The first overview of minimum wage setting for 2022 shows that, while some negotiations are still ongoing, virtually all EU Member States have increased their nominal statutory rates. Compared to last year, when most countries settled for cautious increases against a background of deep uncertainty caused by the pandemic, growth in statutory rates for 2022 was stronger, reflecting an easing of the situation. This was especially the case in central and eastern European countries, where some increases were in double digits. Nevertheless, inflation is back in the picture and should be monitored in the coming months to get an insight into how the increases in nominal minimum wage rates translate into actual changes in the purchasing power of minimum wage earners.
Overview of statutory minimum wage developments
Following the spread of COVID-19 across EU Member States in 2020, policymakers involved in minimum wage setting had a tough job deciding on the new rates. Faced with growing unemployment, huge economic uncertainty and the disruption of normal negotiation and consultation processes, most European countries settled for rather cautious increases in their statutory minimum wages coming into effect in January 2021.
One year later, although the negative consequences of the pandemic are still visible, European economies and labour markets are recovering. A broad picture, characterised by more generalised and larger increases in statutory nominal rates, is emerging in the area of minimum wage setting. This is reflected in Figure 1, which presents data on gross statutory minimum wages in national currencies and their progress in 2022 compared to 2021. Two main points emerge from the data.
- Statutory minimum wage rates were raised across virtually all EU countries for 2022. While four countries (Belgium, Estonia, Greece and Spain) opted to freeze their statutory rates in early 2021, these rates were frozen for just one country (Latvia) between January 2021 and January 2022. [1]
- Importantly, increases in statutory minimum wages have been more generous than those seen a year ago. Across the EU, the average increase will be around 6% in 2022 (and it will be even higher once ongoing negotiations have concluded in some countries); in contrast, it was below 4% in 2021.
Notable hikes in the newer Member States
The largest increases in nominal statutory rates have occurred in seven central and eastern European countries (as seen at the top of the figure, where countries have been ranked from higher to lower rates of increase for 2022). Hungary’s statutory rate was increased from HUF 167,400 to HUF 200,000 in January 2021, a remarkable hike of 19.5%. Statutory minimum wage rates increased by more than 10% in Lithuania, Estonia, Romania and Croatia, and by around 7% in Poland and Czechia. In Bulgaria, a new statutory rate is currently being negotiated, and although different rates have been proposed, the increase will again be significant (for instance, a new rate of BGN 700 would mean an increase of more than 9%).
There are a few cases within this group of central and eastern European countries where increases are more modest: Slovenia (5%), Slovakia (3.7%) and Latvia, the only country where statutory rates remain frozen for 2022. This contrasts with the relatively large increases in minimum wages in these three countries in 2021, especially in Latvia, which recorded the largest increase in the EU in 2021. Nevertheless, it should be noted that Latvia decided to freeze the statutory rate while increasing the non-taxable part of the wage, so that the net wage received by minimum wage employees actually continues to grow, an arrangement accepted by the social partners given the significant hike in 2021.
While central and eastern European countries tended to report above average increases in statutory rates in 2021, the progress made in the levels set for the current year is much more significant. This means that these countries, which generally have the lowest statutory minimum wage rates in the EU, are continuing with their significant upward convergence towards the levels of their European partners. This general picture does not change if minimum wages are calculated in euro terms in those central and eastern European countries outside the euro zone: the marked progress in Hungary is only slightly diminished (16%) due to a modest depreciation in the Hungarian forint versus the euro, while the increase in Czechia becomes stronger (12.5%) due to appreciation of the Czech koruna. See Related content in the panel on the left for data on statutory minimum wage levels in euro-converted values across all EU countries. [2]
More modest growth in older Member States
Progress in pre-enlargement EU Member States (EU15) is generally more modest, with just a few countries recording notable increases. The Portuguese statutory rate continued its upward trend and registered a 6% increase for 2022. While the statutory rate was left unchanged in Belgium for most of 2021, it was increased by 4% in September 2021. The 3% increase in Ireland is around three times the increase of a year earlier.
In several countries, statutory minimum wages are updated according to a rule-based mechanism using set formulas and this generally results in rather modest year-on-year changes. For 2022, increases will be slightly above 3% in Germany and France, around 2.5% in the Netherlands and Luxembourg, and 1% in Malta. When compared to rises a year earlier, the magnitude of the 2022 increases stands out in France and Germany. In Germany, the new government has announced a plan, without yet specifying any timing, to undertake a one-off adjustment of the minimum wage to €12 per hour (which would mean a further increase of 22% on its current level of €9.82 per hour).
Finally, Greece and Spain improved their statutory rates by only around 2%, although things are projected to improve further during the year. In Greece, while a new statutory rate has been set from January 2022, ongoing discussions are taking place on a further higher increase that will apply from around mid-2022. In Spain, the last increase only came into effect in September 2021, after social partners failed to agree on an increase earlier in the year, but negotiations are currently ongoing to set a higher rate in the coming months.
Bargaining in countries with no statutory minimum wage
The pandemic has had a differentiated impact on various sectors and groups of workers. While the hospitality sector was subject to lockdowns, loss of jobs and loss of profits, delivery services across the board experienced a huge increase in demand. In the health and care sector, frontline workers faced multiple challenges arising from the pandemic, such as higher workloads, staff absences, more stringent hygiene requirements and mental stress. However, there seems to be little evidence on how these issues affected the collectively agreed wages in countries without a statutory minimum wage.
Austria is one of the few countries with well-documented collectively agreed wage increases, reflecting the varying impact of the pandemic on different sectors. In the transport services sector (small transport trade, including bike delivery couriers), a three-year agreement was negotiated in 2021 providing for a large wage increase of 4.5% effective from 1 January 2022. Cleaners will see an increase of 3.5% in their minimum wage from 1 January 2022 (3.8% increase in the case of hospital cleaners, bringing them to a minimum wage level of €1,700 per month). In comparison, wage increases are lower in the hotel and restaurant sector, which was very negatively affected by the restrictions implemented to fight the pandemic. After collective bargaining was suspended in 2020, a new agreement was negotiated between the social partners in February 2021. This will be in effect until the end of 2022, setting wage increases of 2.2% in 2021 and 2.3% from 1 May 2022.
Given that the healthcare sector has been particularly affected by the pandemic, there has been huge demand for wage increases. In Finland, pressure to increase the wages of nurses is expected to affect the next bargaining rounds in 2022. In Denmark, nurses held a 10-week strike in summer 2021 to protest at the conditions set out in the renewal of their collective agreements. Their complaints focused on issues such as unequal pay, extra workload and additional demands imposed during the pandemic. The government intervened to end the strike, signing the final bargaining proposal into law. One of the outcomes was the establishment of a ‘wage structure committee’ to find solutions for the equal pay issues before the next bargaining round in 2024.
Apart from this sector, there is no evidence of any significant wage changes in Denmark. The last bargaining round in the private sector ended before the pandemic hit in March 2020 and its effects will therefore only be reflected in the next round of collective bargaining, which will take place in 2023. In the public sector, collective bargaining rounds took place in the beginning of 2021, but they do not seem to have been greatly affected by the pandemic either. Denmark has seen an increase in the number of tripartite agreements, resulting mostly in job retention schemes or temporary wage compensation mechanisms, but there were no direct impacts on wage increases in any of the sectors. Similarly, no significant changes in negotiated wage levels emerge in Sweden, whose last significant round of collective bargaining was carried out in 2020.
Inflation knocking on the door
Last year’s report described how the pandemic dominated the minimum wage setting agenda, since the negative consequences of COVID-19 in European economies and labour markets brought about a great deal of uncertainty and even disrupted the normal process of bargaining negotiations.
As countries learn to cope with the virus, the pandemic has not explicitly featured so prominently in this year’s minimum wage setting processes. But as the world economy started to recover, bottlenecks emerged in supply chains and energy prices soared, causing significant growth in consumer prices during the course of 2021, especially in the second part of the year. After many years of being largely absent from the European scene, inflation is firmly back on the agenda. Although it has not yet impacted greatly on the evolution of statutory minimum wages and wage negotiations between the social partners, it has started to feature in this year’s minimum wage bargaining processes and will certainly become more prominent in the months to come if current trends persist.
It is important to take inflation into account because the increases in the minimum wages described so far refer to changes in the nominal rates, that is, the levels set by governments (or agreed upon by the social partners). However, the purchasing capacity of minimum wage earners is not only affected by such nominal rates but also by inflation; together, they determine whether employees are able to improve their actual purchasing power and their living standards. This means that it will only be possible to get a complete picture of minimum wage developments across EU countries when updated inflation data for January 2022 are taken into account (this information was not available at the time of writing). Only then can real minimum wage rates for 2022 be observed (calculated as nominal minimum wages deflated by national price indexes).
Against the background of low inflation existing in recent years in most EU countries, even moderate increases in nominal rates generally signalled improvements in real rates as well. However, this is no longer the case once prices start to rise sharply. Based on inflation data for the end of 2021, it is safe to assume that many of the large increases in nominal minimum wage rates described here will not translate into significant improvements in the purchasing capacity of minimum wage earners. This will affect most EU countries, especially central and eastern European countries, many of which were reporting year-on-year inflation rates close to 10% by November or December 2021 (Estonia, Latvia, Lithuania, Hungary and Poland).
Inflation featured as a significant topic in the bargaining rounds and discussions on minimum wage setting during 2021. Trade unions in many countries referred to inflation when pushing for higher increases in nominal rates, and some governments referenced the phenomenon when justifying their decisions on statutory rates. While its influence on collectively agreed wages has been limited so far in some countries (for instance, the next collectively agreed round in Denmark will only be able to take this issue fully on board from 2023, and in Austria the inflation rate prevailing during the 12 months prior to the start of the first collective bargaining round will be taken as a reference rate by the social partners), this is likely to change if inflation pressures persist.
Growing inflation will certainly affect the calculations used by some countries to determine minimum wage increases to a greater extent than has been the case to date. For instance, the Dutch government adjusts the minimum wage rate using a fixed formula twice a year (in January and July). Its current inflation levels, the highest in decades, will affect future rises and has sparked a debate on the minimum wage in the parliament.
Inflation concerns are also emerging in countries that have ongoing processes for setting the minimum wage rate for 2022. In Greece, current discussions to upgrade the new rate set in January 2022 have been marked by growing inflation worries. Stakeholders participating in the ongoing negotiations in Bulgaria and Spain share these same concerns, which may ultimately affect the outcome of the respective negotiations.
Concluding remarks
- Although some negotiations are still ongoing, statutory minimum wage rates have been increased in virtually all EU countries.
- In contrast to the rather cautious increases agreed for 2021, the minimum wage hikes negotiated for 2022 have been much more generous, following the recovery in European economies and labour markets.
- The progress in central and eastern European countries stands out, with some countries increasing statutory rates by more than 10%. Progress has been more moderate in the older EU Member States, where the use of established formulas to set the rates has generally resulted in more modest and predictable increases.
- This positive outlook for nominal rates will become more nuanced once inflation data for 2022 and progress in real rates are taken into account, providing a full picture of the changes in the purchasing power of minimum wage earners.
- Data for the end of 2021 show that inflation is firmly back on the scene, as many countries reported price pressures not seen in decades, especially in central and eastern European countries.
- Inflation already featured to varying degrees in the minimum wage setting discussions and decisions in 2021, but its influence on future minimum wage setting is bound to increase significantly if current trends persist. This is illustrated in the case of Greece, where an upgrade to the new rate applying from January 2022 is already being discussed due to inflation concerns.
- In countries with collectively agreed minimum wage floors, there is some evidence of the differentiated impact of the pandemic on specific sectors: in Austria, negotiated wages have progressed more in the transport than in the hospitality sector. Inflation, which has had a limited impact on negotiated wages so far, is putting pressure on future rounds of negotiations in Denmark, Finland and Sweden.
Image © Yurii Maslak/Adobe Stock Photos
