Industrial relations and social dialogue
The adequacy of minimum wages established by the EU Minimum Wage Directive shall be assessed on two dimensions: fairness and the provision of a decent standard of living. It is up to the Member States to decide on their approaches to assessing the adequacy of minimum wage levels. So far, Eurofound’s regular reporting shows there are more national initiatives addressing the fairness dimension, while initiatives to assess the provision of a decent standard of living remain rare.
EU directive pushes for adequate minimum wages
The EU Minimum Wage Directive was adopted in October 2022 and must be transposed into national law by November 2024. One of its key goals is to establish a framework that sets adequate levels of statutory minimum wages, aiming to ensure decent living and working conditions.
Although Member States are responsible for their own approach to determine and assess adequacy, the directive provides guidance.
Minimum wages are considered to be adequate if they are fair in relation to the wage distribution in the relevant Member State and if they provide a decent standard of living for workers based on a full-time employment relationship.
(Recital 28)
Two main dimensions guide Member States in assessing the adequacy of their minimum wages. The first dimension refers to fairness and is a relative concept in that countries can resort to indicators commonly used at international level or to national indicators. Among the reference values used at international level, the minimum wage set at 60 % of the median wage or 50% of the average wage received the widest traction in debates. This was not surprising given these values are specifically mentioned as examples in the directive. Additionally, the directive cites examples of assessments based on national indicators, such as comparing net minimum wages with poverty thresholds.
The second dimension for assessing adequacy concerns the provision of a decent standard of living and is an absolute concept. Recital 28 suggests that this assessment could be based on the setting up of a basket of goods and services to determine the cost of living in the Member States and how they compare to minimum wage levels.
Approaches to improving the fairness dimension are straightforward, as they are typically based on setting the minimum wage at a certain threshold defined in relation to the national average or median wage. On the contrary, assessing the extent to which the decent standard of living dimension has been met are more complex.
More difficult for minimum wage earners to make ends meet
There is no direct and easy way to assess the adequacy of minimum wages based on its capacity to provide for a decent standard of living. Member States may use a diversity of approaches in their assessment. Aiming to spark debate on this issue, data from the EU statistics on Income and Living Conditions (EU-SILC) are used to examine the difficulties faced by minimum wage earners in making ends meet. This approach offers an indirect approximation of the extent to which minimum wage levels may allow for a decent standard of living. It is based on the latest data in 2022 across all EU Member States that were self-reported and focused only on employees living alone without dependents (to eliminate the influence of additional household members’ income).
From this analysis, three main insights emerge.
First, countries differ significantly in the proportion of minimum wage earners facing financial difficulties in making ends meet. The shares exceed the EU average in many of the 13 newer Member States that joined the EU prior to 2004 and in some Mediterranean countries: Greece (>90%); Croatia (>50%); Cyprus, Hungary and Slovakia (>40%); Romania, Lithuania, Latvia, Czechia, Bulgaria, Portugal and Spain (>30%); and Malta (29%, just above EU average). Conversely, the shares fall below the EU average mainly in most of the 15 Member States that were part of the EU prior to 2004 and just two newer Member States: Luxembourg, Ireland, Sweden, the Netherlands, Slovenia and Germany (<10%); and Austria, Denmark, Estonia, Finland, Italy, Belgium, France and Poland (between 12% and 27%).
Second, as expected, minimum wage earners are more likely to face difficulties in making ends meet than employees receiving higher wages. On average across EU Member States, the share of minimum wage earners facing such difficulties is twice as high (28%) as that of higher-paid employees (14%). Except in Slovenia and Ireland, a higher share of minimum wage earners face difficulties in making ends meet. In some countries (Lithuania, Cyprus, Estonia, Finland, Hungary) the proportion of minimum wage earners reporting difficulties in making ends meet is three times that of higher-paid employees (this is also nearly the same proportion in Croatia, Romania, Denmark and Czechia).
Third, it is crucial to consider other factors beyond pay that influence income levels when interpreting the results, such as the degree of taxation, social security contributions and social benefits in relation to the cost of living. This is reflected by the significant correlation across countries between the shares of minimum wage earners facing financial difficulties and those of employees earning higher wages. This is further confirmed by the clear link between the shares of employees reporting difficulties and the general income levels across countries, indicating that difficulties in making ends meet are more widespread in lower-income countries and less so in higher-income ones.
It should be stressed that this analysis is only a partial and approximate contribution to the debate on the decent standard of living provided by minimum wages; it is not a comprehensive assessment of minimum wage adequacy across Member States. A more robust assessment would require additional indicators and ultimately an agreement among national wage setters on what constitutes an adequate minimum wage level, taking into account wages among other workers within each country. Caution is needed when interpreting these results. The extent of the self-reported difficulties in making ends meet is subjective and may be magnified by the recent cost-of-living crisis. Additionally, while this analysis focuses on employees living alone without dependents, it does not account for other factors beyond wages that could affect the standard of living for minimum wage earners, such as private transfers and government social benefits.
Countries own approaches to assess adequacy
EU Member States will be responsible for determining the adequacy of statutory minimum wages.
The adequacy of statutory minimum wages is determined and assessed by each Member State in view of its national socioeconomic conditions, including employment growth, competitiveness and regional and sectoral developments.
(Recital 28)
Article 5 of the directive states that the setting of statutory minimum wages shall be guided by criteria set to contribute to their adequacy. These criteria, as well as their weighting, should be selected by Member States in accordance with their national practices but must include at least the following elements, as listed in Article 5(2):
- the purchasing power of statutory minimum wages, taking into account the cost of living
- the general level of wages and their distribution
- the growth rate of wages
- long-term national productivity levels and developments
In addition, the use of ‘indicative reference values’ is required in Article 5(3) to ‘guide the assessment’ of statutory minimum wage adequacy, although reaching these reference values is not obligatory.
Reporting from the Network of Eurofound Correspondents shows that Member States have so far mainly focussed on the fairness dimension in assessing minimum wage adequacy. An increasing number of countries are moving towards setting their national minimum wage rates in line with the average/median wage (Bulgaria, Croatia, Czechia, Estonia, Ireland, Lithuania, Spain and Slovakia), which provides a more straightforward and technical method of intervention. The use of such reference values has significantly influenced the large uprates of minimum wages for 2024 across several countries.
Nevertheless, reflection is needed on whether current approaches ensure statutory minimum wage levels that provide a decent standard of living. This second dimension of minimum wage adequacy involves considering the cost of living, for instance, by defining baskets of goods and services or conducting surveys among low-paid earners. Although the directive refers to workers and not households, it is important to consider that minimum wage earners are part of various households and household income. This may include benefits and transfers or other members’ income, which may play an important role in determining whether a wage can provide a decent standard of living.
Conclusion
The fairness dimension of the adequacy assessment of minimum wage levels is relatively straightforward since it could involve simply uprating statutory minimum wages to a certain percentage of wages, which is regarded as fair. However, determining the decent standard of living dimension is more complex. This requires a common understanding between national wage setters and an agreement on the normative question: Which level of the statutory minimum wage is socially adequate to ensure a decent standard of living for someone working full time? A gap between the wages of those working full time and those working part-time or not at all is essential to maintain the incentive to work among the low-paid.
So far, there have been few attempts to assess the adequacy of statutory minimum wages from the perspective of a decent standard of living using a basket-based approach, and survey-based evaluations are not widespread. Over the coming years, those involved in setting statutory minimum wages in the Member States – governments, social partners and expert committees – will be expected to undertake adequacy assessments and define approaches that best suit their particular situation.
Related content
Related series
Related series results (1)
