Politics and Analysis

The European Commission’s proposal for a minimum wage directive is a bad idea – for several reasons

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The EU should not interfere with the Member States’ freedom to set wages. Wage levels are an exclusively national responsibility. In Denmark, they are the result of collective bargaining agreements reached by the unions and employers’ associations – in fact, this is one of the core elements of the Danish model.

The old adage ‘If it ain’t broke, don’t fix it’ applies to the European Commission’s proposal for a minimum wage directive.

The Danish flexicurity model is based on dialogue between the social partners (trade unions and employers’ associations). They negotiate collective agreements that determine matters such as working conditions and wages. What makes this model special is the lack of government interference, which means that it is the social partners who determine the rules. The flexibility of this system, and the fact that the labour-market model in Denmark is generally admired and considered one of the best in the world, makes it difficult to argue that the country should deviate from one of its basic pillars.

The ability to enter into collective agreements is a crucial factor in guaranteeing flexible wages. When the social partners negotiate collective agreements, e.g. on wages, they take into account all relevant factors. This is one reason why Denmark has one of the most stable and adaptable labour markets in Europe and both its employers and employees enjoy a high degree of security and flexibility.

One argument used to promote the European Commission’s proposal is that a fair wage for all workers will cut the numbers of the “working poor” and guarantee a decent standard of living. However, there is no empirical evidence to suggest that implementing a statutory minimum wage would have the desired effect. In fact, several reports have shown that countries that do not have a statutory minimum wage have higher wages in general than those that do have one. A working paper published by Eurofound shows that in Denmark, Norway, Austria, and Sweden, around 10% or fewer of those on the minimum wage have difficulty making ends meet, while in countries like Greece and Bulgaria – which do have statutory minimum wages – the corresponding figure is more than 50%.

The COVID-19 crisis has had a huge impact on public health and the economy, and yet the Danish model has proven extremely viable and stable. In the face of the great uncertainty caused by the pandemic, the Danish model has demonstrated its strengths – such as flexibility and security – by rapidly adapting multiple tripartite agreements between the social partners and the government on wage-compensation schemes in order to save and protect jobs.

I fully support the European Commission’s goal of ensuring an adequate wage and securing a decent standard of living by reducing the number of “working poor”. But given that all 27 labour markets and welfare systems are different, the solution is not to implement a centralised and rigid statutory minimum wage across the Member States. This is evident from the example of countries like Denmark, where wages are set by collective bargaining.

It is also worth noting that the proposed directive on an adequate minimum wage could interfere in how collective agreements are enforced. The directive stipulates that the European Court of Justice would enforce and interpret Danish law, which would undermine the role of the social partners enforcing the agreements that they negotiate.

The European Commission’s proposal for a statutory minimum wage will cause severe damage to the Danish labour-market model. All of those who value the model must do what they can to ensure its survival.