By Uzoma Ekenna, Transatlantic Economy Analyst
According to a recent news report from EurActiv, on April 18 The European Commission proposed instituting an EU-wide minimum wage, increasing the current salary in many nations and introducing a minimum wage for the first time in others. “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 also adopted on April 18th. Although that statement may be true, one can also argue that over expenditures by governments lead to debt and a deepening of national financial issues, a problem that more nations within the eurozone cannot afford to endure.
One of the first articles in the Lisbon Treaty is dedicated to social issues, as it mentions creating a “competitive social market economy, aiming at full employment and social progress”. But in recent years, this mission has become increasingly harder to achieve, as the EU unemployment rate has climbed to 10.2% (as of February 2012) and the disparity amongst the wealthier and poorer nations continues to increase, partly due to the financial and economic crisis in the eurozone.
Interestingly enough, the nations without a current minimum wage, including Germany, Austria, and the Scandinavian countries, have some of the highest GDP’s in all of Europe. They also hold some of the lowest unemployment rates, with Austria at the lowest of the EU member-states, at 4.3% (in January 2012). Establishing a minimum wage in these nations may end up increasing labor costs, which could cause the prices of goods and services to rise. Also, if companies aren’t able to afford to pay their employees, this may lead to massive layoffs and a halt in companies’ expansion. Depending on the existing wage structure in these countries, economic growth could actually be hindered.
If an EU-wide minimum wage should be established, it would need to be high enough for residents of wealthier member states to be able to survive, but low enough so governments of poorer member states will not fall into debt by overpaying its citizens. That itself poses a problem, because the fiscal inequality of EU member states is so great. Luxembourg, whose GDP (per capita) as of 2011 was over $84,000, has a minimum wage set at 1,800 euros per month. On the other extreme, one of the poorest members of the EU, Bulgaria, has a minimum wage of merely 138 euros per month (GDP of Bulgaria: $13,500). Bulgaria maintains a very poor welfare state and lacks social service programs; even schools and orphanages in the country rely heavily on private donations to operate. Many citizens refuse to pay taxes, creating even less funds for government operations. A government of this caliber is highly unlikely to be able to create funds that would assist in raising the minimum wage for its citizens. It would be unrealistic for these two nations to share the same minimum wage, due to dissimilarities in economy size and the standard of living. Countries in the same economic position as Bulgaria could be driven to over-spending, putting them in a crisis potentially worse than their current situations.
What about countries tackling debt issues due to high government spending? Part of the Greek’s government bailout plan included a 22% cut in the minimum wage, which is currently at 877 euros per month. After a round of tax increases and a pay cuts in both the government and private sectors, the Greek economy continues to slide into a deeper recession, increasing the number of people living below the poverty line. How would a potential enforced minimum wage affect Greece and similar nations? It, along with Portugal and Ireland, have agreed to cut back on government spending, but it is difficult to determine if the EU-wide minimum wage will create more an issue for countries already facing austerity measures.
One feasible alternative to an EU-wide minimum wage could be to adjust the minimum wage to the countries’ purchasing power. That way each country is assessed relative to each other instead of the EU as whole. Or, the European Commission could just abandon the idea of creating a wide-spread minimum wage altogether and spend more time deliberating on ways to increase funds for job creation, especially in the private sector, which would be the real solution to disparity amongst member-states.
As the eurozone crisis carries on, members of the European Commission continue to scramble to generate solutions that will improve the current economic state of the EU as a whole. But instead of finding a collective solution, each country should be assessed separately, based on their current financial status. An increase in the minimum wage in certain countries may be a viable resolution, but an EU-wide minimum wage could possibly be a solution that deepens the existing crisis.
Uzoma Ekenna is an intern at the Streit Council; Photo credit Images_0f_Money (http://www.flickr.com/photos/59937401@N07/5930032284/lightbox/)