The minimum wage is usually established by law but in certain countries collective agreements are being used as a mechanism to regulate the minimum amount of money that a worker must receive in exchange for his work. The level of wages plays a crucial role in the economy. Not just a cost to business, wages and salaries give consumers the spending power needed to purchase goods and services. The amount of the minimum wage it is not updated every year, and does not always increase. 21 of the 27 EU countries have a statutory minimum wage in force. This sets a floor below which wages can not fall, and may help to boost wage equality during the recession. Most of the countries without the national minimum wages have actual minimum wages which are agreed through collective agreements.

Countries with higher bargaining coverage and stronger organisational power of the unions are more likely to have no national minimum wage. From union points of view national minimum wages set by the state are second best solutions. When updating the minimum wage, governments and collective agreements must take into account inflation and the overall economic situation. But the decision carries a strong political burden.

There are mainly two types of minimum wage systems:

– the minimum wage that applies to most workers and employees is determined through the decision of a governmental agency or collective bargaining at the national level. Further differentiation of this minimum wage plays a minor role in countries that belong to this type. In its ideal-typical form, such a system leads to a clean cut in the wage distribution at the level of the national minimum wage, which is why we refer to this kind of set-up as a “clean-cut system”

– the minimum wage that applies to most workers and employees is determined at the infra-national level, for instance in sector or regional negotiations. The ideal-type of this system includes many different minima so that no clear truncation is visible at any particular point of the wage distribution. We refer to this type of minimum wage system as a “fuzzy system”.

Overall, wages in Europe have been affected by the recession which, in real terms, began for most countries before the impact of the financial crisis. In most countries workers successfully resisted, at least until the last quarter of 2009, downward pressures on real hourly wages, though many workers have become either unemployed or are working less hours. Maintaining workers incomes also benefits financial stability as workers will be able to continue to repay loans for housing and other items.

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Charmaine Corser Navarro
Supervisor – CPU

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