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Establish an Environmentally-Sustainable Living Wage as the minimum wage in each EU Member State Open to a working group

Submitted by Sergio Arbarviro the 11/1/2020 15:37
In each Member State one can define a "Environmentally Sustainanable Living Wage (ESLW)". We propose that: (1) a methodology be defined at EU level to establish such an ESLW; (2) in each EU Member State and region, this methodology be used to define such a ESLW, according to the local infrastructure or housing costs; (3) the EU adopt per Directive this ESLW as the mandatory minimum wage in the Member State or region. The mode of implementation of this minimum wage would be left to national legislation, e.g. by law or by collective agreement.
Social policy - Social rights, 2-Whole EU, Macroeconomic and Monetary policy, Scale at which decisions are taken, 3-Member State, Equality, Policy domain, Work - Employment
Inactive Working group with 2 members

What is the problem / the issue?

In many EU Member States, specifically in Eastern and South-Eastern Europe, the wage levels are low, even extremely low.

In the cases where a legal minimum wage exists, the report "Europe's sweat shops" by the Clean Clothes Campaign (2017) evaluates that the minimum wages in Eastern and South-Eastern Europe are in the range of one quarter of a living wage. A living wage is the minimum income necessary for a worker to meet his/her basic needs, i.e. food, lodging, clothes, transport, education, healthcare, access to culture and a surplus for savings. This means that the legal minimum wages are way below what a person would need for a decent living.

Expressed in more rigourous statistical terms, the legal minimum wage represents 40 to 60% of the median income of each Member State (i.e. to the income set at a level where half of the population is above, and half below - the median is different from the arithmetic mean). Source: EuroStat. In general, the poverty threshold is set at 60% of the median income, so that the minimum wage is below what is generally considered as a poverty wage, and can even be 1/3 below.

In many cases, such as the garment and footwear sector that was investigated by the Clean Clothes Campaign, real wages are even below the legal minimum, because workers are paid by the piece. The number of pieces that can be processed per hour, and the price per piece, are too low to reach the legal minimum hourly wage.

Not all Member States apply a minimum wage, however. In January 2017, five Member States apply no general statutory minimum wage: Austria, Cyprus, Denmark, Finland, Italy, Sweden. In all of them but Cyprus, the minimum wage level is de facto set in (sectoral) collective agreements signed between trade unions representing workers and employers' organisations (source: Eurofound). The attached document (of the Foundation for European Progressive Studies - FEPS), shows (p.2) that, in 2014, many workers are covered neither by a legal national minimum wage, nor by a sector-level collective agreement specifying a minimum wage:

  • 48% of workers in Cyprus
  • 15% in Denmark and Italy
  • 10% in Finland
  • 9% in Sweden
  • 3% in Austria.

For all these workers, there is no minimum wage whatsoever, so that they are left completely alone, with no external reference legitimising their claims, to bargain their wage with their employer - in the weak negotiating position of a lonely worker in front of a company.

Why is the problem / the issue important?

The existence of wages below the living wage level is unacceptable, as a matter of plain humanity and justice. No-one should be required to toil endless hours for a salary that is insufficient to live in dignity.

When work is paid by the piece, at a price below what ensures a living wage, and when it is performed at home, there is a strong possibility that child labour appears. Forcing his/her children to work, even at the detriment of their education, is the only means for the worker to reach the income level necessary for bare survival. This should not be allowed to happen.

This situation is particularly outrageous in the European Union, whose claimed values, in the EU Charter of Fundamental Rights, are of human rights and dignity.

It is also a matter of fair competition within the European Union: when some Member States allow such low wages, they engage in a form of social dumping that damages the very functioning of the Internal Market, and provoke a race to the bottom regarding wages (and working conditions). Expressed in monetary terms, legal minimum wages (when they exist) vary in a 1:8.5 ratio between the lowest (Bulgaria) and the highest (Luxembourg). When purchasing power is considered, the ratio remains unacceptably high, at 1:3.3. (Source: EuroStat).

These wage inequalities are a factor of political division within the European Union: citizens of the "old" Member States feel subject to unfair competition, while those of the "new" Member States resent that they are considered as second-class citizens.

What are the existing Public Policies on the issue?

There is no policy aiming at the convergence of minimum wages in the European Union. The only (recent) initiative going in this direction is the "European Pillar of social rights", officially adopted by all EU institutions and by all Member States in November 2017 at the Göteborg summit, where the Principle n°6 (among 20) states that "Adequate minimum wages shall be ensured, in a way that provide for the satisfaction of the needs of the worker and his / her family in the light of national economic and social conditions". This "Pillar" has a strong political value, but no legally binding character.

The Public Policy = what should the public body do?

We propose a process in four steps:

  1. A Regulation should define the essential requirements that an Environmentally-Sustainable Living Wage must fulfill. It must fulfill three conditions, in descending order of priority (highest priority first):
    1. from a social point of view, it must be sufficient, in a given territory, for a single earner working full-time and supplying a family of four, to provide decent conditions of life: sufficient and healthy food, adequate clothing, housing with sufficient surface for the size of the family and adequate equipment (water, sanitation, electricity, thermal regulation e.g. through insulation), transport to and from work and school, health care, education for the children, access to telecommunication services and networks, access to culture and a capacity for precautionary savings;
    2. from an environmental point of view, the consumption level enabled by this wage must be environmentally sustainable;
    3. from an economic point of view, this wage must be sufficiently below the productivity of non-qualified work in the Member State / Region / city to enable companies to allocate part of the value added to investment and to a reasonable remuneration of capital.
  2. Following a procedure inherited from the "New Approach" to standardisation in the Internal Market, the European Commission should mandate the European Standardisation bodies such as CEN to define a technical standard which will specify in detail the method to establish the Environmentally-Sustainable Living Wage in each relevant territory of the European Union. The computation must consider as the basis of the Environmentally-Sustainable Living Wage the cost of the economically viable and most environmentally sustainable consumption choice, considering a given level of infrastructure (e.g. insulation instead of heating, rail + bicycle multimodal combination instead of car, cereals + legumes combination as source of proteins instead of meat, organic instead of conventional food, prevention of illness instead of curative health care). The infrastructure being considered in the computation includes: the thermal insulation of housing, the recycling rate of waste, the energy mix of the electric power supply, the availability of public or multi-modal transport, the public provision of healthcare (including prevention) and of education, the availability of organic food.
  3. The Commission and the social partners (the trade unions and employers) would control that the resulting technical standard indeed meets the essential requirements defined by the Regulation
  4. A Directive would mandate each Member State to establish a procedure through which the effective minimum wage in the working population should, over a transition period of 7 years, be above or equal the Environmentally-Sustainable Living Wage as defined by the technical standard, taking into account the regional or local differences in price levels (specifically: of housing costs) and in infrastructure. The Member State can choose either to establish a legal minimum wage at the level of this Environmentally-Sustainable Living Wage, or to leave it to the collective agreement between trade unions and employers. It is the Member State's responsibility however, to ensure that, whatever the method used, the fraction of the working population with a wage below the Environmentally-Sustainable Living Wage remains under 2%.

Once adopted, the Directive is then transposed in the legislation of each Member State, according to the choice made by the Member State to implement it (via legal minimum wage or via collective agreement).

Why is the Public Policy in line with the "raison d'être" of the CosmoPolitical Cooperative?

The proposal is in line with the following political objectives of the CosmoPolitical Cooperative:

  • Social cohesiveness, inclusiveness and equality,
  • Human rights, and specifically Art.23 of the Universal Declaration: right to work, for a decent pay,
  • the Sustainable Development Goal n°1: "end poverty".

In situations in which a Member State has a low level of infrastructure, there is a significant risk that the consumption level meeting the social requirements of a decent living be above the one compatible with environmental sustainability. The proposal would then contradict the political objective of environmental sustainability, and specifically the Sustainable Development Goals (12) Ensure sustainable consumption and production patterns and (13) prevent climate change.

Why will the Public Policy work?

The setting of legal minimum wages is a very common policy tool. It is also very common (but not present in all Member States) that the State mandates the social partners (= the trade unions and the employers' organisations) to engage in a discussion on a specific topic, and sets the essential requirements that the outcome of the negotiations must reach - while leaving full responsibility to social partners on the means to achieve them, and with the ultimate threat of direct law-making if the negotiation fails.

The computation of a Environmentally-Sustainable Living Wage is a technically complex task, but which lies fully within the area of competence of a standardisation body such as CEN. The price and infrastructure data upon which the establishment of the Environmentally-Sustainable Living Wage should be computed is available in the statistical offices of the Member States, and also under a harmonised format in the statistical office of the European Union, EuroStat.

The proposal thus mobilises very common policy tools, which have proven to be effective.

What are the other positive effects of the Public Policy? What other opportunities does it open?

In addition to the positive social effect of reducing inequalities within Member States, of improving the living conditions of the poorer members of society, and of increasing the cohesiveness of the European Union (the issues outlined above), the establishment of an Environmentally-Sustainable Living Wage would have the following positive consequences:

  • it would increase internal demand, and thus generate a market for additional economic activity in the European Union, under the condition that sufficient productive capacity exists to meet this additional demand (which is a reasonable hypothesis because companies will have had the whole transition period of 7 years to anticipate the rise in wages and in demand). If this condition were not met, then the surge in wages would translate into higher imports and / or inflation.
  • it would be an incentive for governments to set up the environmentally-sustainable and social infrastructure (e.g. thermal insulation of buildings, public transport, public health and education systems) that reduces the cost of sustainable consumption, and thus the level of the Environmentally-Sustainable Living Wage.

What are the negative effects of the Public Policy?

Traditionally, the establishment of a legal minimum wage has been feared to cause a loss of external competitiveness, and thus unemployment, and this has been the permanent argument of employers against any form of intervention in the wage-setting process, ever since the early 19th century.

Experience shows however that the existence of a minimum wage is compatible with high employment levels, and even with full employment, as the recent example of Germany illustrates.

A more general argument is that the jobs with a low level of qualification, which are the main beneficiaries of minimum wages, are generally found in services with a low capital intensity and a very local market: cleaning, hotels, restaurants and bars. The argument of external competitiveness thus does not apply to them. The jobs confronted with international competition are generally those in capital-intensive industries, with a much higher level of qualification, and thus not subject to minimum wages.

The sectors that are both confronted with international competition and employ low-qualified workers are: agriculture, garment and footwear. In all these sectors, the issue of fair working conditions and wages becomes a selling argument, so that sourcing from countries where an Environmentally-Sustainable Living Wage is established can make sense. One way to compensate the competitive handicap created by the Environmentally-Sustainable Living Wage could thus be to mandate the country of origin ("made in" marking) for these products (considering however that a given garment can be the outcome of operations performed in many different countries).

What are the risks and uncertainties attached to the Public Policy?

There is a risk that three conditions (social, environmental and economic) set for the Environmentally-Sustainable Living Wage are incompatible: the level of environmentally sustainable infrastructure is so low that the cost of an environmentally-sustainable consumption level rises above the productivity level of non-qualified work, or above the fraction of this productivity that should be allocated to labour (while keeping enough remaining for investment and for a reasonable remuneration of capital).

This is the reason why the Regulation specifying the method to establish an Environmentally-Sustainable Living Wage defines priorities. We propose that the priorities in the conditions to be satisfied be: (1) the social condition; (2) the environmental condition and (3) the economic condition. The reason why the economic condition is placed last is that productivity is by definition the value added (i.e. the difference between selling price of the good / service and the cost of all goods / services purchased to make the the good) per hour worked. It thus includes the effects of (potentially unfair) power relationships between suppliers and customers, which determine the selling price of the good / service, and thus this value added. Taking the economic value added as an absolute metric would thus be equivalent to considering these customer-supplier power relationships as legitimate.

How are the benefits, costs and risks of the Public Policy shared between groups in society?

The persons who would benefit most from this Public Policy are "working poor" people, i.e. people that are working, and yet do not manage to secure a sufficient income to satisfy even their basic needs. It is often claimed that unemployed people would face difficulties in finding work if a minimum wage were set for that work. Empirical evidence, most recently from Germany following the introduction of a universal minimum wage in 2015 (link and link), disprove this fear. Those who would loose most are all exploitive employers whose business model relies of exploiting their workers without paying them decently - and their customers.

Quantitatively, what consequences will the Public Policy have?

The attached document (of the Foundation for European Progressive Studies - FEPS), evaluates (p.4) the fraction of European workers whose current wage is below what they define as a "European Minimum Wage - EMW" set at 60% of the median wage in each Member State, and would thus benefit from it. Under this hypothesis, which differs from ours in the sense that it does not include environmental sustainability considerations, nor regional / local variations in prices, the fraction of workers potentially benefitting (in 2010) from the set up of a minimum wage would range between 7% in Finland, Sweden or France and 24% in Germany, Lithuania or Latvia.

Why did you make these choices?

The usual method used to establish a minimum wage is by reference to the median wage. The advantage of this method is that it is easy to understand and to measure. The drawbacks of this conventional method are:

  • it does not consider the price levels, and thus also not whether the proposed minimum wage is sufficient to satisfy basic social needs. As such, it misses its claimed social target (even if it is indeed an improvement compared to a situation in the absence of any minimum wage)
  • it does not consider the environmental impact of consumption. Often, the cheapest consumption options are the most environmentally damaging (e.g. living in a remote, un-insulated house from which one commutes using a second-hand, car, eating industrially processed food), so that a wage set at too low a level does not allow the person to make the most environmentally efficient and sustainable consumption choices. This is an environmental issue, but also a social one: environmentally unsustainable consumption patterns are also extremely vulnerable to changes in the price of energy. We don't want the minimum wage level to be a wage creating energy precariousness.

This is why we introduced the concept of "Environmentally-Sustainable Living Wage". It is more complex, but addresses better the combined social, environmental and economic requirements to be placed upon a minimum wage.

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