Chapter 3: Who should set minimum wages

3.2 Minimum wages through collective bargaining

Collective bargaining

The most direct involvement of social partners is through collective bargaining, which is a perfectly legitimate form of minimum wage fixing under Convention No. 131.
In many countries, bargained and statutory minimum wages co-exist. In a more limited number of countries, collective bargaining is the only means of minimum wage fixing. Figure 1. below distinguishes between countries where minimum wages are exclusively set through binding collective agreements, and countries that rely on statutory minimum wages (with or without additional bargained minima).

Figure 1. Proportion of countries with different minimum wage fixing machineries
Source: ILO estimate 

We observe that only 10 per cent of countries with a minimum wage rely exclusively on collective bargaining. In practice, many of these countries are Nordic European countries. In addition, Belgium also sets its national minimum wage through an inter-sectoral collective agreement adopted by the National Labour Council.
Collective bargaining can provide protection of minimum standards. However, in most countries, the coverage of collective bargaining is insufficient to provide protection of minimum standards to a broad majority of workers (See Issue Brief No.1). Many countries therefore adopt statutory minimum wages in addition to the minima set through collective bargaining.

This is the case in Germany where close to 60 per cent of workers are covered by collective agreements, and where a national minimum wage was adopted in 2015. In Brazil, more than 40,000 collective labour contracts cover about two-thirds of paid employees, and are complemented by a national-level and several state-level statutory minimum wages. Similar situations prevail in other countries.

In general, collective agreements can set minimum wages provided that they are not lower than statutory levels. This implies that when a statutory minimum is increased above the floor level of some collective agreements, the statutory minimum wage applies.

In France, for example, it was noted that when the SMIC (salaire minimum interprofessionnel de croissance) was adjusted in July each year, it often exceeded bargained minima – making them obsolete. In Croatia too, it has been observed that the statutory minimum wage frequently exceeds collectively agreed pay floors – creating direct interaction between the two systems.1

In other instances, a statutory minimum rate is fixed so low that it may be viewed as irrelevant for collectively agreed wage floors.

1 Grimshaw, Bosch and Rubery (2014). “Minimum wages and collective bargaining: What types of pay bargaining can foster positive pay equity outcomes?” British Journal of Industrial Relations, Vol. 52, Issue. 3, pp. 470-498.