Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

Ensuring adequate minimum wages in an age of inflation

Carlos Vacas-Soriano and Christine Aumayr-Pintar 27th June 2022

The good news is minimum wages have risen across Europe this year. The bad news is inflation is eroding them.

inflation,minimum wage,minimum wages,Europe,EU,European Union
Inflation is raising the cost of a basket of goods for minimum-wage workers (Maxx-Studio/shutterstock.com)

Minimum wages have risen significantly in the European Union this year, as member states have left behind the cautious mood of the pandemic. Yet increasing inflation is eating up these wage increases—and only flexibility in the processes for setting minimum wages may avoid general losses in purchasing power among low earners.

On June 6th, the Council of the EU and the European Parliament reached a political agreement on the directive on adequate minimum wages, proposed by the European Commission in October 2020. Once formally approved, member states will have to transpose it into national law within two years.

The directive encourages the setting of wage floors at adequate levels in those countries (21 of the 27) with statutory minimum wages. Individual member states will set such a level, taking into account socio-economic conditions, long-term productivity trends and the purchasing power of the minimum wage.

Difficult task

The current picture across the EU illustrates how difficult this task can be. Policy-makers are challenged when setting statutory rates—as are the social partners when negotiating increases—in a context of inflation eroding purchasing power.

Increases in minimum wages between January 2020 and January 2021 were rather modest, with the pandemic compelling restraint. But all member states except Latvia increased their statutory rates between January 2021 and January 2022, and most countries did so to a greater extent than in the previous year. The median nominal increase across member states was 5 per cent (the mean above 6 per cent) and, as in the previous yearly interval, the increases were much larger in central and eastern Europe.

Nevertheless, these increases in nominal statutory rates have not generally boosted purchasing power among minimum-wage earners due to rising inflation, coming to the fore for the first time in many years in Europe. As a result, in real terms statutory minimum wages declined between January 2021 and January 2022 in more than two-thirds of EU countries. In only the six countries at the bottom of the figure below—several central- and eastern-European countries and Portugal—was there a real uplift. Indeed, if current inflation trends continue, barely any country will escape a deterioration in the purchasing capacity of its minimum wage as the year progresses.


Become a Social Europe Member


Support independent publishing and progressive ideas by becoming a Social Europe member for less than 5 Euro per month. Your support makes all the difference!


Click here to become a member

Change (%) in statutory minimum wages, real and nominal, January 2021 to January 2022

Picture 1 2
Source: Minimum wages in 2022: annual review; exceptions to the data period are indicated there

Action needed

Action is needed. As it is unlikely that inflation will strongly subside this year, only determined policy interventions—by wage-setters or the negotiating parties—can secure the living standards of minimum-wage earners. This could mean additional increments to statutory rates, higher increases in negotiations or other support measures for the low-paid.

Only around half of member states with statutory minimum wages are legally obliged to take inflation or changing living costs into account when setting rates. The EU directive on adequate minimum wages could bring about significant change here: by requiring wage setters to use clear criteria, such as the purchasing power of the minimum wage, the directive will oblige them to take account of changes in the cost of living to maintain living standards among minimum-wage workers. It remains to be seen, however, how quickly wage setters will decide, or be able, to react when circumstances change.

Some member states with automatic-indexation mechanisms included in their minimum-wage setting process—such as Belgium, France and Luxembourg—have been quicker in uprating wages in line with inflation. For instance, two increases of 2 per cent each were triggered in Belgium in March and May 2022 as a result of indexation, following two identical increases in September 2021 and January 2022.

The directive will require those member states without such automatic indexation to update their statutory minimum wages at least every other year. Even though most have a yearly updating cycle already in place (and a few regularly uprate also within the year), for someone who is already financially stretched a wait of one to two years to see their purchasing power re-established can seem like an eternity.

Ad hoc interventions

It is thus important to maintain the possibility of ad hoc policy interventions in minimum-wage-setting processes, if such interventions are justified—as in this context of high inflation. For instance, Greece decided to upgrade its statutory minimum wage by more than 7 per cent from May 2022, outside the regular uprating cycle, due to inflation concerns.

How adequate the wages of minimum-wage earners will be at the end of 2022 will depend on the flexibility of the established procedures for statutory-minimum-wage setting and the political will to maintain the purchasing power of the lowest paid. It will also depend on the commitment of the social partners and their ability to arrive at negotiated outcomes that take inflationary pressures into account.

Pics 5
Carlos Vacas-Soriano

Carlos Vacas-Soriano is a research manager in the employment unit at Eurofound. He works on wage and income inequalities, minimum wages, low pay, temporary employment and employment quality.

Christine Aumayr Pintar.png
Christine Aumayr-Pintar

Christine Aumayr-Pintar is a research manager in the working-life unit at Eurofound. She works on industrial relations and working conditions, focusing on pay setting, minimum wages, gender pay transparency, industrial action and social dialogue.

You are here: Home / Economy / Ensuring adequate minimum wages in an age of inflation

Most Popular Posts

new world order,state,citizen A new world order: from warring states to citizensPaul Mason
Tesla,IF Metall,electric car,union US electric-car maker faces Swedish union shockGerman Bender
Israel,Hamas Israel and Hamas: the debasement of discourseRobert Misik
Israel-Palestine,refugee,refugees Israel-Palestine: a comparative perspectiveBo Rothstein
Germany,sick,economic Germany’s true economic diseasePeter Bofinger

Most Recent Posts

renewable,fossil-fuel,energy,renewables,inflation,prices The renewable answer to Europe’s fossil-fuel inflationFelix Heilmann and Maximilian Krahé
energy transition,climate,EU,NECP Energy transition: more ambition needed from EU27Chiara Martinelli
racism,Agency for Fundamental Rights, EU,FRA Tackling the scourge of racism across the EUMichael O'Flaherty
Media freedom,EMFA,media,free,independence,pluralism Media freedom: Europe’s media cannot be half-freeOliver Money-Kyrle and Renate Schroeder
Putin,Kremlin,partial mobilisation,patriotism Vladimir Putin’s killer patriotismNina L Khrushcheva

Other Social Europe Publications

Global cities cover pdf Global cities
strategic autonomy Strategic autonomy
Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

Response measures to the energy crisis: a missed opportunity to feed the socio-ecological contract

With winter coming and Europe ready to get through it without energy shortages, power cuts and recession, new research conducted by the ETUI in seven EU member states (AT-FR-DE-GR-IT-PL-ES) highlights that, with some 80 per cent of spending being directed to broad-based measures, short-term national government support during the recent energy crisis was poorly targeted. As a result, both social- and climate-policy goals were rather sidelined, with the biggest beneficiaries of public fossil-fuel subsidies being higher income groups and the wealthiest people.


AVAILABLE HERE

Eurofound advertisement

How will Europe’s green transition impact employment?

Climate-change objectives and decarbonisation measures are vital for the future of Europe. But how will these objectives affect employment and the labour market?

In the latest episode of the Eurofound Talks podcast series, Mary McCaughey speaks with the Eurofound senior research manager John Hurley about new research which shows a marginal increase in net employment from EU decarbonisation measures—but also potentially broad shifts in the labour market which could have a profound impact in several areas.


LISTEN HERE

Foundation for European Progressive Studies Advertisement

Transforming capitalism in the age of AI

Will the EU once again accept Big Tech's power as a fait accompli while belatedly trying to mitigate risks, or can it chart a different course?

Join our conference on the EU approach to the digital transition. On Wednesday, December 6th, FEPS and the Friedrich-Ebert-Stiftung Competence Centre on the Future of Work are co-organising an evening of high-level debates on the digital future of Europe. There will be keynotes by the European Commissioner for Jobs and Social Rights, Nicolas Schmit; Evgeny Morozov, founder of The Syllabus; and Phoebe V Moore, globally recognised expert on digitalisation and the workplace. The event will be moderated by John Thornhill, innovation editor at the Financial Times.


MORE HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on LinkedIn

Follow us on YouTube

Social Europe ISSN 2628-7641