Committee on Economic and Monetary Affairs (ECON

Livingfromwagetowage:TheEuropeanParliamentrecentlyapprovedanEUDirectiveon minimumwageaimedatguaranteeing“decent”minimumwagesforworkers.Whilefacing heavycriticismfromDenmarkandSweden,andthedirectiveleavingspaceforMember Statestocalculatetheirownminimumwage,whatelsecantheEUdotoensureadequate salaries?

SubmittedbyMariaYankova(BG)

Figure1:Committeepicture

Income and wealth inequality have been on the rise in recent years, triggered by globalisation, technological advancements, and the COVID-19 pandemic. Studies have shown that 20% of the population with the highest disposable income in EU Member States obtains at least one-third of total income, whilst 20% of the population with the lowest income receives less than one-tenth of total income. Such significant income and wealth inequality aggravates already existing societalissuessuchasviolence,drugabuseandincarceration. As a solution to this problem, theEuropeanParliamentislaunchinganewDirectiveonadequate minimum wage. The directive's goal is to promote adequate levels of statutory minimumwages, collective bargaining on wage setting, and improved access to minimum wage protection. However, the proposed directive has met strong criticism in Scandinavian countries as they believe it is a danger to their labour market model, in which companies arrange working salaries with trade unions without state intervention. This sentiment could clearly be seen during a debate in the Swedish Parliament on activities in the European Union in 2020 where Hanh Dahlgren, a Swedish Minister, claimed that they “have a different system foragreeingonwagesin [their]countrythatisbetterthanaminimumwage. ” .

Figure2:Comparisonofminimumwagesin2012and2022

In Bulgaria, the minimum wage is 342.34 euros per month, whilst the average single person's estimated monthly living cost is 996 euros, making it 3.04 times the minimum wage. Many socio-economic groups such who are forced to live on minimum wage thus oen face a cost-of-living crisis. In Luxembourg however, the minimum wage is 2256.95 euros per month, whilst the average single person's estimated monthlylivingcostis3105euros,makingitonly1.34 times the minimum wage. In ordertobridgethisgapinlivingaffordabilityandstandardbetween Member States, the Directive on Adequate Minimum wage intends to ensure fair wages for everyone.

Figure3:StakeholdermaponMiro

While the minimum wage directive is a priority for the European Social Democrats, the leist parties and trade unions, Scandinavian countries such asDenmarkandSwedenseeitasadanger for their labour market model. Having regulated most aspects of the labour market through collective agreements by unions and employees, this model is a key feature of the Swedish industrialrelationssystem.TheNordicmodelhasrepeatedlydemonstrateditsviabilityinresolving difficult problems, contributing to high employment and wage growth, while largely avoiding government intervention. This is supported by the data below, showing that Sweden and Denmark are two of the top 10 European countries with the highest standard of living, despite themnothavingminimumwage.

Figure4:Europeancountrieswiththehigheststandardofliving

It has been agreed that the EUMemberStatesinwhichcollectiveagreementsbetweenunionsand employers set salary levels are exempt from the EU Directive on minimum wage. However, many exempt countries are still looking at other ways to improve income such as Finland with its universal basic income1 experiment between 2017 and 2018. This was the worldʼs first basic incomeexperimentthatwasnationwide,statutory,andrandomised. 2,000 unemployed people were chosen at random for this experiment,andoverthecourseoftwo years, they were each given 560 euros monthly. Participants reported feeling happy and having better health despite the fact that the amount they received was only 50 euros more than what they had been receiving in unemployment benefits. The final results from Finlandʼs experiment have also shown a slight increase in employment rates and a positive reinforcement of individualandsocietalfeedbackloops.

1 UniversalBasicIncome(UBI)isagovernmentwelfareprogramthatprovidesallcitizenswithmonthlyorannual moneyregardlessoftheiremployment,income,oranyother factorstoeradicatewealthandincomeinequalityand improvethequalityoflifeofcitizens.

Figure5:“TheFinalResultsofFinlandʼsBasicIncomeExperiment”

Minimum wages make it more expensive tohireworkerswithoutmakingthemmorevaluable. In such a situation, employers may simply choose to cut employees. In the long run, companies may even try to replace certain workers with machines or move to places with lower, or no minimum wage. Fromthisperspective,minimumwagesaregoodforworkerswhogetpaidandare able to keep their jobs, but poses a significant problem for the unemployed, or those getting laid off.Overall,minimumwagescanweighontheeconomyasfewerpeoplework.

The European Globalisation Adjustment Fund (EGF) is a critical EU tool for assisting dismissed workers to re-enter the labour force. In fact, the European Economic and Social Committee proposed to update the EGFʼs provisions to better assist employees whose jobs have been affectedbydigitalization.

In the current socio-economic system, the most wealthy citizens have more power to influence policies that address every EU citizen. In such a system that favours the wealthy, legislators in power have an incentive to promote policies that benefit the wealthy. Therefore, the wealthy have little interest in raising or even having high minimum wages as they are the onespayingthe employees.

The International Labour Organisation(ILO)isaUnitedNationsagencywhoseprimarygoalisto advance social andeconomicjusticebyestablishinginternationallabourstandards.TheILOhas developed a special agenda that focuses on job creation, workplace rights, social protection, and socialdialogue,withgenderequalityasacross-cuttinggoalinordertohelptheworkcommunity.

The concept of a minimum wage is still controversial in the EU as sixMemberStatesdonothave one. While some opponents of the minimum wage argue that it harms workers and impedes business development, supporters point to several benefits, including worker protection, economic growth, and motivating employees to higher levels of performance. The former unfounded concerns however further increase the income and wealth gap between different citizensandMemberStatesastheyrefusetohaveagenerallyacceptedminimum. Furthermore,by discrediting the potential of the EU Directive on minimum wage to decrease poverty, thesurgeof inequalityaerCOVID-19pandemiccouldcontinue.

● Why do you think the Swedish socialists reject the idea of having a directive on adequate minimumwage? ● CantheUniversalBasicIncomebeputintoplaceinsteadoftheideaofminimumwage? ● WhatstepscantheEUtaketohelpECBprovidefundsfor“decent”minimumwages? ● Is it possible for the EU to push reforms and attempt to coordinate Member States consideringdifferencesintheireconomies? ● Can the refusal of the Nordic countriestoapprovethenewDirectiveonminimumwagebe athreattotheEU?

● TheEU'sminimumwagedirectiveexplained-YouTube/Euractiv/2022 ● Europeanminimumwage:ASwedishperspective-SageJournals/ErikSjödin/2022 ● IncomeandWealthInequality-YouTube/CrashCourse/2015 ● TheprosandconsofUBI-Penguin/AnnieLowrey/2021