LO says no to statutory minimum wage in the EU

Collective agreement Pay differentials in the EU are growing and wage dumping is a growing problem. This is why the European Commission wants to introduce EU-wide legislation on minimum wages. But in Sweden there is a risk that this will lead to reduced wages and LO says no. In the long run, the entire Swedish model, where unions and employers agree on wages in collective agreements, is threatened. In addition, the proposal is counterproductive to building a strong social Europe based on collective agreements.

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Risk of losing our power over collective agreements and wages if the EU’s minimum wage proposal is adopted

On 28 October, the European Commission presented a proposal on statutory minimum wages. If this goes through, it means that power over wages is shifted from Swedish trade unions and employers to politicians and the EU institutions. In Sweden and the other Nordic countries, both unions and employers are firmly against the proposal.

It is easy to subscribe to the ideas behind a common European minimum wage. Many countries, particularly in eastern and southern Europe, ten years after the financial crisis have still not fully recovered and the social pressures are severe.

At the same time, wage gaps in the EU continue to increase and reports of wage dumping and shameful wage conditions are increasing.

Increasing wages in Europe is therefore a high priority for LO. It is not the objective, but the method we are against. To strengthen worker security in Europe requires rules that respect all labour market models, including the Swedish model in which trade unions and employers determine wages in collective agreements.

Before the proposal, the EU had also promised waterproof protection of our model. We note that the European Commission tried to add wording intended to protect countries where the social partners are alone responsible for the wage floors. We have carefully reviewed and analysed the protection proposed. Our conclusion is that the European Commission does not offer waterproof protection at all and there is absolutely no exemption for Sweden from the requirements of the directive. On the contrary, we note that we now have a proposal on the table that risks having far-reaching negative effects on self-regulation models such as the Swedish model. It is also important to remember that the European Commission can never provide any guarantees, it is always the European Court of Justice that interprets compliance with laws and regulations and the experiences of the Laval case were dismaying.

It is well known that wages are higher and wage gaps smaller, in countries where wages are regulated in collective agreements. In Sweden almost 90 per cent of all employees work in a workplace with collective agreements. This also keeps wages up at companies not covered by the agreements, which has led to increased real wages throughout the Swedish labour market.

The European Commission considers that collective agreements are the best way to regulate wages. Collective agreements should be encouraged. Unfortunately, the legislative proposal poses major risks to the entire collective bargaining model. The proposal lays the foundation for a labour market model under EU law through the rules that exist concerning collective agreements and that the States are to promote collective bargaining. The EU is taking a clear step towards increased supranationality in areas that the parties in Sweden mainly take care of themselves. This creates great uncertainty as to what the parties still have at their disposal nationally.

The proposal also contains rules that minimum wage levels should be “reasonable” and that a national authority should report annually to the Commission the level of collectively agreed wages and whether they meet the reasonableness requirement. This is also entirely alien to our system. Wages are made reasonable precisely by negotiating them between two equal parties; trade unions and employers. This is not something that an authority should assess.

With statutory minimum wages, there is also a high risk that employers would refer to the minimum wage and be unwilling to pay a penny more. In this way, the “wage floor” set by the EU risks becoming a “wage ceiling” instead.

In Sweden this would entail a risk of reducing the lowest wages. In addition, interest in joining a trade union or, for employers, an employers’ organisation, would diminish, since politicians would have taken over wage formation.

The proposal means that the entire Swedish collective agreement model is threatened and thus also our current flexible and industry-adapted wage setting. Therefore, employers also reject making this statutory.

According to the European Constitution – the Treaty - the EU is not even entitled to legislate on wages. Binding rules for minimum wages would also be a violation of the promise made to Sweden when we joined the EU in 1994. Namely, that the Swedish collective agreement model would be protected.

The right to set wages in the labour market is ultimately a matter of democracy. Forcing a model on a country in which the politicians and the State interfere in the collective bargaining model and wage formation undermines how we in Sweden have chosen to organise the labour market. Finally, it risks undermining people’s confidence in the entire EU project.

Fact - Background

  • When Ursula von der Leyen took office as President of the European Commission, she promised to introduce statutory minimum wages for the entire Union.
  • The aim is to guarantee everyone a secure income and reduce the large wage gaps and social tensions that persist since the financial crisis ten years ago.
  • 21 of the EU’s 27 Member States already have statutory minimum wages. However, the differences are large, from just over SEK 3,000 per month in Bulgaria to nearly SEK 21,800 per month in Luxembourg.
  • According to the proposal, wages should be “reasonable”, neither too high nor too low. The European Trade Union Confederation has proposed that a statutory minimum wage in the EU would correspond to 60 per cent of the median wage in a country. That is the Council of Europe’s poverty threshold.
  • Sweden has no statutory minimum wage. Instead, the lowest wage or entry wage is determined in collective agreements between trade unions and employers.

Fact - The proposed directive in brief

  • The proposal requires that all citizens of the EU be entitled to a reasonable minimum wage.
  • The proposal contains no exception for Sweden. However, the Directive cannot be used to force Sweden to introduce statutory minimum wages or to declare collective agreements generally applicable.
  • The proposal is not only about wages, but also about laying the foundation for a new European regulatory framework for collective agreements.
  • EU citizens are given the right to have a court review whether their pay is reasonable, ultimately in the European Court of Justice.

Fact - In brief, our reasons for saying no

  • If politicians take over wage formation and interfere with the collective bargaining model, in the long run the entire Swedish model in which unions and employers agree on the conditions in the labour market, is threatened.
  • Statutory minimum wages in the EU risk lowering wages in Sweden.
  • The EU does not have the right to legislate on wages under the EU’s own constitution.
  • When Sweden joined, the EU promised that the Swedish model would be respected and could be retained.
  • Ultimately, confidence in the entire EU project is threatened.