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The new EU Directive on minimum wage sets a dual goal

In seeking to reduce working poverty and inequality, it focuses on improving the adequacy of statutory minimum wages as well as the promotion of collective bargaining.

Comment | 16 November 2022
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For millions of people across Europe poverty has been a reality since before the COVID-19 crisis, with in-work poverty rising for the past decade. In 2018, in nine European Member States, the minimum wage did not provide sufficient income to rise above the at-risk-of-poverty threshold (60 per cent of the national median equivalized disposable income after social transfers). In some cases the minimum wage did not provide enough for a single mother, working full-time, to rent a small apartment and provide the basic minimum – such as healthy food – for a young child.

With prices increasing for day-to-day essentials such as housing and energy, people are struggling to make ends meet. This is particularly true for women, younger workers, migrants and the low-skilled and workers who suffer from multiple forms of discrimination.

In a broader context of rising inequality and a declining wage share – and in line with the key objectives of the 2030 Sustainable Development Agenda to reduce inequality and promote decent work for all women and men, as articulated by Sustainable Development Goal 8 – there is a need to give greater attention to the fundamental and enabling rights (freedom of association and the effective recognition of the right to collective bargaining) in processes of wage setting.

This underlines the importance and timeliness of the new Directive on adequate minimum wages in the European Union.

The primary goal of the EU Directive is to establish a framework to improve the adequacy of statutory minimum wages and enhance effective access of workers to minimum wage protection, including through collective bargaining. The Directive explicitly promotes collective bargaining, recognizing that strong and inclusive collective bargaining systems play an important role in ensuring adequate minimum wage protection.

The ILO provided technical inputs to the policy dialogues that took place, drawing on the Global Wage Report (2020-21) which reviewed minimum wage systems around the world and analyzed the relationship between minimum wages and inequality.

For the promotion of collective bargaining, the Directive requests EU Member States to strengthen the capacity of social partners and (in line with ILO Convention No. 98), encourage constructive, meaningful and informed negotiations, take measures to protect the effective recognition of the right to collective bargaining, and protect workers and trade union representatives from acts of anti-union discriminatory measures, and workers’ and employers’ organizations from acts of interference by each other.

The ILO’s Flagship Report on Social Dialogue (2022), finds that collective bargaining can facilitate equality and inclusion, contribute to safe and healthy workplaces and be an important source of resilience during economic and social crises. It supports existing evidence that collective agreements reduce wage inequality by raising the earnings of low-wage workers and reducing differentials between the highest and lowest earners. Research conducted for the report also shows that countries with high levels of collective bargaining coverage are those with multi-employer, inter-professional and sectoral collective bargaining systems, able to facilitate the inclusive application of collectively agreed wages.

The Directive requires that EU Member States with collective bargaining coverage rates of less than 80 per cent, in consultation with the social partners, provide a framework of enabling conditions (the ILO’s database on collective bargaining coverage finds only six European Union Member States meet this level). They should also establish an action plan (reviewed at least every five years) for promoting collective bargaining. This requirement is grounded in the explicit understanding that Member States with high collective bargaining coverage tend to have a lower share of low-wage workers and high levels of minimum wages, relative to the average wage. ILO Convention No. 154 and ILO Recommendation 163 provide explicit guidance on the promotion of collective bargaining.

Collective bargaining coverage rates in the European Union (EU)

The boundaries shown on this map do not imply endorsement or acceptance by the ILO.
The collective bargaining coverage rate represents the share of employees covered by one or more collective agreement, in per cent. Rates are adjusted for the possibility that some workers do not have the right to bargain collectively over wages (e.g. workers in the public services who have their wages determined by state regulation or other methods involving consultation). Last updated on 5 May 2022.
The EU Directive does not require Member States to introduce a statutory minimum wage. Instead, it places strong emphasis on the “adequacy” of minimum wages. Adequate minimum wages, whether statutory or negotiated, pursued using the approach set out in the ILO’s Minimum Wage Fixing Convention, 1970 (No. 131), can contribute to sustaining domestic demand and purchasing power, reduce wage inequalities and the gender pay gap, and limit the fall in incomes, especially for the most vulnerable.

The ILO’s Global Wage Report (2020-21) which reviewed minimum wage systems around the world, provides evidence of how such “adequacy” is achieved, as well as how adequate minimum wages reduce inequality. The ILO Minimum Wage Policy Guide provides essential policy guidance on the setting and adjustment of minimum wages.

The ILO’s Director-General, Gilbert F. Houngbo, has made it clear that he sees increasing minimum wages and guaranteeing social protection benefits as priority responses necessary to protect the most vulnerable and prevent scarring caused by the multiple and interlocking global crises we face.

By Dora Katalin Sari, Specialist on Industrial Relations Indicators