Ongoing negotiations about European minimum wage: what to expect?

The European Commission has launched a period of formal consultations on the establishment of a minimum wage in all countries of the European Union. What can be expected from such a measure, how employees and employers will receive it in our country Martynas Žilionis writes in TV3.lt?

On the 14^th of January, the European Commission officially announced the first stage of social partner consultancy regarding possible actions in case of challenges rising related to a fair minimum wage.

The paper notes that while wages in the EU have been rising in recent decades, the situation of low-income workers has worsened, and their purchasing power has declined.

The Commission notes that guaranteeing a minimum wage protects workers from low wages and weak bargaining power, wherefrom an economic perspective, a decent minimum wage contributes to the overall growth of wage.

In most EU countries, the minimum wage is set by law, while in 6 others, it is agreed in collective bargaining. On the other hand, as stated in the consultation document, there is a wide disparity between the minimum wages received and the taxation between the countries.

Attention was paid to the fact that in 2018, in most EU countries the minimum wage after taxes did not reach 60% of the average salary after taxes. The number of employees receiving minimum wage begins from 5% (Malta and Belgium) to 20% (Portugal and Romania). According to Sodra, at the end of last year in Lithuania, there were almost 150 000 employees, who earned up to 555 euro per month. Therefore, in line with EU legislation, the European Commission is inviting stakeholders and organizations to share their views and opinions on possible minimum wage changes before making any specific proposals or decisions. 

The proposal already made by unions

Inga Ruginienė, chairwoman of the Lithuanian Trade Union Confederation, said reactions were positive regarding the consultations launched by the European Commission. “We have already made comments through the European Trade Union Confederation. In our opinion, it is impossible to set identical numbers across Europe. However, we are proposing, together with the European Trade Union Confederation, that the minimum wage be set at 60% of the country’s average wage.

We propose that this level be set in all EU countries,” the chairwoman said. She doubted that a minimum wage agreement could be reached in the near future. However, the President of the European Commission said she was hopeful and very positive about the idea, and it is hoped that an agreement can be reached in the shortest possible time. Mrs Ruginienė admitted that negotiations on an equal minimum wage could be difficult, as in Lithuania the minimum wage is only 47,3% average salary.

Would not reduce motivation

Valdas Sutkus, President of the Lithuanian Business Confederation, believes that consultations are always possible and that it is beneficial: “But when it comes to whether the minimum wage should be the same across the EU or not, my opinion would be that it should not be the same.” On the other hand, V. Sutkus stated that he does not object to the minimum monthly salary being set as a part of the average wage. This principle was also agreed in the Tripartite Council. “Everything is always in the details, which causes controversy. It is clear that trade unions, as workers’ representative organisations, are in favour of maximising all wages, whether average, hourly or minimum.

However, we see that if the minimum wage starts to approach the average, then the economic stimulation to work harder will disappear. This is obvious. In my opinion, this is why the minimum wage is called the minimum, not optimal or something else,” he said.

A half of the average age

According to V. Sutkus, there are various ways of calculating what the minimum wage should be, but in general, it is predisposed that it should be half the average wage, which would be a “reasonable number” that would not remove the motivation to work. “In Lithuania, we see a phenomenon, regarding a shortage of workers, but also of a high number of the unemployed. Here comes another phenomenon created by a system of various benefits and benefits where people are unwilling or trying to avoiding work. The minimum wage, let’s face it, is a guaranteed salary.

The employer cannot pay less, whether the employee is productive, inefficient, dutiful or not. If you come to work and do something, you must get at least the minimum. Imagine if the minimum starts to approach the average, it really “teases” people, if we can say so,” V. Sutkus said. According to him, it is natural that salaries are different in different EU countries. They depend on the level of economic development of each country. As a result, the EU is channelling funds to less affluent countries through various programs, more heavily funded by the rich.

Warning of possible obstacles

In a comment sent by the Lithuanian Confederation of Industrialists (LPK), it is stated, those responsible economic policies in the country are a prerequisite for sustainable economic growth, employment and people’s well-being.

What the European Commission emphasises in its report is that a socially fair minimum wage must go hand in hand with productivity growth and macroeconomic stability. It is precise because wages in Lithuania have grown faster than productivity in recent years that the country’s competitiveness may become a challenge in the future.

Moreover, during the discussion, it is essential to keep in mind that minimum wages are not the only and not even the most effective tool when implementing socially responsible policies.

Active labour market measures and social security insurance are more reliable tools for combating poverty,” the Confederation commented. Lithuania, like most EU Member States, has a minimum wage. However, the systems operate quite differently from one country to the next.

According to the Lithuanian Confederation of Industrialists, wage setting should, in the long term, be the subject of social dialogue and collective bargaining. Therefore the LPK, together with European employers, rejects mandatory EU-wide regulation on this issue: “At the European level, the setting of a uniform minimum monthly wage is not currently proposed and would be unreasonable from a market economy perspective.

The main principle of the circular economy is based on natural self-regulation. Given these aspects, it is logical that EU countries should be similar in various respects. Likely, the minimum wage would not be the exception, (in the long run), the process would be conditioned by the free movement of goods, services, human resources, etc.”

Doubts about EU intervening

Romas Lazutka, a professor at Vilnius University, believes that it is indeed possible and appropriate to try to agree on a uniform minimum wage at EU level. “But what will those principles be? What is the basis for such a minimum wage? It was discussed to calculate the percentage of the average salary in the country.

But taxes are also necessary. The minimum wage is calculated before taxes, and it should be negotiated after tax. But in that case, it would be an intervention in the tax system,” the professor pondered. According to him, the level of taxes is particularly relevant in Lithuania, when after the tax reform, the taxes paid by employers were transferred to the employees.

As a result, the estimated minimum wage in Lithuania is close to that in Estonia but significantly lower after-tax. “The European Commission will propose and consider some principles, but it will face the tax issue. As we know, EU Member States are particularly protective of their national tax systems and do not want to be interfered with,” Mr Lazutka explained.

In his opinion, there is little chance to agree on anything specific. “The initiative comes from low-wage countries, from their trade unions and other social partners. But there are still state authorities, including our own or others. They do not want to outsource such decisions to the EU.

This is considered to be the remit of each country. Thus, an agreement can be seen as a step that can be followed by others. So there may be a clash so that there is no precedent. I understand that the forces come from trade unions, non-governmental organisations that deal with poverty. But there are other forces – business, employers, and political groups that do not want such intervention from the EU,” Lazutka summarised.

It is not relevant to Lithuania because they already have an agreement?

The Ministry of Social Security and Labour said that the initiative was taken positively: “Please note that this is only the beginning of the first cycle of consultations with the social partners, during which the European Commission wants to learn, whether social partners believe, that action should be taken in the EU, and if so, whether they would want to negotiate with each other.

The Commission underlines that some countries already have excellent systems in place and that any final proposal will take into account national traditions, collective agreements and legal provisions.

The bottom line

The Commission wants to ensure that all systems are adequate, have sufficient coverage, including extensive consultations with social partners and have an appropriate updating mechanism. The Commission stresses that it does not mean a minimum wage that is the same for all. We certainly cannot object to the minimum wage being adequate, set according to the economic situation of countries, social conditions, tax systems, according to specific criteria and regularly monitored.

We also support the involvement of the social partners in this process. Please note that in Lithuania, the social partners have agreed to review the minimum wage on an annual basis and to apply the formula.”