Four researchers' take on the minimum wage

Critics are sceptical to the EU’s meddling in national labour market models, where wage formation is key. They argue the decision to make minimum wages statutory should be a national issue, not one for the EU.

 Jens Arnholtz, Jens Kristiansen, Niklas Bruun och Lars Magnusson.

“The EU should not interfere in this and it is not competent to do so. The EU’s proposed directive for statutory minimum wages creates uncertainty and reduces transparency. There is also the worry that minimum standards become maximum standards, says Jens Arnholtz, Associate Professor at the Employment Relations Research Centre FAOS in Copenhagen.

He is one of the Danish researchers who believe the EU’s proposed statutory minimum wage directive goes against the Danish model, where wage formation is done through agreements between the social partners. He also believes the proposal hollows out the partners’ autonomy in the wage formation process, creating a risk of reduced interest in union membership among both employers and employees. 

But the criticism covers more than the proposal as it stands right now. There is also worry about the future. The contents of a directive can be changed. A directive can also be challenged in the European Court of Justice, whose rulings must be followed up on a national level. According to the current proposal, collective agreements must cover at least 70% of a sector. But if this is not the case, how should the cover be increased and who is responsible for doing so?

“If the state is responsible for doing something about it, this would basically change the balance of power in the Nordic model, and it would create a lot of uncertainty,” says Jens Arnholtz.

He explains that some of the critics also question whether the EU’s proposed directive really will help the lowest paid. Denmark is one of the few EU countries where minimum wages are more than 60 % of the median wage according to the EU Commission, while in many of the EU counties that already have a statutory minimum wage, this is far below the 60% usually considered to be the poverty line. 

“That means the minimum wage does not necessarily guarantee a decent living standard. The EU Commission says this problem will be solved through ‘clear and stable criteria’ for how minimum wages are set. But the problem is that the Commission’s proposal is so vague that it will not necessarily guarantee higher minimum wages in the countries that already have the lowest wage levels. On the other hand, the demand for clear and stable criteria for setting minimum wages might reduce the Danish social partners’ negotiation power and lead to less protection for employees in the long run.”

Wage formation beyond national borders

Jens Kristiansen is a Professor of labour law at the Faculty of Law at the University of Copenhagen. He sees two main areas of concern if a statutory minimum wage were to be introduced. One is political – the fact that a highly national issue like wage formation will partly be decided by the EU. The other is legal.

“If the EU starts to legislate for minimum wages you have a fundamental problem. First, the EU does not today have the competence to make decisions on rules concerning wages. There are also no guarantees it will stop at statutory minimum wages. This is the most serious concern – if the directive is adopted, there will be an acceptance that this is an area where the EU can act and create rules. Where do you then draw the line? 

“There will be a shift in power and increased insecurity. I also imagine that in future you might see pressure from unhappy trade unions in parts of Europe who want to make the directive even more powerful,” says Jens Kristiansen.

The other thing that worries him as he understands the proposal right now, is that its legal basis is not at all clear.

“This means it will be left to the EU Court of Justice to interpret it. This is worrying. We have bad experiences with this.”

The Nordic countries’ opposition to the proposal has been met with both criticism and surprise in other countries. So how do you explain this opposition? That is not difficult, says Jens Kristiansen.

“Of course we in the Nordics do understand there is a problem that needs solving and we would be happy to help the EU develop a marked social profile. But not in this way. The EU should not make decisions in an area where it has no expertise but stick to the original treaty. I am wondering why MEPs do not care and seem completely unconcerned about the existing limitations,” he says.

A lack of trust after the Laval judgement

Professor Niklas Bruun from Helsinki points out that the EU Commission has been very much aware of the opposition to state interference in wage formation that exists mainly in Denmark and Sweden. He feels the Commission has really gone the extra mile to arrive at a proposal that even these countries might find attractive. Clearly, it has failed.

“There is strong distrust in the EU Court of Justice running back to the unexpected ruling in the Laval case, which did introduce limitations on national rights to take industrial action. They have a point here. If this becomes part of EU law, it is the court which in the end will decide how the directive and its various concepts should be interpreted. This means the court might decide how a collective agreement is to be defined in Sweden and Denmark,” says Bruun.

So that is distrust justified?

“Yes, but this is unnecessarily highly pitched, and that surprises me. It should be possible to show a bit more appreciation when the EU Commission wants to give concrete contents to the social pillar, which Stefan Löfven and others worked so hard to get in place. So even if the criticism is deserved, I worry that it is being presented in a way that creates unnecessary conflict, for instance inside ETUC.”

Could the opposition to the proposal backfire on the Nordic trade unions?

“It is hard to say. It is always a strength to stand together. The question is whether trade unions now are strong enough to afford being divided,” he says.

A proposal with a social dimension

Niklas Bruun reminds us how the EU handled the financial crisis just over ten years ago, and believes the minimum wage proposal shows a positive development of the EU Commission’s policies compared to back then.

“That is when the EU was pushing austerity politics which undermined the collective negotiation systems in several member states. Now they talk about a social dimension and lend their support to wage formation through collective agreements. In principle this is a clear step in the right direction,” he says.

He does not believe the proposal will have much effect in Finland, however. This is because the country already has a system of universally applicable collective agreements.

“This means you already have a kind of state interference in Finland, unlike in Sweden and Denmark. The greatest advantage with this Finnish system compared with a general minimum wage is that each sector can propose minimum wage levels based on their own situation,” he says.

Risks being seen as tone-deaf 

Lars Magnusson, Professor in Economic History at Uppsala University and author of a report on the social Europe for the European Trade Union Institute, highlights how the Swedish opposition might be perceived.

“I will not say whether the proposal is good or bad, but I feel the Swedish reactions have been somewhat one-sided. Many portray it as a threat to the Swedish model while labour movements in other countries feel the proposal is good. Even if the unions’ misgivings are legitimate and should be taken seriously, I find it hard to believe this would be such a catastrophe. It should be possible to arrive at something sustainable. It would also be tone-deaf if we end up with being interpreted by the rest of Europe as begrudging their introduction of minimum wages for social reasons.”

He thinks it is only natural that the EU Commission, after 25 years of debate, proposes a directive on minimum wages. Another important reason this is coming right now is that the labour market has changed. The number of precarious jobs has risen sharply, while fewer and fewer workers unionise and become covered by collective agreements. 

“This means it might be prudent to adopt a more nuanced attitude and not only shout no as soon as the issue of minimum wages arises. For most European wage earners, minimum wages would represent an important social safety net,” says Magnusson.  

But would a statutory minimum wage really fix problems like the exploitation of workers and social dumping?

“This is not clear, but in general it should become easier to persecute employers who pay too little if there is legislation available.”

Lars Magnusson also thinks Swedish trade unions risk being seen by other European trade union movements as being difficult and lacking solidarity. During a seminar last autumn he called them “tone-deaf”.

“Yes, I do believe that. And it could come back to bite them. The former ETUC Secretary-General John Monks once compared Swedish trade unions to Greta Garbo because they are signalling ‘do not touch me’. Meanwhile, Sweden is pushing for the social pillar and a social Europe. That, for many, is difficult to understand. Perhaps next time the Swedish trade unions seek support for another social issue, they will find their credibility has suffered,” he warns.