The European Commission will propose tomorrow (18 April) introducing a minimum salary in countries like Germany where it does not exist yet, and raise wages where they are considered too low, according to a draft seen by EurActiv.
Having a job is not a recipe against poverty in Europe. Indeed, more than 8% of European workers live with salaries that keep them below the poverty threshold, EU figures show.
“The risk of in-work poverty is high, particularly in countries with uneven earnings distribution and low minimum wages, among people with temporary contracts and in low work intensity and single parent households,” reads the Commission communication, ‘Towards a job-rich recovery’, which the EU executive will publish on Wednesday.
Against this background, made worse by the ongoing economic crisis, the EU commissioner in charge of social affairs, László Andor, is proposing to introduce minimum wages across Europe and to raise them where possible.
“Setting minimum wages help prevent a destructive race to the bottom in the cost of labour, and are an important factor in ensuring decent job quality,” reads the draft communication which the college of commissioners is set to adopt tomorrow.
The proposal will likely fuel debate in the French presidential election, and hearten President Nicolas Sarkozy who has been calling for an end to what he calls "social dumping" within the EU single market.
'Germany is the real issue'
Most EU countries have already introduced a minimum wage but these often vary significantly. In Romania, it can be as low as one-fourth of the average wage. In Ireland, it is over half the normal wage, according to figures provided by the European Industrial Relations Observatory.
What's more, an important group of countries, comprising Germany, Italy, Austria and the Scandinavian states, have no minimum wage at all. While Italy and Austria have a minimum salary through collectively agreed sector contracts, nearly one-third of workers in Germany have no right to a minimum salary.
“Germany is the real issue,” acknowledged an EU official, who preferred remaining anonymous.
The Commission can urge member states to review their employment and social policies, but the ultimate decision lies with national governments.
Nevertheless, the Commission's communication encourages countries with positive accounts to undergo “targeted increases” of wages, “which help sustain aggregate demand”, reads the paper, making a clear reference to Berlin.
“Obviously we are not saying so to Greece,” the EU official explained. Indeed, Athens has already very generous social schemes, with minimum wages accounting for around half the average gross wage, peaking at almost 100% in the retail sector. In this case, minimum wages should even be lowered, as it is indeed happening.
“Wage developments should take account of the competitive position of member states,” says the paper. In any case, the priority of the Commission remains to “establish wages that ensure competitiveness and provide income security.”
Tax incentives and hiring subsidies
The Commission is also expected to reiterate proposals to shift taxation from labour to other fields, offsetting lower labour charges with “environment, consumption or property taxes.” This is expected to lower labour costs and favour hiring.
Moreover, “in many member states there is scope for reducing employer social security contributions which account for a lion’s share of the tax wedge,” the communication suggests.
Against an unemployment rate well above 10% in the euro area with peaks at over 20% in Greece and Spain, Brussels also pushes for expanding “hiring subsidies”.
“Creating the right kinds of incentives and hiring subsidies should motivate employers to engage in net new recruitments, thus creating jobs that would otherwise not be created,” argues the paper by Andor, a socialist.
Vulnerable groups, such as youth or long-term unemployed, should be the first to exploit a new set of hiring subsidies, adds the paper.
Promoting self-employment and transforming informal and undeclared work into regular employment is also among the priorities set by the Commission to drop unemployment rates across the EU.