No Thanks to a One-Size-Fits-All European Minimum Wage


It would be difficult to explain Danish voters that Brussels decided to transfer power to employers and increase wage inequality in Denmark so that wage inequality across EU countries could decrease.


Some progressive American students may have gasped reading the title. In the United States’ political context, a minimum wage is a necessary protection of workers who have no bargaining power against corporate conglomerates and whose real wages have eroded over the past decades. Unfortunately, this is not the reality in Northern European countries where a minimum wage would hand more power to the employers and leave many workers with lower wages. 

Today the EU will take the first steps towards a common framework for setting minimum wages in member states. A one-size-fits-all solution is a tempting solution to minimum wage inequality in the single market. Right now, Bulgaria’s current minimum wage for a full-time worker is €286 a month compared with €2,071 a month in Luxembourg. Von der Leyen and Co. fear that differences in wages between East and West are causing a destructive race to the bottom in terms of labour cost, cross-border social dumping, and a brain drain from East to West. But as the Danish labour minister recently expressed “the devil is in the details” – and when trying to write a universal solution to 27 different labour markets there’s a lot of them. 

Effective minimum salaries in Scandinavia are the most competitive in the world, but that’s not the result of minimum wage law. Instead it is the product of a mixture of high labour union participation and collective bargaining agreements where employers and employees compromise. This is a crucial mechanism in what is known as “The Danish Model” or “Flexicurity”  where employers can fire and hire easily and employees can maintain a relatively high income while searching for a job. This is not only a labour market model that forms part Macron’s hottest reform dreams, but a system that has allowed Scandinavia to have unemployment levels on par with Anglo-Saxon economies while maintaining a higher living standard and effective minimum wage. Today, Danes on the lowest salaries can expect to be paid $19,5 an hour while Swedish and Finnish enjoy similarly high levels. 

A European minimum wage would allow Nordic employers to challenge bargaining agreements on the basis that they are paying what is legally reasonable. The level that workers should get would not be the result of compromise but the number found in statutes. A rise in the lowest wages would rely entirely on political will. To see the failure of such a system, one need only think of how the minimum wage has grown in the US in past decades. 

The Danish government is therefore in its right to seek a guarantee that its collective bargaining system will be exempt from any European solution. Sweden and Finland are likely to follow. Yes, this entails that Scandinavian workers will keep their high wages and standards of living, contributing to the wage inequality across countries. But an exemption would allow for a scheme that sets a standard in the east without disrupting a balanced and successful Nordic labour market model. These exemptions are also politically fair. It would be difficult to explain Danish voters that Brussels decided to transfer power to employers and increase wage inequality in Denmark so that wage inequality across EU countries could decrease. 

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