Statutory minimum wages in 2015: Pay - Q4 2014 (EurWORK topical update)

Most EU Member States have a statutory minimum wage which sets the lowest legal amount of pay for all employees (some also have specific lower minimum levels for certain groups of workers, mainly younger ones). Germany joined this group of countries on 1 January 2015. This has triggered some debate in those countries which have minimum wage levels set within collective agreements. The implementation and enforcement of the German legal minimum wage will have impacts not only at national level but even, as already seen through the discussions raised in the road transport sector, at pan-European level, especially with regard to the posting of workers. This article presents the most recent data on statutory minimum wages, applicable on 1 January 2015 (see table), and an overview of the discussions leading to the final settlements made in 2014.

While minimum wages have often been frozen or seen only moderate increases during the years of crisis, the past two years have witnessed a cautious return in most Member States to growth in the minimum wage. The lower level of inflation – or deflation in some cases – means that the value of the statutory minimum wage will increase in real terms as of 1 January 2015, considerably in most Member States and slightly in some (see table).  

Statutory minimum wages, adult rates in national currency 2014 and 2015, % change

* Inflation: Eurostat [tec00118], 29 January 2015, annual average.

** Rate for unqualified worker.

Notes: Monthly rates, unless indicated otherwise.

There is no statutory minimum wage in Austria, Denmark, Finland, Italy, Norway and Sweden.

COLA = cost of living allowance

Increases agreed or set within the usual wage-setting mechanism

As reported in the Q3 2014 topical update on wage-setting mechanisms, there have been debates throughout 2014 about reforms of the wage-setting mechanism or more differentiated national minimum wage rates. However, the settlements reached for 2015 were usually made within existing fora.

In Bulgaria, the members of the Tripartite Council continued the discussion about the minimum wage at the beginning of December 2014. The trade unions argued that deflation was the major concern for the Bulgarian economy and that an increase in the minimum wage would encourage consumption (where the poor spend a larger share of their income). The employer representatives were against an increase because businesses would struggle to pay their employees more in the continuing economic crisis. The final decision was to increase the minimum wage by 5.9%.

A more substantial minimum wage increase of 12.5% (reaching €360 per month) was made in Latvia, with much less debate than 'usual'. Right at the beginning of the budgeting process, the government agreed the increase and the Ministry of Finance stated that it enjoyed the support of all parties in the ruling coalition government, the trade unions and employer organisations.

More prolonged discussions were held in Lithuania. Against the background of Lithuania adopting the euro in January 2015, employers initially argued against a significant increase in the minimum monthly wage and said they would agree to increase it only if it could be differentiated based on regions and business sectors. At the end of March 2014, the social partners agreed to establish a working group under the Tripartite Council of the Republic of Lithuania (LRTT) to analyse the possibilities for increasing the minimum monthly wage and submit proposals to the LRTT. This group agreed on a 10% increase but, at the LRTT meeting in June, representatives of employer organisations and the government did not support the decision and the minimum monthly wage remained at LTL 1,000 (€290). The LRTT instructed the working group to continue its work and to prepare specific criteria for an increase in the minimum monthly wage based on the country's economic and financial situation. The adopted increase in the minimum monthly wage of 3.4% was supported by the LRTT. The minimum monthly wage is expected to increase again in 2015, but it is not yet clear by how much and when.

In Portugal, the statutory minimum wage has been frozen since 2011 at €485 per month. The government, the employer confederations and the General Workers’ Union (UGT) agreed to increase the minimum wage by €20 to €505 per month. In return, the employers were compensated by a reduction in their social security contribution of 0.75%. The General Confederation of Portuguese Workers (CGTP) opposed the increase, arguing that not only was it too small, and was also against the reduction in the employers' social security contribution.

In Spain, the government approved on 26 December 2014 a 0.5% increase, up to €648.60 per month, in the Inter-professional Minimum Salary (SMI). The trade unions criticised this increase; they considered it not enough and far from what Spanish workers needed to recover their purchasing power. The SMI was frozen in 2012 and 2014, but increased by 0.6% in 2013.

Higher increases proposed or envisaged for the coming years

In the Czech Republic, the monthly minimum wage increased by 8.2% in January 2015 to CZK 9,200 (€329). The government foresees further increases up to 40% of the average wage over the next 4–10 years. Both the trade unions and employers’ associations appreciated the dialogue with the government, especially with the Minister of Finance, Andrej Babiš.

In Estonia, there is also discussion about increasing the minimum wage substantially over the next five years. This is against the background of parliamentary elections which will take place in March 2015. One of the most discussed ideas was put forward by the Estonian Social Democratic Party, which proposed increasing the national minimum wage gradually to €800 per month by 2019. Although several other political parties favour increasing the minimum wage faster than at present, employers stated that such an increase was not realistic and called the idea a calculated appeal to the interests of ordinary workers. The trade unions welcomed the proposal, but felt it was only realistic if all parties cooperated.

In the UK, the government set out evidence for the 2015 national minimum wage rate on 15 October 2014. The evidence notes the improved recent growth figures and positive forecasts from the Office for Budget Responsibility for 2014, 2015 and 2016. The government also stressed its ambition to increase the value of the national minimum wage without an adverse effect on employment.

No increase in the prevailing minimum wage

The minimum wage was not increased during 2014 in four Member States – Belgium, Greece, Ireland and Slovenia.

Developments and debates in countries with no statutory minimum wage

In Italy, the first draft of the government's Jobs Act proposed the introduction, after consulting the social partners and even on an experimental basis, a minimum hourly wage applicable to all employees. Trade unions opposed the introduction of an hourly minimum wage, arguing that the National Collective Bargaining Agreements (NCBAs) already set a minimum wage. However, NCBAs cover only 80% of employees according to data from the ICTWSS database. The trade unions also argued that a statutory minimum wage would make it impossible to renew NCBAs and, therefore, to defend wage levels. Furthermore, they claimed that a statutory minimum wage would be inconsistent with the Italian Constitution and specifically in breach of Section 39. The final version of the Jobs Act established the introduction, after consulting with social partners and on an experimental basis, of a statutory minimum hourly wage applicable also to economically dependent self-employed workers. This minimum wage will apply only to sectors where there are no NCBAs signed by the most representative trade unions and employers’ organisations at national level.

In Sweden, minimum wages are not set by law but by collective agreements. There is a joint understanding among all major Swedish social partners that having minimum wages negotiated through collective bargaining is a better system than a statutory minimum wage. However, other reforms of the labour market have put pressure on this model. Since 2008, Sweden has had free labour force migration (a person from a third country is granted a residence permit if they have a job in Sweden). Migrant workers with temporary work permits are often not members of Swedish trade unions and lack collective agreements. In some sectors, such as hotels and restaurants, this has made it more difficult for the social partners to monitor and regulate working conditions through collective agreements and some argue that this will have undesired consequences for the Swedish model. In the trade union paper Arbetsvärlden, the politically appointed state secretary at the Ministry of Employment, Irene Wennemo, has stated (article in Swedish) that a minimum wage could be one such undesired consequence, if the trade unions are not given better facilities to monitor the labour market in all sectors.

The EurWORK Q3 2014 topical update on wage-setting mechanisms reported on discussions about:

• a potential introduction of a statutory minimum wage for Finland and Denmark;
• reforms of the minimum wage setting so as to better reflect productivity developments.

German minimum wage and impact on road transport

The new law introducing the German minimum wage also covers the road transport sector and will apply to German and foreign operators performing transport activities on Germany territory. These activities will include cabotage as well as international transport operations to and from Germany and transit. The employer must record the start, end and duration of the hours worked on German territory within the last seven days after the transport operation is completed.

At the beginning of 2015, German customs authorities started to enforce the implementation and inspection of the minimum wage, also in the road transport sector. This has evoked criticism on the side of employers, and of neighbouring Member States such as Poland, Hungary and Denmark. Polish MEP Adam Szeijnfeld asked the Commission whether the German provisions were a violation of the rules of the European single market. The European-level employer organisation, the International Road Transport Union (IRU), called for an immediate moratorium on the enforcement of the German minimum wage. The IRU questioned the legal basis of the minimum wage (for instance, whether the posted workers directive applies) and argued that the regulatory burden is very high, as the administrative procedures are not yet fully established.

The European Transport Workers' Federation (ETF), however, issued a statement on the German minumum wage (67 KB PDF) welcoming the measure as a national solution to address social fraud in road transport. The European Commission is currently looking into this issue, but has underlined that the principle of a fixed hourly salary is 'in line with the Commission's social policy commitment' (see EuropeanVoice article).

Commentary

This is a first glimpse of statutory minimum levels across the EU in 2015. Growth in the real values of these wages is generally thought to be growth-enhancing, as they stimulate consumption.  This result has often been achieved by deflation; that is, declining prices in many Member States may also result in reduced consumption if people postpone purchasing decisions. Assuming that those on the minimum wage spend a higher share of their pay than others, it could be assumed that the second effect is not that pronounced among this group and hence the increases made in the minimum wage should nevertheless help to stimulate consumption. However, recent developments in the euro exchange rate against the currencies of the EU's main trading partners or the devaluation of national currencies that are not pegged to the euro (such as the Hungarian forint) will have a further effect on relative price levels (that is, mainly increasing the prices of imported goods). It remains to be seen what effect this will have on the purchasing power of those on the minimum wage. 

The introduction of a German minimum wage on 1 January 2015 – as part of a wider reform on collective bargaining – has not only been a substantial change in industrial relations in Germany, but has created spillovers to other Member States, to other legal areas, such as posted workers legislation, and has affected or will affect sectors which previously did not have a universal wage floor.

About this article

This article is based mainly on contributions from Eurofound’s network of European correspondents. Further resources on pay developments and minimum wage-setting mechanisms can be obtained from:

Eurofound's Industrial relations country profiles

Eurofound 2014: Pay in Europe in the 21st century

A more in-depth description of the development of statutory minimum wages will follow later in 2015 in Eurofound’s annual update on developments in collectively agreed pay.

For further information, contact Christine Aumayr-Pintar: cau@eurofound.europa.eu