Why EU action on minimum wages is so controversial—yet so necessary

The opening of debate on minimum wages across the EU has precipitated a Nordic union reaction against incursions on collective bargaining.

Last month, the European Commission launched a formal consultation with the social partners ahead of advancing a ‘framework’ to ensure ‘fair minimum wages’ across the European Union. The proposal instantly triggered vivid protest, notably from Scandinavian unions. While no one can overestimate the difficulties involved in elaborating a legitimate and effective EU framework on this issue, action is seriously needed at the European scale to tackle poverty and the devaluation of work in listless economies.

The debate rapidly took an emotional turn, with the Danish, Finnish and Swedish unions seemingly feeling under attack from a threatening EU bureaucracy wanting to destroy their (high-performing) systems of collective bargaining. It is striking, though, that the argument against EU action is first and foremost one of principle.

In an op-ed published by EUObserver just before the consultation, Therese Svanström, president of the Swedish Confederation of Professional Employees (TCO), wrote: ‘Most importantly [sic] … is the fact that the EU lacks legal competence in the area of wages.’ Thus, rather than convincing arguments about why precisely EU action would be bad, the piece primarily reflects a fear of losing control and a defensive stance, asserting that ‘well-functioning systems for collective agreements simply cannot be ordered from Brussels’.

Dynamic process

While competence creep certainly raises legitimacy issues, one can only admit that EU integration is a dynamic process. From the jurisprudence to the initiatives of the commission during the presidency of Jacques Delors, permissive interpretation of EU law has been part of its DNA, especially (if not only) in the social realm.

When the financial crisis hit, the course of action which prevailed relied on an intrinsically political logic. A shared diagnosis about why EU action is needed to tackle a particular issue provides the grounds to act—not the exact wording of the treaties. If a consensus could be found on bailing out indebted countries and extending the scope of intervention of the European Central Bank, why not on tackling poverty through minimum wages?

The commission has made clear that it would not oblige countries which do not have a statutory wage to introduce one, thus making most of the contenders’ arguments null and void. The framework should focus on the objectives, in terms of coverage (the percentage of the labour force receiving at least the minimum wage) and level (most probably expressed as a percentage of the median wage), not on a specific type of instrument.

Minimum standards

Svanström hypothesises that ‘what goes up, might come down’, implying that the EU could use the framework to lower wages in times of crises. The history of EU social policy rather teaches us that its regulations are always minimum standards. So these cannot be used to lower national standards and what is already a minimum cannot be lowered.

Meanwhile, wages have been substantially lowered in some instances at the national level, as a result of the recession, whether the unions supported this or not. In fact, research shows that where the EU does not have minimum requirements and protective regulations in the social realm, other dimensions of EU integration (linked to pro-market policies) will more easily affect social conditions.

Twenty-two EU countries currently have a minimum wage under 60 per cent of the median (the benchmark recommended by the International Labour Organization). An EU framework could matter a great deal for those countries, creating political pressure and institutional incentives to improve wages and even, in the medium term, engender upward convergence.

That the framework will most likely be irrelevant for the remaining six countries which have higher minimum wages is not a good reason to reject it. Again, the history of EU social policy shows that EU minimum standards are always irrelevant for some member states.

Defensive position

Thus, as much as they are the widely admired representatives of a more egalitarian welfare-state model, which they legitimately seek to preserve, the Nordic social democrats cannot be systematically camped on a defensive position, blocking what could be a substantial progress of Social Europe for all the others.

The grounds for EU action are tangible. It is well documented that the wage share is too low in Europe. This brings in its train inequality (since incomes have grown for the better off) and rampant in-work poverty, amid persistent imbalances among EU countries.

There is also a political need for the commission to meet expectations in the social realm. While the commission under Jean-Claude Juncker proclaimed the end of austerity, this has not necessarily been evident to Europeans at the bottom of the social ladder. Having promoted a strategy of adjustment through wages to tackle the recession (and been criticised for supporting pro-cyclical policies), the commission needs to act now as a progressive driving force.

Hard or soft law?

If we can agree that the current, troubling situation regarding wages demands a positive intervention, this does not solve the ‘how’ problem. What policy instrument can the commission come up with, which will be able to accommodate the diversity of wage-setting systems across Europe and keep its promise of not harming subsidiarity?

While hard law is always the best way to ensure compliance, it is not certain that the commission will be able to overcome the legal and political hurdles in this instance. It has often been underlined that article 153 of the Treaty on the Functioning of the European Union, on social policy, explicitly excludes pay from the EU’s regulatory competences. If not impossible, the search for an alternative legal basis, in a spirit of legal creativity, seems tricky and will be hotly debated.

If the commission fails to gather sufficient support for a legislative breakthrough, it will have to rely on soft law. The sixth principle of the European Pillar of Social Rights, while leaving the door open to both paths, suggests more emphasis on the second-best, non-binding option.

In that case, a recommendation from the Council of the EU could be the chosen instrument. Anchoring it in the European Semester would have the advantage of setting up a surveillance mechanism, through which slow convergence could be promoted. As we know from all socially-rooted recommendations of the European Semester, however, compliance and implementation tend to be low.

Thus, the consultation over the coming months will be crucial for the commission to find the right balance between legitimacy and effectiveness. During this period, it is important for progressive actors to remember that one cannot consistently call for a more social Europe … and then end up shooting everybody in the foot when things become serious.