Why EU minimum wage is actually bad idea for workers

An issue of broad and current interest is the new EU Commission president Ursula von der Leyen's announced initiative on introducing an EU legal instrument on a minimum wage within the first 100 days of her period in office.

The responsible commissioner, Nicolas Schmit, has announced that a first outline will be published on Tuesday (January 14th.)

As the president of one of the largest trade union confederations in the EU, I see the need for good working conditions and decent pay in all member states. Too many in Europe are in precarious jobs with low or unstable incomes.

The realisation of the internal market must never lead to a race to the bottom where workers stand against workers. We need a Social Europe.

This need, however, does not mean that we must embrace all proposals for labour market regulation on the European level, even when the stated aim is laudable.

There are few areas where the institutions differ as much between the member states as the labour market.

The respective roles of the state and the social partners vary, as does the mix between legislation and collective bargaining to regulate such issues as wages, working time and employment protection.

Regulation that is key in one country may be non-existent in another.

The unionisation rate among the member states varies between less than five percent to more than 65 percent.

This makes common EU regulation of the labour market difficult and delicate.

In a recent study of collective bargaining, the Organisation for Economic Cooperation and Development (OECD) makes a point of how even minor changes in labour market policies can lead to major and often unintended shifts in bargaining behaviour and industrial relations systems.

A binding EU legal instrument on minimum wages or collective bargaining could have precisely this effect.

By obliging the member states to a minimum wage on a certain level or calculated according to a certain formula, it would effectively force all EU countries to have either a statutory minimum wage or a system for extending collective agreements to all workers within a sector.

There are also good reasons to doubt the possibility to carve out exemptions or build fire walls to protect member states which do not have statutory minimum wages or the possibility to extend collective agreements, such as Denmark, Italy and Sweden.

From the Laval case concerning posted workers we know first hand how easily such promises can be brushed aside by the Court of Justice.

But also countries that have minimum wage legislation or the possibility to make collective agreements generally binding have reasons to be concerned.

One must not underestimate the great difficulties associated with constructing a meaningful EU minimum wage directive.

The concept of 'wages' is far from homogenous across member states, why an instrument aimed at harmonising the lowest rates of pay would have to be incredibly detailed in order to be meaningful.

Otherwise, it will be easy to circumvent by either employers or national government.

Most importantly however, is the fact that the EU lacks legal competence in the area of wages.

The article of the treaty that gives the EU legislative powers in the field of labour market policy (Article 153) explicitly states that this does not apply to pay, the right of association, the right to strike or the right to impose lock-outs.

What goes up, might come down

Accepting that EU has legislative powers in the area of wages would put us on a dangerous path. This time, it would be used to increase the lowest levels of pay.

The next time, in a recession or financial crisis, it could be used to lower wages. Yet later, the freedom of association and the right to strike could come under attack.

Therefore, any attempt to legislate in this area must be resisted and in the end be challenged in the Court of Justice.

Well-functioning systems for collective agreements simply cannot be ordered from Brussels.

The need for a more social Europe cannot be met by legislation that runs the risk of destroying well-functioning national systems for industrial relations and collective bargaining.

Instead of proposing an EU minimum wage contrary to the treaty, the commission should put more effort into supporting, but not regulating, the development of social dialogue, collective bargaining and more inclusive labour market policies in the member states.

In this respect, the Pillar of Social Rights and its non-binding nature and mechanisms for mutual learning is a good instrument to build on.