wage. They held that a minimum wage would lead to higher levels of unemployment, because low-skilled and young workers would be too costly for employers to hire and the more attractive salaries would lead to high numbers of job-seekers. Keynesian theory on the other hand suggests, that the high minimum wages increase pressure to raise other wages and would result in a more egalitarian wage structure.

A National Issue?

The competency of the EU and its Member States may be exclusive or shared, meaning in some cases only the EU can act, in others only the Member State may act and in some cases both may act. The EU’s powers and competencies are largely outlined in the Treaty on the Functioning of the European Union (2007) (TFEU). Per article 153.5 TFEU, minimum wages are exclusively defined at the national level. Though 22 of the 28 EU Member States have a minimum wage, monthly minimum wages can vary between Bulgaria’s 215 Euros (US$243) and Luxembourg’s 1923 Euros (US$2170). At $7.25 per hour, the U.S. federal monthly minimum wage may be estimated at $1,200 per month. It ranks between Slovenia (791 Euros (US$892)) and France (1458 Euros (US$1645)).

European Parliament. March Plenary Session is on. / Photograph by European Union 2014 - European Parliament. Used under Creative Commons License,
European Parliament. March Plenary Session is on. / Photograph by European Union 2014 – European Parliament. Used under Creative Commons License,

Lack of Legal Basis

Despite the provisions of the TFEU, the EU is requiring Member States to modify their national minimum wage policy. The ‘European Semester’, the EU’s annual cycle of economic policy guidance and surveillance, imposed wage policy requirements on individual Member States, as part of a Europe-wide coordination of economic policy. Recent intergovernmental pacts have seen the EU impose requirements on Member States described by some as “austere”. The Six Pack broadened the scope of the EU’s economic policies and implemented stronger budgetary surveillance of Member States. The Euro Plus Pact requires Member States to assess if wages are evolving in line with productivity by comparing themselves to other EU members, to review wage setting arrangements and wages in the private sector, and to open sheltered sectors to competition.

Failure to comply with EU economic policy may lead to fines. More constraining measures have been placed on struggling Member States, with the Troika, comprised of the European Commission, the European Central Bank and the International Monetary Fund, linking the granting of loans to reform of national wage policy and collective bargaining.

Therefore, the EU could be seen as reforming national minimum wage policy without a legal basis. The justification would seem to be the need for economic reform, demonstrated during the global financial crisis which started in 2007. At present, as there are no clear laws or guidelines governing the creation of EU economic policy on a minimum wage, there are not necessarily grounds upon which Member States may challenge these policies. If a Member State did try to strike down the policy, the European Court of Justice (ECJ), the main court of the EU, would be asked to wade into a complex political issue. A legal instrument setting out the implementation conditions or governing norms of a minimum wage would allow member states to challenge European policies and provide much needed clarity.

Expansion of EU Scope

The EU could have some scope for instituting an EU minimum wage through a social rights based approach. Article 4.1 of the European Social Charter guarantees the “right of workers to a remuneration such as will give them and their families a decent standard of living”. Article 5.1 of the Community Charter of the Fundamental Social Rights of Workers recognizes the right to “an equitable wage” as a basic social right.

These charters do not have legally binding force, meaning that if the Member States violate the provisions of the Charters, there will be no legal consequences. Nevertheless, the implementation of the European Social Charter is overseen by the European Committee of Social Rights and the Committee of Ministers. Member States are held accountable through the obligation to issue reports to the Committee detailing how they are making their national laws conform.

The Community Charter of the Fundamental Social Rights of Workers is a political declaration. It does not have binding force. However, the Social Action Program, adopted by the European Commission as a result of the Charter, has culminated in the creation of directives which do have binding force. The references to the Charter, contained in the preamble of the Treaty on European Union and in article 151 of the TFEU, allow the Charter to be used as an interpretive guide by the ECJ. Through the rulings of the ECJ, the Charter could have an indirect legally binding effect. For now, these charters would seem insufficient.

European Flag. Photo by Flickr user Rock Cohen. April 5, 2008. Used under Creative Commons License 2.0,
European Flag. Photo by Flickr user Rock Cohen. April 5, 2008. Used under Creative Commons License 2.0,

Possible Implementation Methods

The implementation of the EU minimum wage could occur through the adaptation of national solutions or through mechanisms unique to the EU. There is a consensus among scholars that it is unlikely that, taking into account the diverging national economic needs and differing labor laws, the imposition of a Europe-wide uniform minimum wage level would be a practical solution.

National solutions could be adapted. National regimes have been established universally (via statutes) or by sector (via collective agreements). The substance of collective agreements could be extended universally or a second-level statutory floor could be established. Both cases would require a higher degree of state intervention than exists currently in industrial relations practices. Alternatively, an EU-level council, similar to the UK Low Pay Commission, could adjust the minimum wage target based on an evaluation of the economic and social situation.

The ‘open method of coordination’, used in areas such as employment and labor, requires a commitment to broad non-binding European objectives, which Member States then implement through national action plans and periodic peer- reviews. Some argue that, due to a lack of enforcement mechanism, it has historically not led to policy coordination and harmonization. However, this method could accommodate diverging national policies and would avoid the difficult political process involved in creating a treaty to modify or contradict the TFEU.

The suggestion which has received the most support is instituting a European norm. A European minimum wage norm would require that minimum wages be set at equivalent to 60 percent of national median wages. This percentile was established by the European Council to monitor compliance with the European Social Charter. It is believed that this norm could ‘affect about 2 million workers, or 16 percent of the overall European workforce’. This method may be criticized as it does not reflect the inequalities between the highest and lowest wages. The EU Parliament demonstrated support for this policy in its 2010 and 2011 resolutions. However, the EU Parliament merely sets out non-enforceable guiding principles.

If the average was used as an anchor, it would ensure that the minimum wage level would change with the upper wage level. Alternatively, using the gross domestic product (GDP) per capita or per worker as an anchor links the minimum wage to the evolution of the overall productivity in the country. Unfortunately, using GDP per worker as an anchor could result in minimum wage levels which would be difficult to justify in the context of rising unemployment.

In 2015, the EU Parliament recommended the broader approach of combining “minimum wages with fiscal policy measures such as tax relief, earned income tax credits or additional income support provisions to increase low paid employees’ incomes”. Regardless, most experts seem to agree that some reform is necessary.

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