European governments lose their concern of elevating the minimal wage with double-digit will increase in 5 years | Economy | EUROtoday

The taboos which have lengthy surrounded the evolution of the minimal wage in Europe have begun to fall. The concern of governments of great will increase on this authorized flooring for remuneration, which led leaders to suppose twice earlier than making use of them, now looks like a relic of the previous. The most up-to-date sign comes from Germany, ruled by an alliance between Christian Democrats and Social Democrats, which has simply decreed the biggest improve ever utilized to this revenue. With managed inflation, which stays at round 2%, and within the midst of a structural disaster in its financial system, the coalition Executive has introduced a gradual improve of near 14% in simply over a yr.

The step taken by Chancellor Friedrich Merz’s Executive will imply a rise within the German minimal wage of just about 50% to date this decade. If this comes true, it won’t even be the largest improve within the EU: in Poland, a rustic with weak collective bargaining and unions, the rise since 2020 can be near 80%; in Hungary, 50%; within the Netherlands and Portugal it can exceed 30%. They are nations that have already got pretty excessive minimal wages, reminiscent of France (16%) and Luxembourg (22%), which have collected the smallest will increase in these 5 years of the third decade of the twenty first century. Not included within the statistics are Sweden, Finland, Denmark, Austria or Italy, nations during which there isn’t a authorized minimal wage on account of their very own labor relations mannequin, which already establishes excessive wages. This happens particularly within the Nordic case, closely based mostly on social dialogue and negotiation between employers and unions with excessive ranges of membership.

Several causes clarify a change in development like this, which is seen in governments throughout the political spectrum, from the left to the intense proper. Underlying all these causes is a lesson discovered throughout the euro disaster: “We followed a deliberate strategy of trying to reduce wage costs. […] and, when combined with a procyclical fiscal policy, the net effect was only to weaken our internal demand and undermine our social model.” This is how Professor Mario Draghi, additionally former president of the ECB and former Italian president, summarized the lesson discovered a yr and a half in the past, when he ready the report along with his recommendation for the European financial system to reactivate.

“Economic literature” has additionally achieved its half to interrupt down taboos, explains Carlos Vacas, from Eurofound. “In 2000, 2010 or 2015 there were new empirical studies that began to observe that the negative effects [de subirlo] “They were not as large as previously thought,” explains this researcher from that foundation dependent on the European institutions that is dedicated to evaluating working conditions and other social issues in the EU. The expert clarifies: “That does not mean that there are no negative effects, but that they are not that bad.” These consequences are basically destruction of cheap jobs that are no longer profitable for the employer if the salary rises. But, as shown, for example, a recent study by the Spanish Tax Authority on the latest increases in the minimum wage in Spain, there are also effects positive by contributing to increasing GDP or improving working conditions.

In that lesson and in the social and political problems that arose after years of austerity recipes and salary devaluation, especially among the lowest salaries, Torsten Müller, a German researcher at the European Trade Union Institute, sees the deep root of these increases. And he gives as an example that the EU adopted a standard on minimum wages in 2022: “It represents a change in mentality. The European Commission realized that a different approach had to be found for the financial crisis and all its austerity measures, since these posed a problem for legitimacy [social] of the European project”.

The change in “mentality” was clearly seen during the pandemic. The mountains of public money that were invested to cushion the blow of covid-19 were a clear example. Shortly after, another litmus test arrived, the price crisis, which has had a direct impact on minimum wages. Inflation increases in 2022 and 2023 reached double digits and, if the lowest salaries were not raised accordingly, there was a risk of losing purchasing power. “The governments, both in 2023 and 2024, were quite fast and protected the purchasing power of workers with these salaries,” explains Carlos Vacas, from Eurofound, who analyzes the evolution of minimum wages every year. In January of last year, Vacas already predicted that 2024 would bring a change in trend, with increases in the minimum wage that would exceed inflation in most countries with that figure in their legislation.

But prices have lost strength and the increases continue. Because? Both Vacas and Müller point out that the European directive on minimum wages has taken the baton. This rule, in reality, does not contain major obligations for the Member States. It cannot because the powers of the European institutions do not extend to the regulation of working conditions in detail. The directive contains recommendations: it advises that minimum wages be set at 60% of the median salary in the country (just the value that is halfway between the highest and lowest) or at 50% of the average remuneration. Despite not being mandatory, many countries are following it: some incorporate the advice into their legislation and others follow them as political principles. Although it is also true that, for now, only two States reach these thresholds: France and Slovenia.

“It has been an important tool to promote adequate wages, strengthen collective bargaining and put pressure on national governments,” explains Müller, who emphasizes that this norm has had more impact in the countries of central and eastern Europe, where the capacity for union pressure is very low. “In these States, there is no institutional framework that favors collective bargaining, as there is in France, Spain and other Western European countries.” The increases in 2025 in the salary floor of 15.5% in Bulgaria or Croatia, 12.3% in Lithuania, 11.4% in the Czech Republic or just over 10.2% in Poland support these statements.

This is what leads Müller to have November 11 marked on his calendar. That day the Court of Justice of the EU will rule on the legality or not of this directive, appealed by Denmark when defending that it exceeds the powers that the European treaties delimit for the community institutions: “If the directive is revoked, it will likely be a tough blow for social Europe and likewise for residents, as a result of they may see that suggestions are actually being made to extend salaries and that this isn’t doable. It is tough to clarify to individuals,” he warns.