Why minimum pay has become such a hot potato

As the Nordic Labour Journal’s big mapping of this issue shows, there is fierce opposition against the proposal among politicians and the social partners in Sweden and Denmark. Yet in Finland, it is unanimously welcomed. This is not just because Finland is more positive in general to European integration, as one of the interviewees points out. This may be part of it, but more important is the fact that the proposed directive would not at all have the same consequences in Finland as it would in Denmark and Sweden. But more about that later.

The Danes and Swedes were opposed to any minimum wage proposal at all from the Commission – why could they not have waited until they knew how it would actually look? After all, both the Commission President Ursula von der Leyen and Commissioner Nicolas Schmit gave assurances during the entire process that the proposal would contain a “firewall” to protect well-functioning collective agreement systems. An answer to that question is that Denmark and Sweden have bad experiences with such proclamations. 

When Denmark held a referendum on the EU Maastricht treaty and Sweden was on the threshold of EU membership, the then responsible Commissioner promised that the countries’ labour market models would not be touched. The Maastricht treaty also introduced a rule saying the EU cannot adopt directives on pay, the right of association, the right to strike or the right to impose lock-outs.  

Yet after the Laval ruling, it became clear even to the optimists that neither the Commissioner’s promises nor the treaty’s limitations for what the EU is allowed to legislate on would stop the EU Court to get involved in the Swedish right to strike. And if the EU now also adopts a directive on minimum wages (“pay”), the Court will decide what is meant by “adequate” minimum wages, collective agreements and other issues that are currently decided by the member states themselves.

One thing is clear, however, if you take a look at the present proposal: Anyone still worrying about the Nordic countries being forced to introduce statutory minimum wages can relax. The proposal is very clear that nothing in the directive can be interpreted as an obligation to introduce a statutory minimum wage or to make collective agreements universally applicable in member states where wage formation only happens through collective agreements. 

As Professor Niklas Bruun stresses in one of the interviews, the proposal also means all member states are obliged to promote collective bargaining, which is a clear step forward compared to previous policy. If a collective agreement covers fewer than 70% of the workers, the member state must produce an action plan for the promotion of collective bargaining and send it to the Commission. 

Yet even where collective agreements cover a higher number of workers, like in the Nordics, the member states must make sure the minimum wages are adequate. Information about the collective agreement’s minimum wages must also be openly available. But it does not stop there. Every year, all member states must send detailed statistics to the Commission, so the EU’s Employment Committee can assess whether they have succeeded in promoting collective bargaining and adequate minimum wages. In the last instance, therefore, the collective agreements’ wage levels will be surveyed by the EU.

This is one of several examples of how the Commission does not quite understand the wide scope of the autonomy that the partners enjoy in Denmark and Sweden. To think anyone but the partners themselves should be deciding whether a collective agreement’s minimum wages are adequate flies in the face of the very foundations of the countries’ collective agreement systems. 

In Sweden, there are also many collective agreements that do not set a minimum level for pay, since wages are negotiated in the workplaces within frameworks drawn up by the central agreements. Thus, the directive’s so-called firewall has cracks in it, it would seem.

The reason why Finland does not believe the directive would influence its labour market model. This is linked to the fact that its model differs from the Danish and Swedish ones. As long as Finland has its system with universally applicable collective agreements, the coverage ratio will remain very high. These collective agreements also contain clear rules for wages and are of course also made public.

Negotiations between the Council of the European Union, the European Parliament and the Commission now begin. 21 January was the deadline for launching a yellow card procedure against the proposal, and few other countries seem to share Denmark's and Sweden's dogged opposition.

Such negotiations, which are often finalised under a lot of time pressure, can end in compromises which in the end might not seem particularly well thought through. As the Finnish government points out in its comment to the proposed directive: It is important that the content is not changed during negotiations in a way that restricts the labour market organisations’ freedom of contract or imply that statutory minimum wages must be introduced. This would present problems in light of what the EU is allowed to legislate on according to the treaty, it argues.