Position Paper on the European Commission’s Proposal on Possible Action Addressing the Challenges Related to Fair Minimum Wages
Introduction:
The European Commission (EC) has proposed options for possible EU action addressing the challenges related to fair minimum wages in the European Union.
According to the EC, the initiative has a general objective to ensure that all workers in the EU are protected by fair minimum wages, allowing for a decent living wherever they work. The initiative would leave Member States the freedom to keep their current minimum wage system. According to the EC, ensuring adequate wages for all workers in the EU is even more relevant in the preparation for recovery of COVID-19 crisis.
While securing favorable conditions for working individuals to improve their well-being is one of the goals of economic policy, statutory minimum wage may not be an adequate measure to contribute towards this goal. Some of the proposed policy options would harm not only low-wage earners but also small businesses and the economy at large.
The EC proposes such policy options as promoting collective bargaining, specifying clear and stable criteria for the way to set and update statutory minimum wage and ensuring involvement of social partners and independent experts. The EC also suggests setting non-binding reference values for the adequacy criteria to guide the assessment of the adequacy of minimum wage. According to the EC, all exemptions and variations in the minimum wage across the Member States should be eliminated.
Statutory minimum wage, in general, is harmful for the economy, the most economically vulnerable workers and SMEs and it should not be mandated. If, however, minimum wage is imposed by law, social partners and independent experts should be involved in policy formulation, updates should be guided by clear criteria, and differentiation by age groups and regions should be applied. It is advisable that minimum wage should be bound with an average or median wage at a rate not higher than 40 per cent.
The implications of minimum wage regulation are of particularly relevance for Central and Eastern European Members States due to existing disparities in income levels caused by a rapid growth in higher income segments which in turn increases the average wage. The rate at which the minimum wage is set should be allowed to vary across Member States in order not to harm the least-skilled and economically vulnerable groups of population.
This Position Paper is a response to the EC’s second phase consultation with social partners and analytical document on possible options for an initiative at the EU level[1]. It is presented by the Lithuanian Free Market Institute in co-operation with the Center for Economic and Market Analysis (Czech Republic), Civil Development Forum (Poland), the Institute for Market Economics (Bulgaria), and the Institute of Economic and Social Studies (Slovakia).
[1] It is the second phase consultation of social partners, which includes a summary of the results of the first phase consultation and provides an analysis of the main challenges to be addressed as well as the need, value and options of EU action. All documents can be found here.
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