(Routledge Research in Comparative Politics) Irene Dingeldey, Damian Grimshaw, Thorsten Schulten - Minimum Wage Regimes_ Statutory Regulation, Collective Bargaining and Adequate Levels-Routledge (2021

Minimum Wage Regimes
This book goes beyond traditional minimum wage research to investigate

the interplay between different country and sectoral institutional settings
and actors’ strategies in the field of minimum wage policies.
It asks which strategies and motives, namely free collective bargaining,
fair pay and/or minimum income protection, are emphasised by social
actors with respect to the regulation and adaptation of (statutory) minimum
wages. Adopting an actor-centred institutionalist approach, and employ-
ing cross-country comparative studies, sector studies and single country
accounts of change, the book relates institutional and labour market set-
tings, actors’ strategies and power resources with policy and practice out-
comes. Looking at the key pay equity indicators of low wage development
and women’s over-representation among the low paid, it illuminates our
understandings about the importance of historical junctures, specific con-
stellations of social actors, and sector- and country-specific actor strategies.
Above all, it underlines the important role of social dialogue in shaping an
effective minimum wage policy.
This book will be of key interest to scholars, students and policy-mak-
ers and practitioners in industrial relations, international human resource
management, labour studies, labour market policy, inequality studies, trade
union studies, European politics and political economy.
Irene Dingeldey is Director of the Institute Labour and Economy at the Uni-
versity of Bremen, Germany.
Damian Grimshaw is Professor of Employment Studies at King’s College

London, UK, and Associate Dean for Research Impact.
Thorsten Schulten is Senior Researcher at the Institute of Economic and

Social Research (WSI) at the Hans Böckler Foundation, and Head of the
WSI Collective Agreement Archive. He is also an honorary professor at the
University of Tübingen, Germany.
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Statutory Regulation, Collective Bargaining and Adequate Levels
Edited by Irene Dingeldey, Damian Grimshaw and Thorsten Schulten
Statutory Regulation, Collective
Bargaining and Adequate Levels
Edited by Irene Dingeldey, Damian

Grimshaw and Thorsten Schulten
First published 2021
by Routledge
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British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Dingeldey, Irene, editor. | Schulten, Thorsten, 1966- editor. |
Grimshaw, Damian, editor.
Title: Minimum wage regimes : statutory regulation, collective
bargaining and adequate levels / edited by Irene Dingeldey, Damian
Grimshaw and Thorsten Schulten.
Description: Abingdon Oxon ; New York, NY : Routledge, 2021. |
Series: Routledge research in comparative politics | Includes
bibliographical references and index.
Subjects: LCSH: Minimum wage–Government policy. | Minimum
wage.
Classification: LCC HD4917 .M568 2021 (print) | LCC HD4917
(ebook) | DDC 331.2/3–dc23
LC record available at https://lccn.loc.gov/2020057558
LC ebook record available at https://lccn.loc.gov/2020057559
ISBN: 978-1-138-39238-0 (hbk)
ISBN: 978-1-032-02246-8 (pbk)
ISBN: 978-0-429-40223-4 (ebk)
Typeset in Times
by KnowledgeWorks Global Ltd.
Contents
List of figures vii

List of tables ix
List of boxes xi
List of contributors xii
Acknowledgements xvii
1 Introduction: Minimum wage regimes in Europe and selected

developing countries 1
IRENE DINGELDEY, THORSTEN SCHULTEN AND DAMIAN GRIMSHAW
2 Minimum wages and the multiple functions of wages 17

JILL RUBERY, MATHEW JOHNSON, DAMIAN GRIMSHAW
PART I
Actors’ strategies influencing collective bargaining and minimum
wage regulations at national level in European countries 37
3 Securing wage floors in the absence of a statutory minimum

wage: Minimum wage regulations in Scandinavia facing
low-wage competition 39
KRISTIN ALSOS AND LINE ELDRING
4 Minimum wages in Southern Europe: Regulation and

reconfiguration under the shadow of hierarchy 64
OSCAR MOLINA
5 Shaping minimum wages in Central and Eastern Europe: Giving up

collective bargaining in favour of legal regulation? 87
MARTA KAHANCOVÁ AND VASSIL KIROV
vi Contents
PART II
The combined effects of minimum wages and collective
bargaining in different sectors 113
6 The interplay of minimum wages and collective bargaining

in Germany: How and why does it vary across sectors? 115
GERHARD BOSCH, THORSTEN SCHULTEN AND CLAUDIA WEINKOPF
7 Downward convergence between negotiated wages and

the minimum wage: The case of the Netherlands 137
WIKE BEEN, PAUL DE BEER AND WIEMER SALVERDA
8 The SMIC as a driver for collective bargaining: The interplay

of collective bargaining and minimum wage in France 162
NOÉLIE DELAHAIE AND CATHERINE VINCENT
PART III
The minimum wage beyond Europe: An accomplishment or
an alternative to collective bargaining? 189
9 Minimum wages in Indonesia: Informality, politics and

weak trade unions in a large middle-income country 191
MAARTEN VAN KLAVEREN
10 Are minimum wages for textile and garment industry workers

effective? A sector-in-country institutionalist approach for five
developing countries 206
DAMIAN GRIMSHAW AND RAFAEL MUÑOZ DE BUSTILLO
11 Minimum wages and inequality mitigation in post-dictatorship

industrial relations systems in Latin America:
The case of Argentina, Brazil and Uruguay 235
ELIZARDO SCARPATI COSTA AND MARTA KAHANCOVÁ
PART IV
Conclusion: Lessons for theory and practice 257
12 Conclusion: Understanding the multiple interactions between

institutions of minimum wages and industrial relations 259
DAMIAN GRIMSHAW, IRENE DINGELDEY, THORSTEN SCHULTEN
Index 281
Figures
1.1 Collective bargaining coverage (in %) and minimum wage

regimes in Europe and beyond – selected countries –. 6
3.1 Wage disparity in Germany, Norway and Sweden, 2000 to
2015 (decile ratios of gross earnings). 43
4.1 Collective bargaining coverage in Southern Europe, 2007–2016. 70
4.2 Low wage earners as a proportion of all employees, 2006–2014. 72
4.3 In-work at risk of poverty rate, 2009–2017. 76
4.4 Kaitz index, minimum wage relative to the median wage of
full-time workers, 2000–2017. 76
4.5 Monthly minimum wages in PPS, 1999–2019. 77
5.1 Trends in monthly minimum wages, 1999–2019 (nominal,
in euros). 89
5.2 Changes in minimum wage and average gross wage in the
Slovak economy (in EUR and in percentage, 1993–2018). 102
6.1 Collective bargaining coverage in Germany, 1998–2019 in %
of workers employed in companies covered by collective
agreements. 117
6.2 Collective bargaining coverage in Germany according to
wage quintiles, 2014 in % of workers employed in companies
covered by collective agreements. 119
6.3 Share of low wage earners in Germany, 1995–2018 in % of
workers earning below 2/3 of the median wage. 120
6.4 Collectively agreed and extended sectoral minimum wages in
Germany in € per hour, April 2020. 124
6.5 Distribution of wage groups in German collective agreements
in January 2020, in %. 125
6.6 Wage groups in collective agreements below the threshold
of the statutory minimum wage in %. 126
6.7 Development of the lowest wage grade in the collective
agreement for the fast food sector in comparison to the
national minimum wage per hour in €. 127
viii Figures
6.8 Development of the lowest agreed wages for semi-skilled
and unskilled workers in the collective agreement for
hairdressing in North Rhine-Westfalia in comparison
to the national minimum wage per hour in €. 131
7.1 Youth minimum wage ladders 1974, 1983, and 2019
(% of adult minimum wage), and average monthly
amounts for 1/1/2019 (Euros). 139
7.2 Adult minimum wage, average collectively negotiated wages
and actual wages, hourly labour productivity, 1964–2017. 142
7.3 Index of the real minimum wage, the weighted average
of the real negotiated lowest wage rates and the real average
negotiated wage (1983=100). 148
7.4 Percentage change of employment (jobs) by wage group,
age 25–65, 2009–2018 (%). 152
7.5 Evolution of the lowest collectively negotiated adult wage
level as a percentage of the statutory minimum wage. 155
8.1 Trends in collectively agreed wages at sector level, monthly
base wage, SMIC and inflation, 2007–2016. 174
8.2 Union density by industry in 2013, France (%). 181
10.1 Employment in textiles and garment industries as a share
of total manufacturing employment, 2005, 2012 and 2017. 208
10.2 Statutory monthly minimum wages for the garment industry,
US$, 2014. 219
10.3 Estimated wages at subcontracting and direct contracting
garment factories, Bangladesh. 226
10.4 The exploitation of women in Pakistan’s home-based garment
industry 226
11.1 Tripartite commission collective bargaining, 2005–2016. 242
11.2 Structure of agreements at salary councils, 2005–2019. 249
12.1 Country examples of government imposed minimum
wage cuts, freezes and upratings. 264
12.2 Ideal type institutional interactions with static country
illustrations. 266
12.3 Diverse trends in minimum wages in four ‘Isolated type’
countries, 2001–2020. 268
12.4 Comparing examples of close interaction: France and
Portugal –collective bargaining coverage and trends in the
kaitz index. 270
12.5 Comparing examples of close interaction: trends in the
kaitz index (mean wages) in Argentina, Brazil and Uruguay. 272
12.6 Incidence of low-wage employment by institutional type,
European countries, 2006–2014. 273
Tables
1.1 Different types of minimum wage regimes in Europe and

selected developing countries 4
1.2 Different types of intersections between statutory minimum
wages (MWs) and collectively agreed wages (CAWs) 8
1.3 Minimum wages in percent of median and average wages of
full-time workers 12
2.1 The multiple functions of wages 18
2.2 The combined impact of four policy measures to reduce
the UK wage share gap (difference in wage share in 2011
compared to 1980) 28
3.1 Union density and collective bargaining coverage for blue-collar
workers in manufacturing, construction and hospitality in
Norway (2016 and 2017) and Sweden (2017 and 2018) 41
4.1 Differences and similarities in minimum wage regimes in
Southern Europe in 2020 69
4.2 Low-wage earners as a proportion of all employees
(excluding apprentices) by sex, 2006–2014 73
5.1 Statutory minimum wage coverage and annual growth,
2009–2020 90
5.2 Role of government and tripartite consultation in determining
the statutory minimum wage in 2017 92
5.3 Average collectively agreed nominal wage increases in selected
sectors (in percentage, private sector only, 2014–2018) 104
5.4 Wage growth dynamics in Slovakia: % changes to minimum
wage, average wage and collectively agreed wage 104
6.1 Share of employees with collective agreements, incidence of
low hourly wages and representation at workplace level in
Germany, 2017 in percent 118
7.1 Evolution of minimum-wage legislation and application,
1964–2015 145
7.2 Characteristics of the cleaning, supermarkets and metal sectors 154
7.3 Characteristics of the youth wages in the collective agreements
at the time of the interviews (2016) 155
x Tables
8.1 Evolution of wage agreements at sectoral level, 2005–2018,
France 170
8.2 Rate of compliance of selected sector agreements with the
level of the SMIC 172
8.3 Evolution of the number and the topics of workplaces
agreements, 2012–2018, France 173
8.4 Union representativeness in 2017 according to the 2013–2016
workplace elections, France 176
8.5 Main characteristics of selected sectors: banking, supermarkets
and metal sectors, 2015 182
10.1 Wages in the textile and garment industries relative to average
manufacturing wages in five countries, 2005–6, 2011–12
and 2017 208
10.2 Classification of minimum wage fixing rules in five countries 211
10.3 Legal coverage of minimum wage legislation 216
10.4 The average number of workers per labour inspector,
2003–2006 (ranking for 27 selected low and middle-income
countries) 217
10.5 The minimum wage relative to average earnings in the garment
industry, national data sources (national currencies) for three
countries 219
11.1 Basic economic indicators, 2019 238
11.2 Comparing collective bargaining systems in Argentina, Brazil
and Uruguay 239
11.3 Trends in the national minimum wage in Brazil, 2009–2019.
Trends in the value, readjustment and real increase 243
11.4 Periods of operation of the Salary Councils 247
11.5 National minimum wage in Uruguay, 2009–2019 evolution of
value, readjustment and real increase over the past 10 years 247
11.6 National minimum wage in Argentina, 2009–2019
evolution of value, readjustment and real increase over the
past 10 years 251
11.7 Collective bargaining by sectors, 2009–2017 252
12.1 Four interaction types between minimum wages and collective
bargaining with sectoral variation, 2016–2019 269
Boxes
8.1 The positions of the expert group on the SMIC committee 164
10.1 Legitimising employer non-compliance? The case of
South Africa pre-2019 224
10.2 Employer practices of non-compliance in Bangladesh: workers’
experiences 225
11.1 Remit of the tripartite National Council in Argentina 250
Contributors
Kristin Alsos is Research Director at Fafo Institute for Labour and Social
Research in Oslo, Norway. She has a legal education from the University
of Bergen, Norway. Her main research interests are collective bargaining,
labour migration, minimum wage regulations and co-determination
rights. Her more recent publications cover collective bargaining and
living wage in Scandinavia and union strategies facing posting of workers
to Norway.
Wike Been is a researcher at the Amsterdam Institute for Advanced Labour
Studies-Hugo Sinzheimer Institute (AIAS-HSI) of the University of
Amsterdam (UvA). She obtained her PhD in Sociology at Utrecht
University within the Interuniversity Center for Social Science Theory
and Methodology (ICS). Her current research focuses on social dialogue,
policy formulation and the organization of, and working conditions in,
the creative industries.
Paul de Beer is Henri Polak professor of industrial relations at the University
of Amsterdam. He is affiliated with the interdisciplinary research institute
AIAS-HSI and is also director of the Dutch Scientific Bureau for the
Trade Union Movement, De Burcht. He attained his PhD in economics
in 2003 at the University of Amsterdam. His research focuses on labour
markets, industrial relations, inequality, solidarity and the value of work.
He wrote and edited numerous books and published, among others, in the
Journal of European Social Policy, the Journal of Ethnic and Migration
Studies, and the International Social Security Review.
Gerhard Bosch is Professor Emeritus in the Institute for Work, Skills and
Training (Institut Arbeit und Qualifikation, IAQ) at the University
Duisburg-Essen and Senior Fellow of the Hans-Böckler-Foundation. He
founded the IAQ in 2007 and was its director from 2007 to 2016. He is
an economics and sociology graduate from the University of Cologne.
His fields of research are: International Comparison of Employment and
Labour Market Systems, Vocational Training, Industrial Relations and
Welfare Systems, Work Organization, Working Time and Wages.
Contributors xiii
Elizardo Scarpati Costa is Assistant Professor of Sociology at Federal
University of Rio Grande (FURG), Brazil. He was a visiting scholar
at the University of Cordoba, Spain in 2019 sponsored by Carolina
Foundation. Conducted Postdoctoral research at the Central European
Labor Studies Institute (CELSI), Slovak in 2019 and at the University
of Beira Interior (UBI), Portugal in 2020. He holds a master’s degree in
Sociology from L’Ecole de Hautes Études en Science Sociales (EHESS),
France and a PhD in Sociology from the Social Studies Center (CES)
at the University of Coimbra (UC), Portugal. He is coordinator of the
research group Labor Relations, Social Inequalities and Emancipation
(RTDS) at FURG, Brazil. He has several publications of articles and
books and participation in scientific events in the labour world area.
Noélie Delahaie is a researcher at IRES (Institut de Recherches Economiques
et Sociales) in Noisy-le Grand (France) and an associate professor à
ISSTO of Rennes 2 University (Institut des Sciences sociales du travail).
Her main research interests concern wages and employment policies and
industrial relations in French firms. She has recently published in British
Journal of Industrial Relations and in collective books on industrial
relations in a European comparative view edited by ETUI.
Irene Dingeldey is Director of the Institute Labour and Economy at the
University of Bremen, Germany. She has a habilitation and holds a PhD
in political science. Her main research interests concern comparative
welfare state studies, employment policy and industrial relations. She
has edited a book on Governance of Welfare State Reform and recently
published in the journal Economic and Industrial Democracy and the
Industrial Law Journal.
Line Eldring is Head of the Policy Department in Fellesforbundet, Norway’s
largest private sector trade union. Until 2016, she was a senior researcher
at the Fafo Institute for Labour and Social Research, Oslo, Norway.
Eldring has over the years participated in a number of research projects on
the Nordic labour markets, minimum wage regulations, labour mobility
and social dumping, and she has published widely on these issues.
Damian Grimshaw is Professor of Employment Studies at King’s College
London and Associate Dean for Research Impact. Previously he
was Director of the Research Department at the International
Labour Organisation in Geneva (2018–19) His published work covers
international comparisons of low-wage labour markets, future of work,
outsourcing, precarious work and gender inequality. Recent publications
include ‘Making Work More Equal’ (2017, Manchester University Press)
and ‘International organisations and the future of work: How new
technologies and inequality shaped the narratives in 2019’, Journal of
Industrial Relations.
xiv Contributors
Mathew Johnson is a lecturer in Employment Studies as the Work and
Equalities Institute at The Alliance Manchester Business School. He
completed his PhD at Manchester and as a post-doctoral researcher he
played a key role in a six country comparative study of precarious work
funded by the European Commission (2015–16), and has been involved
in a number of locally funded projects looking at the changing nature
of work and employment in cities and the role of public procurement
in regulating labour standards. Johnson has published articles in the
Industrial Relations Journal, Employee Relations, Work, Employment
and Society, Economic and Industrial Democracy, Transfer and the
Journal of Common Market Studies, and has co-authored several book
chapters.
Marta Kahancová is the founder and managing director of the Central
European Labour Studies Institute (CELSI) in Bratislava, Slovakia. She
obtained her PhD. at the University of Amsterdam, the Netherlands, in
2007. Her research interests include working conditions, labour markets,
trade unions and industrial relations in Central and Eastern Europe
and the EU’s Eastern Partnership countries. She has published in the
European Journal of Industrial Relations, Transfer - European Review
of Labour and Research, Comparative Labour Law & Policy Journal,
International Journal of Human Resource Management and Industrielle
Beziehungen.
Vassil Kirov is Associate Professor at the Institute of Philosophy and
Sociology, Bulgarian Academy of Sciences (IPS-BAS) and Associate
Researcher the European Trade Union Institute (ETUI). He holds a
habilitation and a PhD in sociology. Currently he is a Visiting Professor
at Sciences Po, France. He has published several books and articles in
international scientific journals. Vassil Kirov has been a researcher in
large EU-funded research projects (Small, Works, Walqing, Enliven,
Beyond4.0) and has worked as an external expert for the European
Commission, the International Labour Organisation, the European
Foundation for Working and Living Conditions and CEDEFOP. Vassil
Kirov has been a member of the European Commission High-Level
Expert Group on the Impact of the Digital Transformation on EU Labour
Markets (2018–2019). Among his last publications is the co-edited book
on Policy Implications of Virtual Work.
Maarten van Klaveren Is a labour economist. He worked until 2015 as a labour
consultant at STZ consultancy & research, Amsterdam/Eindhoven and
until 2018 senior researcher at the Amsterdam Institute for Advanced
Labour Studies (AIAS), University of Amsterdam; while being retired,
remains involved in research for the WageIndicator Foundation,
Amsterdam. Van Klaveren’s publications relate to the many European
and worldwide research projects in which he took part, covering
Contributors xv
industrial relations, collective bargaining, low-wage work, multinational
enterprises and the global garment supply chain.
Rafael Muñoz de Bustillo Llorente is Professor of Applied Economics
at the University of Salamanca, Spain. He has written extensively on
the economics of the welfare state (e.g. Mitos y realidades del Estado
de Bienestar, 2019), income distribution and labour economics (e.g.
Measuring more than money. The Social Economics of Job Quality).
Oscar Molina is Associate Professor appointed to the Department of
Sociology and researcher at Centre d’Estudis Sociològics QUIT - Institute
for Labour Studies, Universitat Autònoma de Barcelona. He holds a
degree in Economics at Pompeu Fabra University 1998. He obtained his
PhD in Social and Political Science at the European University Institute
(EUI-Florence) in 2004. He has been post-doctoral researcher at the
Industrial Relations and Human Resources Group, University College
Dublin (2005–2007) and ICREA Researcher at QUIT, Universitat
Autònoma de Barcelona, and currently coordinator of Eurofound’s
national correspondent team in Spain. His research interests include
comparative industrial relations, comparative political economy, labour
market policies.
Jill Rubery is Professor of Comparative Employment Systems and the Director
of the Work and Equalities Institute, at Alliance Manchester Business School,
University of Manchester. She is a Fellow of the British Academy and has
worked extensively for the European Commission and for the International
labour Organisation. Her research focuses on the inter-disciplinary
comparative analysis of employment systems with a particular focus on
wages, working time, welfare systems and gender equality. Her most recent
book is M. Karamessini and J. Rubery ed. (2013) Women and Austerity: The
Economic Crisis and the Future for Gender Equality Routledge.
Wiemer Salverda is Professor Emeritus of Labour Market and Inequality
at Amsterdam Centre for Inequality Studies and Director emeritus
of the Amsterdam Institute for Advanced Labour Studies (both at
the University of Amsterdam). He is a Fellow of the World Inequality
Database and was an ECFIN Research Fellow 2014–15 at the European
Commission. He contributes extensively to comparative research on
wages, employment, and inequality, and regularly serves as an expert for
the European Commission, OECD and ILO.
Thorsten Schulten is Senior Researcher at the Institute of Economic and Social
Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) at the
Hans Böckler Foundation and Head of the WSI Collective Agreement
Archive. He is also honorary professor at the University of Tübingen. His
research covers wage developments, collective bargaining and industrial
relations in a European and international comparative perspective.
xvi Contributors
Catherine Vincent is a sociologist and senior researcher at IRES (Noisy-
le-grand, France). Her current research interests focus on collective
bargaining, employee workplace representation and HRM in the public
sector. She has authored recently the French chapter of the ETUI book
on collective bargaining in Europe.
Claudia Weinkopf is Deputy Manager of the Institute for Work, Skills and
Training (IAQ) at the University of Duisburg-Essen, Germany. Her
main fields of Research are international comparisons of Employment
and Labour Market Systems, industrial Relations and Welfare Systems.
Since 2015, she is Academic Advisor of the German Minimum Wage
Commission.
Acknowledgements
We would like to thank our student assistants Alexander Mißfeld and Alina
Porschke for formatting the manuscript.
The early stage of the book project was financed by a project grant of the
Hans Böckler Foundation (Grant No. 2014-802-3). The engagement of Irene
Dingeldey during the final stage of the book project has made possible to
integrate results of the project A03 “Worlds of Labour” of the Collaborative
Research Centre 1342 “Global Dynamics of Social Policy”, funded by the
German Research Foundation – Grant No. 374666841 – SFB 1342.
1 Introduction
Minimum wage regimes in Europe
and selected developing countries
Irene Dingeldey, Thorsten Schulten
and Damian Grimshaw
Minimum wages are an almost universally accepted instrument for reg-

ulating employment relations. According to the International Labor
Organisation more than 90 percent of all countries in the world have some
form of minimum wage regulation, which protects workers by determin-
ing a certain wage floor under which no one may be legally remunerated
(Belser and Uma, 2015; ILO, 2016). More recently, however, existing min-
imum wage levels are increasingly criticised for being “too low” and not
adequate to prevent in-work poverty. Living wage movements around the
world have demanded substantial increases of minimum wages in order to
ensure low wage workers might enjoy a decent standard of living (Figart,
2004; Anker and Anker, 2017; Schulten and Müller, 2019). The issue of low
pay gained even more prominence during the Corona crises, when it became
clear that many of the so called “essential” or “key” workers are in fact at
the bottom of the wage ladder. The criticisms about the adequacy of existing
minimum wage levels are particularly widespread in Europe, where trade
unions and other social actors have launched campaigns for more substantial
wage increases in many countries (Schulten and Müller, 2020). Against that
background the European Commission (2020a) has presented a proposal for
a Directive “on adequate minimum wages in the European Union”, which
aims to ensure that all EU member states provide decent minimum wage
levels. Other regions around the world have also witnessed growing protests
to improve the value of the minimum wage, as well as to improve compliance
with the law among employers (Alamgir and Banerjee, 2019; Fairless, 2019).
International comparisons have shown that there is a great variety of
national and sometimes even sub-national minimum wage regimes (e.g.
Aumayr-Pintar and Rasche, 2020; Garnero et al., 2015; Grimshaw et al., 2014;
Grimshaw and Muñoz de Bustillo, 2016; Schulten et al., 2006; van Klaveren
et al., 2015). A minimum wage regime compromises a certain ensemble of
legal and institutional arrangements which frame the different levels, scope,
adjustment and enforcement of minimum wage protection. The concrete
fixing of minimum wages is usually highly contested and depends on the
influence, strategy and power resources of different social actors such as
trade unions, employers’ organisations, governments, political parties and
2 Irene Dingeldey, Thorsten Schulten and Damian Grimshaw
civil society organisations. Minimum wages are therefore always the result
of a certain social and political compromise whether they are negotiated by
collective bargaining or fixed by statutory regulation.
So far, the bulk of academic literature has largely ignored the different
minimum wage regimes including their inherent institutional foundations
and social and political conflicts. Instead, it has mainly focused on the
effects of existing minimum wages on other economic variables – notably
on employment (for a recent review, see Belman and Wolfson, 2016; Dube,
2019). This volume thus contributes to a rather underdeveloped research
field on minimum wages from a comparative institutional and political
economy perspective.
In concrete terms, this book asks: 1) How does minimum wage setting
interact with collective bargaining at the country and sectoral levels?; and 2)
How do different types of institutional interaction shape trends in the value
of minimum wages?
The research presented combines knowledge about country-specific
socio-economic developments, institutional and labour market settings and
actors’ strategies and power resources in an effort to explain diverse out-
comes of minimum wage policy (see, also, Grimshaw et al., 2014; Doellgast
et al., 2018). It largely follows an actor centered institutional approach
(Scharpf, 1997) by analysing strategy and behavior of the relevant actors in
the process of minimum wages setting.
Since minimum wage regimes are understood as a certain national or
sometimes even regional ensemble of minimum wage settings, a core research
interest of this volume is on the interplay between statutory wage regulation
and collective bargaining. Although most countries have both forms of wage
regulation, there are so far only a very few studies which have researched
the interplay between them (Dingeldey, 2019; Grimshaw, 2013; Grimshaw et
al., 2014). Addressing “interaction”, the various chapters in this book con-
sider both an inward oriented mode, namely the strategies and interests of
employers, unions and government in the fixing of a minimum wage, and an
outwards form of interaction, namely the conflict or complementarities that
arise between minimum wage rules and institutions of collective bargaining.
Moreover, the chapters follow Rubery et al. (Chapter 2) in addressing the
multiple functions and normative settings related to the minimum wage.
The issue of collective bargaining also widens the research to a sectoral per-
spective, as collective bargaining – at least in Western Europe – often takes
place at sectoral level so that there might be different sectoral interactions
with a national minimum wage. Thus, one chapter has an explicit sector per-
spective, comparing the garment industry in Asia, while the chapters on the
Netherlands, Germany, Sweden and Norway incorporate detailed compari-
sons between sectors. With this expanded lens of analysis, the book reflects
the growing criticism against the “methodological nationalism” of traditional
comparative industrial relations which argues that sectoral differences within
national systems are of growing importance (Bechter et al., 2012).
Introduction 3
Although most of the contributions in this volume focus on minimum
wage regimes in Europe by presenting both national (France, Germany,
Netherlands) and regional (Northern, Southern and Eastern Europe) case
studies, the book also extends the analysis to Asia and Latin America. This
requires certain adjustments of existing theoretical frameworks as minimum
wage regimes in these countries may have different mechanisms and func-
tions. In the final chapter, the many diverse empirical insights are drawn
together in order to address the two key questions of this book. It argues
that the analytical categories of interactions (developed below) carry a good
deal of explanatory power in aiding our understanding of both patterns and
trends in minimum wage policy and the ability and willingness of countries
to sustain a minimum wage at an adequate level.
1.1 Different types of minimum wage regimes – An overview

Historically, statutory minimum wages developed in a complementary
fashion with collective bargaining, and were often recommended in sectors
where no effective negotiations could take place and/or an extremely low
level of pay existed (ILO, 1924). Thus, it is expected that minimum wage
norms not only have a positive impact on wages, but also unseal the arena
of collective bargaining for social policy goals (ILO, 2017; see also Rubery
et al., Chapter 2 in this volume). Accordingly, the International Labour
Organisation (ILO) defines a statutory minimum wage as, “the minimum
amount of remuneration that an employer is required to pay wage earners
for the work performed during a given period, which cannot be reduced by
collective agreement or an individual contract” (ILO, 2019).
Analyzing different types of minimum wage regimes, a basic distinction can
be made between universal and sectoral regimes (Schulten and Müller, 2020).
Universal regimes are characterised by the establishment of a universal minimum
wage, which is usually set at national level, but sometimes also at sub-national/
regional level and – apart from possible exceptions – applies to all employees.
In contrast, sectoral minimum wage regimes do not have a universal minimum
wage floor but set minimum wages for specific industries or occupational groups.
In the European Union, 21 of the 27 Member States currently have a uni-
versal minimum wage regime with one uniform national minimum wage
rate (Schulten and Müller, 2020, see also Table 1.1). The same holds true for
the United Kingdom, which recently left the EU, as well as for many coun-
tries outside of Europe, such as, for example, in Latin America – Argentina
and Brazil –, or in Asia and Oceania – Korea, Australia and New Zealand.
Some countries, mostly larger states in Asia, such as China, Japan, India or
Indonesia, but also Canada, have set universal minimum wage regimes not
at national but at sub-national level where minimum wages are set at the
level of regional provinces, prefectures or districts. Other larger countries
such as Russia or the US have a combination of a nation-wide minimum
wage plus a great variety of sub-national minimum wages.
Table 1.1 Different types of minimum wage regimes in Europe and selected
developing countries
Legal Form
Regime Scope Statutory regulation Collective bargaining
Universal National Western and Continental Western and Continental

Europe: Europe:
France, Ireland, Belgium, Germany
Luxembourg, Netherlands,
United Kingdom Eastern Europe:
Czechia, Estonia,
Southern Europe: Hungary
Greece, Malta, Portugal, Lithuania, Poland,
Spain Slovakia,
Eastern Europe: Outside of Europe:
Bulgaria, Croatia, Latvia, Uruguay
Romania, Slovenia
Outside of Europe:
Argentina, Australia, Brazil,
New Zealand, Korea,
Russia, South Africa,
USA, Vietnam
Sub-National Outside of Europe:
Regional Canada, China, Indonesia,
India, Japan, Pakistan
(Russia, USA, Vietnam)
Sectoral Branch or Southern Europe: Northern Europe:
Occupation Cyprus Denmark, Finland,
Norway, Sweden
Outside of Europe:
Bangladesh, Cambodia, Western and Continental
Europe:
Austria
Southern Europe:
Italy
Outside of Europe:
Uruguay
Source: Own composition on the basis of Müller and Schulten (2020), Van Klaveren et al. (2015)
In most of the countries with universal minimum wage regimes, it is the

state which determines the actual minimum wage by law – usually after
more or less formalised consultations with employers and trade unions. There
are, however, also some examples – mainly European countries – where the
national minimum wage is concluded by a national collective agreement
(Belgium, Estonia), by a bipartite agreement with a special minimum wage
commission (Germany) or by tripartite agreements between employers, trade
Introduction 5
unions and the state (Czechia, Hungary, Lithuania, Poland, and Slovakia).
In some of the latter countries the state also decides unilaterally on the min-
imum wage, if no tripartite agreement could be reached. Outside of Europe,
there are only a very few countries, such as, for example, Uruguay, where
the national minimum is determined through collective bargaining. After
an agreement on a national minimum wage has been reached, it usually
becomes legally binding so that it is equivalent to a statutory minimum wage.
There are a couple of mostly European countries which have a sectoral
minimum wage regime. In contrast to a universal regime, the latter provides
no general minimum wage floor, but sets minimum wages for specific indus-
tries or occupational groups. Sectoral minimum wage regimes can be found
in particular in Northern Europe (Denmark, Finland, Norway and Sweden)
as well as in Austria, Italy and Cyprus. Germany also belonged to this group
for a long time until it finally introduced a national minimum wage in 2015.
Outside Europe there are few examples of sectoral minimum wage regimes,
although in this book we examine the illustrative cases of Bangladesh (with
42 industry minimum wages) and Cambodia (its minimum wage only applies
to the garment and footwear sector). Countries with sectoral minimum wage
regimes usually have no statutory wage floor as wages are exclusively deter-
mined by collective agreements. An absolute exception is Uruguay, which
has a national minimum wage, but where the actual minimum wages are
fixed for almost all workers at sectoral level. Another exception is Cyprus
where the states determine minimum wages for certain occupational groups.
1.2 The scope of collective bargaining

The scope of collective bargaining has a significant influence on minimum
wage setting. This holds true for both universal and sectoral minimum wage
regimes. In the former it determines collectively agreed minimum wages in
addition to the national or sub-national minimum wages, while in the latter
it is typically the only form of minimum wage setting. Regarding the level
of collective bargaining coverage, i.e. the percentage of workers covered by
collective agreements, there are huge differences both within and outside
of Europe (Figure 1.1). The spectrum ranges from countries where the vast
majority of workers, 90 percent or more, are covered by collective agree-
ments to countries where only a minority of 20 percent or less falls within
the scope of a collective agreement.
Notably, most countries with sectoral minimum wage regimes have a com-
prehensive collective bargaining system and very high collective bargaining
coverage of 80 percent or more. This is the case in the northern European
States, as well as in Austria and Italy and outside of Europe in Uruguay.
In these countries, the high level of collective bargaining coverage ensures
comprehensive collectively agreed minimum wage protection, which has a
largely universal character. Since the trade unions in these countries also
have a relatively high influence on the setting of sectoral minimum wages
Figure 1.1 Collective bargaining coverage (in %) and minimum wage regimes in
Europe and beyond* – selected countries –.
* Data from 2016-2018 (latest available data); ** data from 2008
Sources: ICTWSS Database (Version 6.1.), ILO
through collective bargaining policy, they are often extremely hostile to the
introduction of a statutory minimum wage. However, when countries with
a sectoral minimum wage regime are faced by a declining bargaining cover-
age this creates significant political pressure for a regime change towards a
universal regime, as was the case in Ireland and the United Kingdom in the
late 1990s and in Germany in the early 2010s
In many – but not all – countries with a high collective bargaining cover-
age, this is supported by administrative extension, erga omnes rules or func-
tional equivalents, so that all employers and workers in a certain sector and
geographical area are covered by the same collective agreement (Schulten
et al., 2015; Hayter and Visser, 2018). In these countries, often the whole
wage grid negotiated in collective bargaining is understood to determine
the minimum of remuneration that is then typically topped up by individ-
ual or firm specific negotiations. The extension of collective agreements is
widespread in some European countries such as Belgium, France, Finland,
the Netherlands or Spain, as well as in some Latin American countries such
as Argentina, Brazil or Uruguay. In the latter as well as in most develop-
ing countries, however, collective agreements only regulate conditions for a
minority of workers in the formal sector. For the large majority in the infor-
mal sector it is mainly the national minimum wage which influences wage
setting, even if it is usually not fully paid.
Some countries with a universal minimum wage regime such as Belgium,
France or the Netherlands also have a rather high bargaining coverage so
that the national minimum wage affects only those workers which either
Introduction 7
have very low collectively agreed wages or are not covered by collective
agreements. However, the lower the level of collective bargaining coverage,
the greater the potential impact of the national minimum wage, since an
ever larger group of workers has no other minimum wage protection. As
the empirical chapters in this book demonstrate, the bargaining coverage
is therefore a core variable for analyzing the interplay between statutory
minimum wage regulation and collective bargaining.
1.3 Different types of intersections between

minimum wages and collective bargaining
Comparative research has highlighted different forms of interplay between
minimum wages and the wage scales set within collective bargaining in
different national systems according to the different institutional settings
and power relations between collective actors (Grimshaw and Rubery, 2013;
Grimshaw and Bosch, 2013).
As argued above, it is the bargaining coverage, in particular, which closely
influences the interplay between both wage-setting institutions. Moreover,
the scope of the various wage setting institutions shapes the strategies and
options of the relevant actors when it comes to the determination of mini-
mum wages at different levels. Following an adaptation of Grimshaw and
Bosch (2013) one can distinguish five types of intersections between statu-
tory minimum and collectively agreed wages (Table 1.2).
The first and by far the most wide-spread type is called “Isolated minimum
wage” and applies to country or sector regimes where collective bargaining is
only of limited importance while most workers are only covered by the stat-
utory minimum wage. This type is to be found in many Eastern European
countries such as Bulgaria (see Chapter 5, Kahancová and Kirov), but also
in Greece (Chapter 4, Molina), Indonesia (Chapter 9, van Klaveren) and
Vietnam (Chapter 10, Grimsaw and Muñoz de Bustillo, all in this volume),
as well as in most sectors in the UK and the US; indeed, in the latter pair
of countries collective bargaining is only a force of influence in the public
sector where coverage is relatively high. Among countries which conform
closely to this interaction type, collective bargaining is rather weak and, as
such, the influence of the statutory minimum wage is crucial to influence
wage developments for a large proportion of workers.
The second type is called “Close interaction”1 and describes a system with
a high or medium bargaining coverage where minimum wages and collec-
tively agreed wages are partly overlapping. Hence, overall lower wage grades
in collective agreements sometimes fall below the level of the national min-
imum wage especially after its adjustment. While in any case the employers
1 We renamed this type (originally it was called “Direct interaction”) so as to contrast with
the other form, “Distant Interaction”.
Table 1.2 Different types of intersections between statutory minimum wages
(MWs) and collectively agreed wages (CAWs)
Bargaining MW in relation
Type Coverage to median wage Interaction
In developed countries
Isolated Minimum Low Medium/high MWs have a dominant
Wage influence on wage setting
CAWs of limited
importance,
Close Interaction1 High/Medium Medium/high Overlapping of MWs and
CAWs
Developments: MWs often
influence CAWs
Distant not too low Low/medium MW is used as a point of
Interaction reference to set CAWs at a
certain distance
Distant High Low/medium CAWs are generally above
Coexistence the level of MWs
Development: CAWs often
influence MWs
Substitute for the High No statutory CAWs as “collectively
Minimum Wage MW negotiated MW” to be
topped up on firm level
We renamed this type (originally it was called “Direct interaction”) so as to contrast with the
1
other form, Distant Interaction.

Source: Authors’ update of Grimshaw and Bosch (2013)
have to pay at least the minimum wage, it also becomes an important driver
for overall wage developments in the respective sectors. A major represent-
ative of this type is France, where the statutory minimum wage is set at a
relatively high level and often pushes up collectively agreed wages (Delahaie
and Vincent, Chapter 8). The same holds true for some of the low wage sec-
tors in Germany where the collective agreements were forced to negotiate
above-average wage increases after the introduction of the statutory mini-
mum wage (Bosch et al., Chapter 6). Due to comparatively high rises of the
minimum wage by government policies after the financial crisis this type of
“catch-up” collective agreements may also occur in other countries, such as
Portugal for example (see Molina, Chapter 4).
The third type, called “Distant interaction”, means that the (statutory)
minimum wage is used as a point of reference to set sector specific wage
levels at a certain distance above it. Such a practice can be observed in some
low wage sectors in the Netherlands (Been et al., Chapter 7), where the trade
unions aim to keep a certain distance between the minimum wage and the
lowest wages determined in collective agreements. Similar strategies can
also be found in some low wage sectors in Germany (Dingeldey, 2019), Spain
(Molina, Chapter 4) and Belgium.
Introduction 9
The fourth type covers a small number of countries with sectoral min-
imum wage regimes such as the Northern European states (Alsos and
Eldring, Chapter 3) or Austria. These states have no statutory minimum
wage, but because of the very high bargaining coverage collectively agreed
wages often function as a “Substitute for minimum wage”. In such an institu-
tional setting, the most “productive” sectors national or sectoral agreements
are topped up by firm specific negotiations or by premiums – producing
positive wage drift. However, other sectors mostly in the service sector may
just pay the collectively agreed wages.
The fifth type is called “Distant coexistence” and refers to a high bargain-
ing coverage and collectively agreed wages well above the minimum wage
level. Collectively agreed wages are set independently from minimum wages
and give an orientation for their adjustment. Examples for this practice are
often to be found in almost all European countries but also in many devel-
oped countries outside of Europe in the higher paid industries in manufac-
turing, qualified private services or the public sector.
These types can be applied to developing countries, but greater attention
needs to be paid to on the one hand, the possibility that collective wage
agreements may not be so effective (where unions are weak, employer com-
pliance is low and/or where government policies are stridently anti-union)
and, on the other, the fact that the share of workers legally covered by a
minimum wage is low in most developing countries, reflecting the high share
of informal work.
In this volume the above described typology of different forms of interplay
between minimum wages and collective bargaining is taken as an analytical
starting point. In the concluding chapter, we return to these categories and
assess how well the empirical evidence fits with the varied institutional char-
acterisations at national and sectoral levels.
1.4 Level and adequacy of minimum wages

In modern capitalist societies wages are a core social and economic indicator
which has to fulfil multiple functions (Rubery et al., Chapter 2). Minimum
wages, in particular, have the function to determine a certain wage floor
which basically set a competitive order and limit downward wage competi-
tion. Moreover, minimum wages are also associated with the ambition of a
living wage, i.e. a wage level that is sufficient for workers to provide not only
basic social needs but also a participation in society.
There are a couple of international agreements and declarations such
as the UN Universal Declaration of Human Rights of 1948, the ILO
Conventions on Minimum Wages of 1928 and 1970 or the International
Covenant on Economic, Social and Cultural Rights (ICESCR) of 1966
which even demand a “right to a minimum wage” which should allow every
worker a fair remuneration and a decent standard of living (Ofek-Ghendler,
2009). Also in Europe there are several declarations, such as the Council of
Europe’s European Social Charter of 1961, the EU Community Charter of
Fundamental Social Rights of Workers of 1989 and – most recently – the
European Pillar of Social Rights of 2017 which all define a decent minimum
wage as a fundamental social right for all workers (Zimmer, 2019).
Despite of all these normative ambitions, in the economic and politi-
cal debates the basic function of minimum wages is still highly contested
(Schulten and Müller, 2019). It is by no means generally accepted that a
minimum wage must be a living wage. A more fundamental critique comes
from the neoclassical economics perspective which assumes that companies
will pay workers only in line with their marginal individual productivity. If
a worker’s productivity is below their basic living costs, it is argued that the
employer cannot pay a living wage because this would not be economically
sustainable. From such a perspective, it is the responsibility of the state to
guarantee the workers’ subsistence by providing additional income support,
for example through a negative income tax or other in-work benefits.
An alternative view, which was already developed by the Webbs with
their critique of “parasitic trades” (Webb and Webb, 1920), states that
an efficient economy cannot be based on business models that depend on
paying non-subsistence wages. Moreover, minimum wages are seen as an
important instrument to promote efficiency and productivity of work and
to stabilise private demand (Hirsch et al., 2015). Following the concept of
a living wage it is basically the responsibility of the employer to provide an
adequate wage level.
Thus, the different economic views on the adequacy of minimum wages
have strong political implications. In countries with developed welfare state
regimes, minimum wage earners often receive both wages and additional
state benefits. As higher minimum wage levels might lead to lower state ben-
efits and vice versa, the dispute over an adequate level of minimum wages is
also a dispute over the question as to whether the employers or the state are
mainly responsible to ensure that workers receive an adequate income. In
countries without strong welfare states – as in particular in the Global South –
earnings from work are often the only source of income, so that the level of
the minimum wage has a direct influence on the level of impoverishment.
In order to operationalise the concept of adequacy in relation to mini-
mum wages there are two fundamental approaches (Schulten and Müller,
2019). One is the traditional living wage approach which calculates the ade-
quacy on the basis of a basket of services and goods which are needed to
have a certain level of decency. Furthermore, the calculation of living wages
also depends on the considered workers’ household – whether it is only a
single adult household or includes also various forms of family households.
In practice, there is a great variety of living wage concepts used around the
world at national or even regional level but no universally accepted concept
(Anker and Anker, 2017; Hirsch and Valadez-Martinez, 2017).
A second, and perhaps more pragmatic approach to define the ade-
quacy of minimum wages is a distribution-oriented approach which sets
Introduction 11
the minimum wage in relation to other wages. One established standard
for the international comparison of minimum wages is the so-called Kaitz
Index, named after the American labour statistician Hyman Kaitz (1970),
which measures minimum wage levels in relation to the average or median
wage of the respective regions or countries. Originally, the Kaitz Index was
created in order to assess the “bite” of minimum wages and their influence
on national wage structures. As the Kaitz Index is also an indicator of the
relative position of minimum wage earners in the overall wage distribution,
it is also used as an indicator for adequacy.
The concrete definition of an adequate minimum wage in relation to the
median or average wage is always the result of a social convention, which
itself is a result of political, social and discursive disputes. There is, for
example, a widely accepted definition of “low wages” which are any wages
below two thirds of the median wage. There is, however, no such univer-
sally accepted definition for an adequate minimum wage, and the thresh-
olds used across Europe, for example, reveal significant national differences
(European Commission, 2020b; Schulten and Müller, 2020). However, in
the recitals to the proposed directive on adequate minimum wages, the
European Commission (2020a: 20) made reference to “the use of indicators
commonly used at international level, such as 60 % of the gross median
wage and 50 % of the gross average wage.”
Considering these indicators, most of the national minimum wages for which
data are available have to be considered as not being adequate. In 2019, only
four (France, Portugal, Korea and New Zealand) of the 25 OECD-countries
considered in Table 1.3 had a minimum wage which was above 60 % of the
median wage of full-time workers. This is nevertheless an improvement on two
decades ago (in the year 2000) when France was the only country. In fact, during
the last 20 years, most countries have witnessed minimum wages increasing
above the growth of median wages. However, in 2019 there were still eight coun-
tries with a minimum wage of between 50 % and 60 % of the median wage, while
in a majority of the countries the minimum wage was even below 50 % of the
median wage. By far the lowest minimum wage is in the US where the national
minimum wage was only equivalent to 32 % of the median wage. There were,
however, many US federal states with a much higher minimum wage, compa-
rable to those of many European countries.
The median wage as a reference for the adequacy of minimum wages has
the advantage that, as the midpoint of the wage distribution, it is unaffected
by extremely high or low values and represents a wage margin of larger parts
of the workers. The median wage is also usually not affected by changes in
the minimum wage. However, the median wage as a refence for adequacy
becomes more problematic if large parts of the population only earn very
low wages so that the median wage itself is also at a very low level. In Europe
this is the case for example, in Portugal or in some of the Eastern European
countries. The reference is even more problematic when countries of the
Global South are concerned. In Brazil, for example, the minimum wage was
Table 1.3 Minimum wages in percent of median and average
wages of full-time workers
Median wage Average wage
2000 2019 2000 2019
Belgium 51 47 43 40
Czechia 32 43 28 37
Estonia 34 43 28 37
France 62 61 50 50
Germany - 48 - 43
Greece 44 48 37 35
Hungary 36 50 28 38
Ireland* 36 42 30 35
Latvia 36 47 26 38
Lithuania 50 51 39 41
Luxembourg 52 55 45 44
Netherlands 52 47 47 39
Poland 40 52 33 33
Portugal 46 61 32 44
Romania 25 57 20 41
Slovakia 42 49 34 40
Slovenia** 51 59 43 49
Spain 36 49 29 42
United Kingdom 41 55 34 46
Australia 58 54 50 47
Canada 41 51 38 45
Japan 32 44 28 38
Korea 29 63 24 49
New Zealand 50 66 45 56
USA 36 32 29 22
* 2002; ** 2005
Source: OECD Earnings Database
78 % of the median wage in 2009, while in Indonesia it was even 105 % (Rani
et al., 2013). The figures of these countries reflect the fact that not only the
workers in the formal sector have a rather low wage level, but that there is a
huge informal sector with wage levels far below statutory minimum wages.
Thus, while in countries with a relatively broad middle class the median
wage might work well as a reference for the adequacy of minimum wages,
this is not the case in countries where larger parts of the populations have
very low wages or work in the informal sector. Therefore, in many countries
not the median but the average wage is used as reference, whereby – accord-
ing to the European Commission (2020a) – an adequate minimum wage
has to be at least equivalent to 50 % of the average wage. Looking again at
the countries for which current data are available, most of them are – often
significantly – below that threshold (Table 1.3). According to calculations
by the European Commission (2020b: 54), an increase of national minimum
Introduction 13
wages according to the double threshold of 60 % of median wage and 50%
of average wage would increase wages of more than 20 million workers in
the entire EU.
Finally, in countries with a sectoral regime, where minimum wages are
usually set by collective agreements, the minimum wage levels are often
much higher than in countries with universal regimes (Garnero et al., 2015;
European Commission, 2020b; Schulten and Müller, 2020). This holds true,
in particular, for the Northern European States where the lowest wages
agreed in collective agreements are mostly well above 60 % or even 70 %
of the median wage (Ibid.). A similar situation can be observed in some
countries with universal regimes, where the lowest collectively agreed wages
are mostly somewhat above the statutory minimum wage. This is the case,
for example, in Germany and the Netherlands (Bosch et al., Chapter 6 and
Been et al., Chapter 7 in this volume) while in other countries such as France
(Delahaie and Vincent, Chapter 8), the lowest collectively agreed wages are
relatively often below the statutory minimum wage. In general, it is almost
an established fact that there is a strong positive correlation between collec-
tive bargaining coverage, the equality of the overall wage structure and the
relative value of the lowest wage levels, so that a comprehensive collective
bargaining system is a core institution to limit wage inequality and low pay
(Salverda and Mayhew, 2009; Hayter, 2015; OECD, 2019).
1.5 Implementation and enforcement of minimum wages

Finally, the effectiveness of a minimum wage regime depends on its ability
to successfully implement and enforce existing minimum wage regulation
(Benassi, 2011; ILO, 2016). Violations of the minimum wage are a significant
problem in almost all countries. They are reported from developed coun-
tries such as Germany (Bosch et al., 2019) or the UK (Low Pay Commission,
2020), as well as from developing countries. In the latter, there is often a
particularly large gap between “de jure” and “de facto” validity, as only a
minority of employees in the formal sector receive the minimum wage, while
large parts of the workforce is in the informal economy where actual pay
usually undermines the prescribed minimum wage. In some countries, such
as Indonesia or South Africa the non-compliance rate, i.e. the percentage of
employees paid less than minimum wage, are more than 50 % (Rani et al.,
2013; Garnero et al., 2015). However, even the informal sector is not with-
out rules, so that developments of minimum wages often also have a strong
influence of actual wage developments in the informal sector (Lemos, 2009).
The extent of non-compliance depends largely on the institutional setting of
minimum wages policy and the role of the various social actors in it (Benassi,
2011). One crucial element is the scope, endowment and control rights of labor
inspections and other supervisory authorities responsible for monitoring
compliance with minimum wages (Kanbur and Ronconi, 2018). Moreover,
an equally important aspect is the presence and strength of employers’
organizations and trade unions, as well as other civil society organizations
and their joint efforts to enforce and control minimum wage standards (Venn,
2009; ILO, 2013; Amengual and Fine, 2017). As such, the enforcement capac-
ity is closely related to the quality of labour relations (OECD, 2017).
To sum up, minimum wages are not just an economic variable that
describes the wage floor of a country’s labour market. Rather, they are the
outcome of a complex political process which is embedded in a specific insti-
tutional structure and is heavily influenced by the power and strategies of
unions, employers and governments. The following chapters of this book
seek to advance our understanding of the complex institutional processes
shaping minimum wages, drawing on critical studies of national and sec-
toral conditions. In particular, it is hoped that the improved analysis of the
various intersections between statutory regulation and collective bargain-
ing can play a decisive role in informing a fair minimum wage policy that
supports adequate minimum income from work.
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2 Minimum wages and the
multiple functions of wages
Jill Rubery, Mathew Johnson, Damian Grimshaw
To understand the role or roles that minimum wages can play in shaping pay
structures we need to consider the multiple functions of wages in capitalist
societies. These multiple functions add to the interest in the processes shap-
ing the wage structure as different actors are motivated by the distinct roles
that wages play and take different views over what wage policies and strat-
egies should be pursued. This indeterminacy is not only due to the often-
discussed apparent trade-offs between, for example, the level of wages and
the quantity of employment but also to the complex interactions between
the different “functions” of wages in the labour market and society. For
example, in order to promote gender equality, is it better to raise minimum
wages, to say a “living wage”, or to re-evaluate women’s skills? The first
strategy could bring about wider and quicker results while the second might
deal with deep-rooted underlying prejudices about the relative worth of par-
ticular types of jobs and skills. The consideration of the different functions
of wages also highlights the inherent ambiguity in and range of perspectives
that exist in regard to what constitutes fair wages.
To identify the multiple functions of wages we have drawn on, and in
practice combined, two distinct but overlapping and complementary frame-
works for capturing the multi-dimensional nature of wages and wage setting
(Figart et al., 2002; Rubery, 1997). From these combined frameworks we can
identify five functions of wages (see Table 2.1). The first two, wages as a price
and wages as living, encapsulate the two main functions of wages – as the
cost of production and the means for social reproduction. These two func-
tions mirror the well-known alternative approaches to national accounts – as
the value of goods and services produced and as the rewards to factors of
production. Figart et al. in fact use these exact terms, thereby highlight-
ing one of the persistent areas of contestation in wage setting, between
whether wage setting should seek to maintain the real value of wages, that is
upgraded by the costs of living, or to reflect the changes in the market and
production conditions of the country, sector or firm in which the person is
located. These issues are central to debates over minimum wages, that is
whether they should reflect the costs of living (or changes therein) on the one
hand, or firms’ ability to pay on the other. There is also the issue of whether
18 Jill Rubery, Mathew Johnson and Damian Grimshaw
Table 2.1 The multiple functions of wages
Links to wage function

Wage function Economic and social effects frameworks
Wages as price Wages are both a cost of Figart et al. focus on wages as
of labour production and a signal for price/ Rubery on wages and
labour allocation market allocation
Wages as living Wages as the main means of Figart et al. focus on wages as
social reproduction; social living including role of family
needs/ expectation as a basis wages; Rubery focuses on
for wage setting both social reproduction and
social stratification including
family wage.
Wages as class Wages as the main means of Implicit in both frameworks in
distribution distribution between capital the struggle between costs of
and labour/ wages as a key production and means of
area of contestation in the social reproduction
employment relationship
Wages as social Wages enacted to both reflect/ Figart et al. focus on wages as
practice reinforce social norms/ social practice/ Rubery
practices and to transform/ includes this within social
change social norms/ stratification norms
practices
Wages as control Wages used by management Rubery focuses on wages as
of the labour to control the labour process management tool
process and as a means of resistance
by workers
either or both of these should be differentiated according to perceived differ-

ences in the living needs of people or groups, or in the differences in ability
to pay by, for example, sectors. The Rubery framework also identifies these
two functions but also adds to the production focus not only the role of
wages as production costs but also the role of wages in allocating labour
across sectors, firms, and occupations in the economy. Thus, we expand
the notion of wages as price to include the impact of minimum wages on
labour allocation.
The third function we specify is wages as the outcome of distributional
struggles between capital and labour. This function can be considered
implicit in the tensions between wages as price and wages as living – and as
such is not separately identified in the two original frameworks. It is pulled
out here not only to consider the contribution of minimum wages to the
distribution of income within society and the overall wage share but also to
reflect on the relationships between minimum wages and the power dynam-
ics in the employment relationship and the wider economy. For example,
we can here consider the extent to which minimum wages contribute to or
detract from other mechanisms to bolster employee power such as collective
organisation and collective bargaining.
Minimum wages and the multiple functions of wages 19
The fourth function draws on the third dimension in Figart et al.’s frame-
work, wages as a social practice, to capture the ways in which wages shape
and reshape social relations. Thus, although wage setting may often reflect
and even reinforce social arrangements and norms, it may also kick start a
process of transformation of social relations. For instance, campaigns to
close the gender pay gap may be instrumental in changes in expected gender
relations in the workplace and the household. These changes may be rein-
forced if women in more households start to earn the same or more than
their partners. This allows for a more dynamic approach to understanding
the interplay between wage setting and social status than the traditional
accounts of how wages and social standing and power are interconnected.
There are many examples of these interconnections – ranging on the one
hand from Adam Smith’s proposition that high wages are needed in occu-
pations such as judges to ensure trust, to, on the other hand, feminist argu-
ments that male wages “need” to exceed female wages to maintain unequal
gender power relations both in the workplace and in the home. However, the
social practice approach allows for change and transformation. One issue
to consider is how minimum wages and campaigns for higher living wages
are or could be transforming relations within the lower segments of the
labour market.
Finally, but no less importantly, wages are one part of a set of micro-level
tools available to management to control and shape work behaviour and
productivity within the employment relationship (Rubery, 1997). Workers
also use wage setting as a form of resistance to management control, par-
ticularly when pay has a variable element as in piecework and bonus or
performance systems or where management seeks a change in working
practices that may be resisted unless it is compensated by a wage premium.
When management is constrained in wage setting, for example by minimum
wages, management may turn to other mechanisms, for example, control
over working hours, if they no longer have discretion in fixing pay levels for
some workforce groups.
These five functions can be used to explore the forces shaping the setting
of legal minimum wages but wage setting mechanisms also interact, often
through the responses of key actors. In line with the focus of this volume,
we explore how minimum wage setting interacts with other wage setting
mechanisms, in particular collective bargaining, and how both may limit or
constrain the third mechanism which is managerial discretion. By focusing
on these multiple functions of wages we also cast light on why wages and
the concept of fair pay is so contested. Fairness may be judged, for example,
according to the ability to pay of the employer, the costs of living that work-
ers have to face, or by the share of national and company income allocated
to capital versus labour. Likewise, social norms may serve to legitimise pay
inequalities but if pay fails to respond to changing social relations over
time these norms may be challenged. Within organisations there may not
only be differences of views between managers and workers over the overall
level and structure of fair wages but also whether the key issue is to fairly
reward job grade and skill or to reflect relative effort, performance, and
competences. These different perspectives provide much scope for different
views and actor strategies both towards the setting of minimum wages and
towards how collective bargaining should respond to the setting of mini-
mum wages.
Now that the five functions of wages have been introduced, the following
sections take each of these perspectives on wages to discuss how minimum
wages can and do interact with changing labour markets and social systems
on the one hand and collective and managerial wage setting on the other.
Many of the examples are drawn from the UK but supplemented by com-
parative examples where relevant.
2.1 Minimum wages as price

Wages as price underpins mainstream economic theories of wages but the
meaning is ambiguous. If labour markets are integrated and not segmented,
economic theory expects wages to reflect the relative productivity of the
worker, linked to their human capital. However, not only may labour mar-
kets be segmented but also product markets, so that the capacity to pay by
companies and sectors varies in ways that are not fully or mainly explained
by the productivity potential of the workforce.
These differences in understandings of markets have consequences for
views about the appropriate level of national minimum wages. The argu-
ments made for and against a relatively high minimum wage, measured
by the Kaitz index, hinges on whether or not there is perceived potential
to integrate rather than segment markets. The setting of a relatively high
common minimum wage across sectors and firms can be seen as a means
to improve the efficiency of markets that, left unregulated, will fail to set a
common “going rate” of wages for labour at the lower skill end of the labour
market. A common rate promotes efficiency by stopping firms employing
labour at below the productivity level implied by the common rate (wage
chiselling) (Linder, 1990). This approach should speed up the restructuring
of the economy, through promoting not only closures of firms where these
are so unproductive that they cannot pay the going rate and stay in business
but also through incentivising technological investment and investment in
worker skills. This was the famous approach taken by Sweden under the
Rehn–Meidner model (Erixon, 2010) whereby common wage increases were
set according to productivity increases in the higher productivity export
sector so as to encourage the non-export sector to raise efficiency levels. In
Sweden it was comprehensive collective bargaining that provided the wage
setting mechanism to bring about this high wage strategy as Sweden is one
of the few OECD countries that does not have a legal minimum wage. The
French SMIC may be the closest to providing a common high minimum
wage applicable to all sectors but here the motivation for the high common
norm stemmed from a policy to reduce wage inequality and to cover living
costs following the May 1968 political protests (Gautié and Laroche, 2018)
rather than any specific economic restructuring or high productivity agenda.
While a high wage strategy to ensure a common rate, upgrade produc-
tivity and promote restructuring is one potential strategic approach to pay
setting, it is more common in practice for wage setting, particularly col-
lectively-bargained wages, to be segmented by sector, on the grounds that
productivity levels between sectors do vary and convergence through wage
policy can be at best partial. Consequently, in order for lower productiv-
ity sectors and firms to survive, either wage setting may be left to sector
or firm-specific collective bargaining or a national minimum wage may be
set at a lowish level to allow for collectively-bargained or manager-initiated
upgrades. Support for this approach could be said to come from evidence
that problems of compliance with legal minimum wages increase when min-
imum wages are set at higher levels (Rani et al., 2013). Segmented bargain-
ing by sector or firm has been argued to lead to wage inequality, supporting
the notion that trade unions favour insiders over outsiders and pursue
vested interests rather the sword of justice (Flanders, 1970). However, this
dichotomy can be overdrawn as pursuit of vested interests or wielding the
sword of justice are not either or strategies: for example trade unions may
have to develop areas of strength to provide the leverage to promote poli-
cies to improve the position of those not in these areas of strength (Rubery,
1978), for example by raising legal national minimum wages. In short, there
will be differences across contexts in how far trade unions use collective-
ly-bargained wages in order to increase, maintain or reduce segmentation
in wages by firm and sector.
Another set of arguments made in favour of a low minimum wage rate are
based on the belief that there are highly variable skills and productivity even
among the lower skilled workforce. Thus, lower minimum wage rates for
female- or youth-dominated sectors may be legitimised by beliefs that women
or young people have low productivity compared to men or adults. Now that
in most countries the specification of separate minimum wages for men and
women is neither legal nor acceptable, such beliefs instead might lead to the
maintenance of a low national minimum wage, targeted at the presumed
low productivity levels of women, with collective and individual bargain-
ing used to raise minima in more male-dominated sectors. The UK to some
extent fits this pattern as when it introduced the UK national minimum wage
(UKNMW) in 1999, the rate was pitched to mainly affect part-time workers,
most of them female (female part-time workers were estimated to be 55% of
the “beneficiaries” (LPC, 1998: 5)), with limited predicted impacts on full-
time workers (who only accounted for around 33% of the beneficiaries almost
equally split by gender). The rate was subsequently raised in real and relative
terms during the 2000s but the lack of collective bargaining in many parts of
the private sector has allowed the wages for full-time workers near the bottom
to be steadily “compressed” downwards towards the NMW over time.
When it comes to youth wages a relatively high share of countries do set a
lower minimum wage rate but although this might suggest a common belief
in lower productivity of young people, in practice the differentials are widely
variable, as are the actual wage gaps between young people’s and adult
wages (Grimshaw, 2013). This suggests that the discounts are not related to
any systematic assessment of actual productivity differences and are more
affected by political beliefs, social norms and the overall level of inequality.
Furthermore, the main causes of low pay may not always be either the
productivity levels of firms or the workforce, but the monopsonistic power
employers can exert over older, young, female or migrant workers. Low
wages for these groups may be used by employers to undercut competitors,
particularly if, in the absence of an effective minimum wage, they are able to
link wages not to productivity but to assumed costs of living needs. Women
and young people are vulnerable to low pay as it is assumed that they can be
subsidised by other family members, especially husbands and fathers (Webb
and Webb, 1897) while posted workers or migrants are assumed to have
different reference points for their expected standard of living (Recio, 2001).
Some of the very low wages recorded in Germany prior to its introduction
of a statutory minimum wage reflected both the presence of posted workers
and migrants and the spread of mini jobs among women workers due to
the high taxation married women face in regular work under the German
income tax splitting system. Thus, minimum wages can play a very impor-
tant role in creating more unified markets that do not reflect the different
social conditions and household arrangements of the labour force partic-
ipants. Minimum wages thus act to unify prices in markets that may be
segmented by a range of factors that shape availability for low wage work.
2.2 Minimum wages as living

Wages are the main source of support for living standards. The need to cover
living costs is a constant and important source of pressures from workers
for higher minimum wages, particularly in periods of inflation, and also
an important reference point in collective bargaining over pay. Recently
the notion that minimum wages should be “living wages” has been gaining
momentum in developed and developing countries. Living wage campaigns
were reignited in 1994 in the US city of Baltimore and have since spread to
more than 100 cities throughout the US since then (Levin-Waldman, 2009;
Luce, 2014; Swarts and Vasi, 2011), and a national union-led campaign has
developed in the UK (Wills, 2009). Some local authorities in the UK have
also been active in advocating and adopting living wages. These campaigns
for living wages in cities in the United States and elsewhere are notable for
their coalitions of community and trade union groups. There is the start of
campaigns for living wages across developing countries led by the ICTU- for
Africa, Asia -and for all workers in global supply chains in textiles through
the ACT initiative.
This linkage of minimum wages to living standards is in itself a key moti-
vation for establishing minimum wages to protect against poverty. The role
of “wages as living” is thus central to debates over both whether to have
minimum wages and over the level at which they should be set. However,
defining what is meant by a living wage is complex. As Anker (2011: 52)
notes “a silver-bullet methodology does not exist, nor will it ever exist”. The
notion of a living wage already requires consideration of methodologies for
setting poverty lines, including the issue whether it should be based on a bas-
ket of necessities or on some measure of relative earnings such as the 60%
of the median definition of low pay. The former raises the issue of whether
the cost of the basket should be calculated at a national level or locally,
particularly where housing costs vary. Some living wage calculations such
as the London living wage did until recently refer to the poverty line of 60
per cent of median earnings, but this was dropped when the median wage
declined during the financial crisis. The London living wage has now been
harmonised with the calculation of the UK living wage and focuses solely
on a “basket of goods” approach that is set in dialogue with workers and
families (D’Arcy and Finch, 2019).
Further issues include to what extent a single wage should cover depend-
ants: in practice the calculation of a living wage has variously been based
on the needs of; a worker; a worker and their spouse; and a worker with
up to three dependants (Bennett and Lister, 2010). This variation makes
it difficult to determine a minimum hourly wage rate (at any level) which
would guarantee a specified standard of living for such a heterogeneous set
of workers and family types, particularly in the absence of provisions for
minimum working hours over the week, month or year (Mutari and Figart,
2004). Living wage calculations also make allowance for the social wage but
this requires assumptions to be made in relation to workers’ awareness of
and willingness to claim all additional benefits to which they are entitled,
such as housing benefits and in-work tax credits among others (Linneker
and Wills, 2016; Swaffield et al., 2018).
Two cases drawn from the history of debates over fixing minimum
wage levels in France and the United States exemplify these problems.
In France the original minimum wage, the SMIG, was introduced in
1950 and explicitly tied to providing workers with a "normal life, decent
and fully human" (quoted in Gautié and Laroche, 2018: 3). However, by
indexing the SMIG to the consumer price index, the effect was to fix
standards of living at a point in time, so that low paid workers failed
to enjoy the access to higher standards of living through productivity
gains. After the May 1968 protests, the SMIG was replaced by the SMIC
and raised by more than one third. This time it was not only indexed to
consumer prices but also linked to the rise in average earnings to enable
all workers to benefit from general productivity increases in the wider
economy. This approach recognised the dynamic nature of living and
poverty standards.
The United States example illustrates the issue of gender relations in the
determination of wages as living. Interestingly, the first set of actions to try
to establish minimum wages during the 1900-1920 progressive period in the
United States were aimed at reducing sweated labour in parasitic industries;
the Webbs ( Webb and Webb 1897) had linked sweating to the opportu-
nity to employ women on low wages because of their position as household
dependants. The dual objective of reformers was to protect women (often in
unorganised sectors) who were seen as vulnerable and in special need of pro-
tection and also to prevent low wage competition in unionised sectors where
women might undermine “family” wages earned by men (Figart et al. 2002).
These movements also raised the issue of the appropriate concept
of “needs” for women; with Dorothy Douglas defining five possible
approaches from the “ultra-reactionary” pin money notion (where lower
wages for women were justified as they represented only a component of
overall household earnings to cover trivial expenses) to the “ultra-radical”
idea that women should be able to provide for their own dependants. In the
main the individual states that adopted minimum wages for women decided
on the principle that wages should be sufficient for independent living with-
out dependants, though the actual rates set often fell below that standard.
These experiments in minimum wages were ultimately deemed to conflict
with women’s freedom to contract. When the next move came to establish
a minimum wage in the United States it was under the New Deal, influ-
enced by the mass unemployment and poverty among men during the Great
Depression. This time the aim was thus to establish a minimum wage for
male breadwinners and the issue of the relative and absolute position of
women was side-lined as a policy consideration. Many female-dominated
sectors were de facto excluded as the federal minimum wage only applied to
those sectors where there was interstate commerce and areas such as domes-
tic work and much of retail work were only included gradually over time.
In practice, the problem of how to define living wages in a dynamic envi-
ronment and how to deal with gender and household differences in presumed
needs still remain. It is perhaps an irony that those opposed to minimum
wages on the grounds of interference with wages as a price have used the
ambiguous impact on living standards to further strengthen their oppo-
sition, arguing that minimum wages are an ineffective policy tool against
poverty (Neumark and Wascher, 2008). Most mainstream economists – and
increasingly the policy community – prefer to tackle low pay through wage
subsidies that vary with the size and composition of the household, but typi-
cally at a relatively low level so that it “pays” for people to be in work (rather
than solely reliant on state welfare) (Macpherson, 2004). This can create
a vicious circle where the solution to low wages in the short-term is wage
subsidies to make up the shortfall in incomes but these subsidies encourage
employers to pay low wages or offer short hours. Over time, the cost of cor-
recting for “market failure” through wage subsidies places a significant bur-
den on the state and this expenditure then becomes the target of cutbacks
as governments attempt to balance budgets even though the underlying low
wage dynamics remain unchanged.
In the recent recession there was a further issue of whether the minimum
wage should be maintained in real or relative terms. The outcome was in fact
mixed. For example, while between 2007 and 2013 in the US, Japan, Latvia,
Poland, and Slovenia minimum wages were frozen or uprated, slowly their
bite increased over this period as median wages fell further. In contrast, the
minimum wage bite fell over the same period in the Czech Republic, Spain,
Greece, Ireland and Turkey, partly reflecting the conditions of the “troika”
bailouts including a direct cut in the minimum wage in Greece of over 20%
in 2012, and in Ireland of 13% in 2011 (although it has since been increased
again) (Eurofound, 2016). Conversely, in Slovenia there was a deliberate
policy of raising the minimum wage by a fifth to protect against poverty
in the downturn (Grimshaw et al., 2016). France’s high minimum wage was
also protected by its indexation to consumer prices.
Overall, according to an ILO report the maintenance of real minimum
wages in the downturn was stronger than in the past:
“…evidence shows that, contrary to what happened in previous down-

turns, a large number of countries have raised their real minimum wages
or are considering improving their minimum wage fixing systems. This
is a recognition that minimum wages can serve as a social floor for wage
adjustments, a tool to fight against wage deflation, while maintaining
the consumption capacity of those at the bottom of the wage scale, thus
contributing to a quicker economic recovery.”
(ILO, 2009: 12)
It is also the case that many minimum wage policies worldwide can be argued
to have in practice reinforced women’s subordinate economic status in the
household by setting the minimum rate close to prevailing wages for women
in the labour market and well below adult subsistence levels. For example,
in the UK the NMW was pitched at a level where over 55% of beneficiaries
were female part-time workers whose hourly wage was clearly insufficient
for independent subsistence (LPC, 1998). In steadily adjusting the relative
value of the NMW upwards since 1999 (Brown, 2017), there has been some
attempt to move towards a wage compatible with subsistence even if these
adjustments have mainly been aimed at reducing the costs of state subsidies
to breadwinners through in-work tax credit systems. For example, the sharp
increase of the minimum wage in 2016 for workers aged over 25 (referred to
as the “national living wage”) was announced alongside further proposed
cuts to child and working tax credits.
However, it is in some respects testimony to how far the campaign for gen-
der equality has come in that at least the public debate has taken it as read that
women would receive the same minimum living wage as men. Furthermore,
in the early stages of gender equality policy the reference to living standards
would have been interpreted as a move to re-establish breadwinner claims for
higher pay and feminists would have opposed a living wage campaign. Now it
can be interpreted as potentially extremely positive for gender equality for, as
Orloff (1993) has noted, one of the key inequalities women face is not having
the resources to set up a family without a man as breadwinner. Although the
move to unisex campaigns for living wages as a minimum can be welcomed,
there can be some concerns that the linkage to living standards has not been
sufficiently thought through and the disadvantages as well as the advantages
considered. These problems have been identified by Bennett (2014) from a
general equality as well as a gender equality perspective. The wider general
equality concern is whether a living wage might encourage governments to
seek to cut the social wage on the grounds that labour market earnings should
provide sufficient resources. The gender equality concern is that a living wage
does nothing to revalue women’s skills and contributions and may also under-
mine differentials for women’s skills and experiences if the result is further
compression of differentials at the bottom of the labour market. We return to
the issue of compression below, but it is also important to consider the issue
of the social wage. A living wage cannot provide for all living standards needs
due to variation in these needs by type of household; it is in fact no more a
panacea than that of a universal basic income as both policies provide a uni-
form individualised level of support. Perhaps the main complement to a living
wage should be a basic income for children to increase the socialisation of the
costs of children. This, as argued for by Atkinson (2015), would contribute to
general equality while also taking the issue of resources for children outside
of the wage bargaining system and perhaps finally putting to bed the notion
of the need for a male family wage. Of course, such a solution depends both
on the existence of a strong welfare state and the counterpart, a fiscal system
capable of making employers and the high paid contribute to the costs of
socialising the social reproduction of children.
• Living wages may be acting as an important campaign to raise the over-

all level of minimum wages and to counter the still embedded gender
inequality in current levels of minimum wages. However, as wages need
to serve multiple functions, this is only one part of an equitable wage
policy, even in respect of minimum wages and may potentially cause
other problems if pursued to the neglect of other wage functions, as we
discuss further below.
2.3 Minimum wages as an instrument of redistribution

• Minimum wages are redistributional in intent (Freeman, 1996) though
the ambition may be limited:
• At best, an effective minimum wage will shift the earnings distribution
in favour of the low-paid and buttress the bottom tiers of the distribution
from erosion. At worst, minimum wages reduce the share of earnings
going to the low-paid by displacing many from employment. Neither
outcome is certain, so that enacting a minimum is a risky but poten-
tially “profitable” investment in redistribution. It is the balancing of risk
against gain that makes a minimum so controversial (Freeman, 1996).
• However, despite these cautionary words, there have been some key
examples where minimum wages have become active tools of redistri-
bution. These include the settlement after the May 68 events in France
that saw the minimum wage rise by over a third and a commitment to a
solidaristic wage policy built around the SMIC, and the pink tide pol-
icies of both raising minimum wage levels and formalising of employ-
ment in Latin American countries. A recent summary study found that
in Argentina there was a 7% drop in the Gini coefficient of income ine-
quality between 2003 and 2012 with minimum wages increases account-
ing for one third of the decline. Brazil recorded a 5% drop in its Gini
coefficient 2013–2011 with minimum wages increases accounting for
84% of the decline. However, in Uruguay the changes were more limited
and in Chile were not detectable (Amarante and Prado, 2017).
• In most cases, however, minimum wages are unlikely to provide a suf-
ficient tool to make dramatic changes to overall levels of inequality or
to offset significantly the decline in the wage share in national income.
Table 2.2 reports on an exercise commissioned by the peak level union
organisation in the UK the Trades Union Congress (TUC) (Lansley
and Reed, 2013) to calculate the impact of four complementary strat-
egies to reduce the wage share gap (that is the difference between the
wage share in 2011 and in 1980). This reveals that extending trade union
membership and collective bargaining would have the biggest impact
followed by reduced unemployment. Increasing the wage floor and
extending the coverage of the living wage would lead to modest aggre-
gate gains although these would be significant gains for the individuals
concerned.
The much greater returns, in terms of wage share, from extending collective
bargaining then raises the issue of whether legal minimum wages are sub-
stitutes for or a potential catalyst for collective bargaining and trade union
organisation. If they act as a substitute, legal minimum wages may have
long term negative impacts on both redistribution and power in the employ-
ment relationship but if they act as a catalyst, they may complement other
strategies to increase the wage share and bolster workers’ power within the
employment relationship. Most countries now have a minimum wage, with
recent estimates suggesting that around 90% of ILO member states now
have a minimum wage system in place (Belser and Rani, 2015), so the main
issues now are the exact form of the minimum wage and how it is used by
both employers and trade unions.
A key factor in the role of the minimum wage in promoting redistri-
bution is its level relative to median earnings or the “bite”, measured by
Table 2.2 The combined impact of four policy measures to reduce the UK wage
share gap (difference in wage share in 2011 compared to 1980)
Gross increase Percentage of wage Cumulative effect

to wages bill gap closed for each of combining the
for each item item alone policies
National Minimum Wage £1.0bn 1.2% 1.2%

increased to £6.60 per hour
Living Wage introduced for £3.2bn 3.9% 4.5%
50 percent of employees
currently paid below it
Extension of trade union £13.0bn 15.7% 20.2%
membership and collective
bargaining coverage
Reduced unemployment £4.1bn 4.9% 25.1%
Notes on calculating the combined impact – of 25.1 per cent – in the table, which
assumes:
• that half of the impact of increasing the National Minimum Wage from
£6.19 to £6.60 per hour is subsumed under the impact of introducing the
Living Wage for half of employees (because the living wage rates are higher
than the £7.19 per hour rate which would arise from increase in the National
Minimum Wage
• that the impact of increased collective bargaining is additive, on top of the
impact of the living wage
• that the impact of reduced unemployment is additive.
Source: Lansley and Reed (2013)
the Kaitz index. As Dingeldey et al. note (table 1.3 this volume) 21 out of 25

OECD countries have a minimum wage below 60% of the median wage and
for 12 the ratio is below 50%, the OECD’s relative poverty line. This should
in principle provide scope for collective bargaining to build on the mini-
mum wage to improve the returns to workers in national income.
However, that scope depends upon the strength of trade unions and col-
lective regulation and on organising strategies around the minimum wage.
In the UK, the decline in trade union power and collective bargaining
preceded the introduction of a national minimum wage and the NMW has
been widely used by employers not as a residual protection but as the going
rate in the low skilled sector. This could be argued to make reviving col-
lective bargaining more difficult. However, in some sectors, the right to the
minimum wage has become a major organising catalyst – for example for
workers in the gig economy who have been denied the minimum wage and
associated holiday entitlements (Dundon and Inversi, 2017). Likewise, in
Latin America the organising of domestic workers and the formalising of
their contracts was aimed at getting them access to minimum wage protec-
tion (Hobden, 2015a, b). Current campaigns to raise the minimum wage to a
living wage by trade unions at a national or international level may have the
capacity to revitalise organising movements.
Even where trade unions are relatively strongly established, there may be
valid concerns that minimum wages could lead to the erosion of collective
bargaining. The concerns of unions in Germany that the new national min-
imum wage might detract from collective bargaining led to the negotiation
of protective measures to ensure that social partners are involved in the
setting of the minimum wage rate, thereby embedding it within the wider
collective bargaining system (Bosch, 2018). Much therefore depends upon
the institutional and political context and whether the system of minimum
wages is designed to complement, extend, or erode the system of protections
established through collective bargaining.
2.4 Minimum wages and wages as a social practice

Wages signify the value placed on people, work and occupations: that is
wage is a social practice that confers a certain status including signifying
positions in organisational or social hierarches. These hierarchies may be
differently constituted across countries: for example, the division between
manual and non-manual work may be more hierarchical in some countries
or divisions by educational or training status may result in strong social
norms with respect to job status. These differences in status may often be
reinforced by wage setting structures where, for example white collar work-
ers or those with higher education have separate bargaining agreements
from blue collar. In some cases, these social practices are strongly embed-
ded in the institutions of wage setting (for example wage groups in Germany
and the points system in France) while in other cases they are more infor-
mal and variable by company or sectors. Wage systems may also reflect and
reinforce gender hierarchies; for example, in some counties such as the UK
and Finland bargaining groups may be divided as much on gender and skill
grounds (Rubery, 1998; Koskinen Sandberg, 2017). Indeed in a comparative
study of payment systems between Germany, UK and Italy, it was to be the
one that did not have lacked strong norms with respect to pay differentials
for either non manual compared to manual or higher skilled manual com-
pared to lower skilled manual work. The consequence was that the lowest
rate for non-manual, workers often fell below the lowest rate for manual
workers, reflecting gender rather than skill differences (Rubery, 1998).
In the period since the national minimum wage was introduced in the UK
there is evidence to suggest that the notion of wages signifying status and
skill within the bottom half of the labour market has been further eroded.
The risk is that minimum wages in a context of weak collective regulation
may become, instead of a wage floor or residual protection, the going rate
for particular occupations or sectors. That this was not the original inten-
tion – at least from the perspective of the Low Pay Commission which rec-
ommends the rates at which the NMW/NLW is set is made clear in the first
report where the LPC states that: “We are introducing a pay floor, not a pay
policy. A minimum wage should never be regarded as a ‘going rate’ for pay”
(LPC, 1998: 160).
In the UK there has however been a clear trend towards compression of
pay around the minimum wage, exacerbated by the recent introduction of
the national living wage. For example, while in 2007 around 13% of full-
time employees in lower skilled jobs were clustered around the NMW by
2016 the share had risen to 21% (ONS, 2018). The compression is even greater
for part-time workers with 32% clustered around the NMW/NLW in 2016.
However, much of the compression has in this period applied particularly to
men. The impact of these changes may have mixed impacts for gender equal-
ity; on the one hand the effect is to raise the value of some female-dominated
sectors and occupations relative to the overall median wage and relative to
some male-dominated occupations, thereby reducing gender inequality. On
the other hand, this has taken place through both a downgrading of men’s
jobs and a raising of the minimum wage but without any social revaluing of
the work done by women in relation to its significance for the economy and
society, its complexity and the skills required. A tendency to treat a large
swathe of jobs as simply “minimum wage jobs” may further intensify the
effects characterised by Sennett (1998) as “corrosion of character”, that is
reducing the meaning and status attached to jobs. This has already been
evident in parts of the female labour market where jobs are described simply
as part-time or in Germany as mini jobs – without reference to their content
and responsibilities.
Thus, while social practice may create and reinforce hierarchy and dis-
crimination it may also serve to develop identities in work associated with
the value of skills and a trade that may be being undermined for both sexes
by the homogenisation of the bottom part of the labour market. This may
be particularly the case when, as we discuss further below, opportunities for
progression within firms and sectors is declining, in part as firms remove
grading structures and pay progression in an effort to reduce the cost of
higher minimum wages.
2.5 Minimum wages and the role of wages

in managerial control
Wages also serve as one of the available management tools at the workplace
to influence the labour process and shape employee incentives. One reason
for managerial opposition both to a high minimum wage and to collectively-
bargained pay systems is not only because they may raise final labour costs
but because collectively-agreed structures and mandatory minima leave less
room for use of discretionary pay as a means of control.
This issue can be illustrated by reference to recorded impacts in both the
US and the UK of higher minimum wages. In the United States companies
have come under pressure to adopt the $15 minimum wage campaigned for
by combinations of trade unions and community activists. In the case of
Amazon, press reports confirm that when Amazon1 conceded to this pres-
sure it also immediately reduced or abolished stock options and monthly
incentives to staff. Likewise in the UK, following the mandatory intro-
duction of a higher minimum wage for those over 25, qualitative research
on employer responses the national living wage revealed a range of strat-
egies to reduce the costs, all of which removed or reduced the use of pay
as an incentive or control mechanism (LPC, 2018; NIESR, 2018). From the
NIESR research (2018:37) one employer in the holiday sector said they had
abandoned plans to move to a three grade structure to provide rewards for
experience as a motivator. Another employer representative for the food
processing industry pointed to the problem of squeezed differentials for
additional responsibility, saying that “People just aren’t willing to take that
added responsibility for what is pretty much like a 5p pay rise or something
like that.” (NIESR, 2018: 36). This indicates the extent to which employers
were allowing differentials to be narrowed as a consequence of the man-
datory higher pay. In another retailer, cited by the Low Pay Commission
(2018: 72), the organisation had reduced the number of grades in their retail
operations, apparently to retain differentials but presumably for fewer staff
and have removed paid breaks and some Sunday premiums, while retaining
bank holiday and night shift premiums.
High minimum wages may also constrain the opportunities for both
managers and trade unions to engage in sector or company level bargaining
that has a significant impact on actual pay levels for workers. For exam-
ple, a high minimum may reduce opportunities for so-called productivity
bargaining, where trade unions may be able to negotiate a pay increase in
return for changes in working practices as companies may be unwilling to
pay any significant premium above the minimum wage. This type of prob-
lem has also been found for a long time in France where the SMIC has been
set at a level that exceeds several of the lower pay grade points in a company
or sectoral agreement, leaving limited opportunities for pay progression or
for effective incentives. These problems are not inevitable but indicate the
unwillingness of employers in a context of weak collective regulation (here
including the US, France and the UK) to restore differentials for responsi-
bility or experience in low paying sectors. This may be because of lack of
opportunities to pass the costs on to clients or customers (for example in
social care) or because of resistance to greater redistribution either within
the overall workforce or in relation to profits.
Employers may be less concerned about using wage levels to motivate
staff if they perceive other options to be available such as variations in
hours. One motivation for employers to use zero hours contracts or variable
1 <https://www.bloomberg.com/news/articles/2018-10-03/amazon-eliminating-bonuses-
stock-awards-to-help-pay-for-raises>
hours on top of short guaranteed hours is the control it offers them with
respect to worker compliance. Evidence is being uncovered of widespread
variations in monthly earnings which is well beyond the numbers on zero
hours contracts. There is some indicative evidence to support the notion
that employers may be varying hours of work more in low paying jobs as a
Resolution Foundation study found that “Over 80 per cent of lower earners
(those with annual take-home pay of around £10,000 a year) with a steady job
have volatile pay, compared to two-thirds of those on higher earnings (with
take-home pay of around £35,000 a year)” (Tomlinson, 2018). Also, research
by IDS (2018) for the Low Pay Commission has found that, although more
firms only tend to employ a minority of staff on zero hours contracts, a
bigger problem is the use of minimum hours contracts that affect a larger
number of low paid staff. These offer short minimum guaranteed hours,
thereby establishing an employment relationship which may make it more
difficult to turn down work. Employers use these contracts as they can flex
people’s hours at very little notice even though in practice average hours
well exceeded minimum contracted hours.
2.6 Discussion and conclusion

Across both developed and developing countries, minimum wages have
been generally successful in raising pay for the lowest earning and most
vulnerable groups in the labour market without causing many of the job
displacement and substitution effects predicted by neoclassical economic
models. Statutory minimum wages are increasingly recognised as effective
mechanisms to prevent sweating and extreme exploitation and, far from
creating distortions in the market, serve to correct for differential bargain-
ing power between employers and employees that can lead to sub-optimal
outcomes in respect of allocating labour and sending signals to the market
(Rubery, 1997). Because differences in labour supply conditions can cause
distortions in the labour market if employers undercut each other through
low pay to groups such as young people or migrants, minimum wages can
serve both the functions of stabilising product markets (wages as price), and
supporting workers in meeting their living costs (wages as living). Minimum
wage can also prevent further erosion of the wage share, reduce embedded
forms of wage inequality, such as gender pay gaps and protecting workers
against the use of variable wages as management tool (provided there are
also controls on variable hours). Although minimum wages are yet to reach
the level of a living wage, they have assumed a far greater social role in
respect of promoting greater equality and preventing extremely low wages
(Figart et al., 2002). Nevertheless, mainstream economic thinking is still
a powerful force in policy making circles, and the fear of job losses and
the growth of informal employment has arguably held minimum wages “in
check” in many countries. This means that the bite of the minimum wage is
still relatively low in many countries and the modest rates of increase (even
after the crisis) mean that minimum wages in isolation have struggled to
prevent low living standards. They can be considered therefore a necessary
but far from sufficient wage setting mechanism that should be seen as sup-
portive of and far from a substitute for collective bargaining.
The spread of living wage campaigns in many developed and developing
countries points to the need to pay more attention to the social and redis-
tributive functions of minimum wages. This could be achieved through the
greater use of existing provisions under ILO convention 131 to regularly assess
worker needs relative to prices and movements in wages, and changing social
norms and expectations. Furthermore, by reframing minimum wage fixing
mechanisms as a platform rather than a substitute for social dialogue, mini-
mum wages can serve as a mechanism to strengthen movements to restore the
wage share. The establishment of relatively high minimum wages, reflecting
both living wage movements or indeed policies to realise the low wage tar-
get of minimum wages as 60% of median wages would provide a strong floor
to the labour market, on which collective bargaining should build to restore
differentials in the lower half of the labour market and to resist further down-
ward compression. Indeed, rather than considering the outcomes of minimum
wages in isolation, they need to be viewed as one part of an overall strategy
that seeks to promote greater labour market inclusion and redistributive social
policies in which social partners must, along with the state, play a key role.
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Part I
Actors’ strategies influencing

collective bargaining
and minimum wage
regulations at national level
in European countries
3 Securing wage floors in the absence
of a statutory minimum wage
Minimum wage regulations in
Scandinavia facing low-wage
competition
Kristin Alsos and Line Eldring
The Scandinavian countries have a long tradition of setting wage floors
through autonomous collective agreements. With high levels of collective
bargaining coverage, the collectively agreed wages have acted as an effective
substitute for statutory minimum wages (Chapter 1; see, also, Grimshaw
and Bosch, 2013). Moreover, despite decentralization of certain features
of bargaining in the 1980s and 1990s, the wage settlements remain highly
coordinated and have delivered compressed wage structures with rela-
tively high negotiated (industry level) minimum wages and a comparatively
small incidence of low-wage employment (Garnero et al., 2015; Svarstad
and Oldervoll, 2018). Overall, the combination of high bargaining coverage
and the normative effect of collectively agreed wages provided a high level
of institutional stability from the formative phase at the beginning of the
20th century up to EU enlargement in 2004. Since then, however, the rather
unique institutional system of low wage regulation has faced growing chal-
lenges and has had to adapt to ensure continued effectiveness.
A major aspect concerns the large inflows of migrant workers and service
providers from low-cost countries. The influx of Central and East European
migrant workers since 2004 represents an important historical juncture for
both actor strategies and regulatory outcomes in setting wage floors. In the
aftermath of EU enlargement, actors in the Scandinavian countries have
made use of different strategies in order to protect themselves or make use
of the expanded labour market (Afonso, 2012; Dølvik et al., 2018). Due to
amendments in migration law in 2008, the Swedish labour market has also
seen an increasing influx of third country nationals, coming from countries
outside the EU.
Strategies employed by social partners in such historical junctures can
be interpreted in light of their access to power resources (see Chapter 1).
This chapter examines how different kinds of power resources have left their
mark on the struggle over establishing or avoiding wage floors in sectors
affected by different kinds of external pressures due to migration. The cen-
tral question is, how have employer associations and trade unions within
these sectors acted to retain or challenge wage floors, and how are these
strategies linked to their power resources?
40 Kristin Alsos and Line Eldring
In order to investigate this question, the chapter compares Norway and
Sweden, which have significant contrasts concerning trade union strength.
In neither country have statutory minimum wages been part of trade union
low-wage strategies; this chapter analyses the reasons for that. The chapter
begins with an overview of the industrial relations systems in Norway and
Sweden, as well as in three selected sectors (manufacturing, construction
and hospitality), and sets out the main challenges. The chapter then focuses
on each country in turn and analyses the strategies applied by the social
partners. Importantly, the strategies of employer associations’ tend to differ
according to the sector. In general, sectoral characteristics in terms of prod-
uct markets, workforce and union density exert a crucial influence on indus-
trial relations and the regulation of wage floors, although research suggests
the sectoral effects are less marked in the Nordic countries than in other
European countries (Bechter et al., 2012; Dølvik et al., 2018). The chapter
concludes by summing up the findings and discussing how different power
resources can explain diverse outcomes.
3.1 Background – Wage setting the Scandinavian way

A basic rationale for collective bargaining has been to establish a common
wage floor, in order to prevent competition underbidding this minimum. In
the Nordic countries this has been done through multi-employer bargaining
at central or industry level. In Visser’s (2009) typology of industrial relations
regimes, the Nordic countries are grouped together as “organized corporat-
ism”. Strong social partners, high bargaining coverage and highly coordi-
nated wage formation, underpinned by a universal welfare model, have led to
low wage disparity and low levels of working poor. However, this aggregated,
national level picture tends to obscure national and sectoral differences.
The high union density in Sweden is often explained by the Ghent sys-
tem, in which trade unions are responsible for administering unemployment
benefits (Kjellberg, 2009). This is not the case in Norway, however, where
all welfare benefits are the responsibility of the state. Furthermore, Swedish
employers that are members of an employers’ association are de facto bound
by the collective agreements signed by this organization. In Norway, employ-
ers’ membership does not have this automatic effect resulting in lower level
of collective bargaining coverage. Trade unions in Norway need to put for-
ward a specific demand for a collective agreement and need to demonstrate
that the company meets the minimum threshold of union density (usually
10 per cent). If the conditions are met, the employer is obliged to accept the
demand. Also, unlike Sweden, Norwegian trade unions are not able to take
industrial action against companies that are not members of an employer
organization and where there are no union members.
Sectoral differences are important in both countries and are therefore
analysed throughout this chapter with respect to three important sectors:
Manufacturing, where metalworking is dominant in Sweden and shipbuilding
Securing wage floors in the absence of a statutory minimum wage 41
Table 3.1 Union density and collective bargaining coverage for blue-collar workers
in manufacturing, construction and hospitality in Norway (2016 and 2017)
and Sweden (2017 and 2018)
Union density Bargaining coverage
Private Private
sector Manufacturing Construction Hospitality sector Manufacturing Construction Hospitality
Norway 34 53 27 19 43 (64)a 73 (77)a 36 (83)a 28 (100)a

Sweden 57 73 63 31 83 NA NA NA
Notes
a Numbers in brackets include those covered by legal extension of collectively agreed minimum
wages;
Sources: Norway: Calculations done by Kristine Nergaard for this chapter. Sweden: Kjellberg
(2018)1 and Arbetsmarknadsekonomiska rådet (2018).
in Norway, construction and hospitality (hotels, restaurants and catering).

This allows for comparison of the most prominent differences in industrial
relations between manufacturing, construction and private services (see
Table 3.1). Manufacturing has been the stronghold of the Nordic industrial
relations regimes; it has a high level of unionization, high collective bargain-
ing coverage, employs skilled workers and is influential in framing minimum
wage policy developments. Construction has traditionally enjoyed a similar
industrial relations profile. By contrast, the hospitality sector (emblematic
of private services) is more similar to that found in other industrial relations
regimes; it has low union density, low bargaining coverage and a mainly low
skilled workforce. In both countries, Table 3.1 reveals major sectoral differ-
ences in union density. However, with respect to bargaining coverage, the
variation is larger between the two countries than between the sectors due to
the stronger encompassing rules applied in Sweden.
The three sectors are also illustrative of distinctive strategies that respond
to different market situations. Manufacturing is exposed to international
competition and strategies include the relocation of production, managing
cross-border flows of labour and sub-contracting work to foreign service
providers posting workers to other countries. Even though less affected by
international competition, the construction sector is sensitive to cyclical
changes. Since 2004 there has been a massive recruitment of migrant work-
ers, in particular, from Poland and Lithuania, many of them employed in
non-unionised companies not covered by collective agreements. An increase
of cross-border provision of services since EU-enlargement has also con-
tributed to the intensified low-wage competition in the sector. The hospital-
ity sector is part of the more sheltered domestic economy (albeit subject to
important global tourism market pressures) and until now sub-contracting
1 http://portal.research.lu.se/portal/files/39207508/Kollektivavtalst_ckning_samt_organi-
sationsgrad_2018_LUP.pdf
work across borders has not been common. Instead, employment strategies
must address challenges of incorporating low skilled migrants, problems of
wage dumping and gaps in collective bargaining coverage.
As small, open economies, the Scandinavian countries have relied on
maintaining leadership in key sectors in international competition. This
has been underpinned by an approach towards wage formation since the
1960s based on a macroeconomic model that assumes those sectors exposed
to international competition (especially manufacturing) must sustain
higher productivity growth than comparable countries to support higher
wage growth. Furthermore, in order to avoid distortions of labour market
competition, wage growth in the more sheltered sectors (private and pub-
lic services) must be in line with manufacturing. In order to achieve this,
coordination of wage growth is crucial. Until the 1980s and 1990s this was
secured through cross-industry bargaining at confederation level. However,
a period of high inflation and wage growth during the 1980s and 1990s led
all countries to adjust their systems towards more decentralised bargaining
(Traxler, 1996; Due et al., 1993). Despite this trend, collective bargaining is
still highly coordinated in the Scandinavian countries compared to others.
Coordination takes place both horizontally across sectors and vertically from
national through sector to company level (Nergaard et al., 2016). Horizontal
coordination is secured through different mechanisms in the different coun-
tries, but tripartite agreements, mediation and high-quality wage statistics are
all important elements (Nergaard et al., 2016). Sector-level bargaining adjusts
minimum or normal wage rates in collective agreements, and the parties usu-
ally agree on wage increases as well. Additionally, in collectively agreed min-
imum wage areas, the sector bargaining round is succeeded by company-level
bargaining under non-strike clauses, either to agree on further wage increases,
or in order to divide a wage pot agreed on in the industry bargaining round.
Company-level bargaining is conducted by management and local trade union
representatives who are elected by union members in the company, an institu-
tion based in the collective agreements. How vertical coordination, securing
that company-level bargaining does not exceed the norm for each sector, is
conducted, is more of a black box, but signals from employer organizations to
their members are seen to play an important role (Andersen, 2012).
A further very important characteristic of the Scandinavian macroeco-
nomic model is its capacity to share productivity gains across tradeable and
non-tradeable sectors, thereby lifting low-paid employees in services sec-
tors especially. Industrial relations and market strategy differences indicate
great variation in structural and institutional powers between trade unions
in manufacturing, construction and hospitality sectors. By having the manu-
facturing sector set a norm that, as part of the horizontal coordination, should
be followed by bargaining parties in other sectors, trade unions with weak
bargaining power are able to obtain wage increases for their members in line
with other sectors (Alsos et al., 2019). Through coordination, the Scandinavian
countries have been quite successful in order to produce coordinate wage
Figure 3.1 Wage disparity in Germany, Norway and Sweden, 2000 to 2015 (decile
ratios of gross earnings).
growth, with relatively high negotiated minimum wages and a compressed

wage structure. Wage disparity in Norway and Sweden, compared to Germany,
selected as a relevant European point of comparison is shown in Figure 3.1.
The figure indicates that wage disparity in Germany, between the high-
est earners (decile 9) and the lowest earners (decile 1) is significantly wider
than in Norway and Sweden. However, wage differences are increasing in
Norway, driven by widening inequality at the low wage end of the labour
market, while remaining remarkably stable in Sweden.
In both Norway and Sweden, most sector-level collective agreements are
minimum wage agreements, which allow wages to be higher than the collec-
tively agreed rates. However, while wage bargaining in manufacturing and
construction takes place both at sector level and at company level, this is not
always the case in the hospitality sector.
In hospitality, collective agreements in both countries bear more resem-
blance with so-called normal wage agreements. These are agreements in
which wages are fully fixed at a national, centralised level, and where com-
pany-level bargaining does not take place. Indeed, in Norway, employers
in the hospitality sector tend to refuse company level negotiations. This is
met by union demands for higher wage increases at a centralised sector level
in order to compensate for the absence of local bargaining. To illustrate
the difference, in Norway the 2018 minimum wage rate for an unskilled
worker in the Industry Agreement (covering metal work) was 14.8 Euro
(160.10 NOK), compared to 15 Euro (161.87 NOK) per hour in the Hotels
and Restaurants Agreement. However, looking at average actual hourly
earnings in the two sectors, hospitality workers earn considerably less than
manufacturing workers.
Nevertheless, the overall picture demonstrates that due to the compressed
wage structure in Norway and Sweden, minimum wages in collective agree-
ments are relatively high in all sectors compared to the national average.
Comparisons between collectively agreed minimum wages and average
wages show that minimum wages in sectors like hospitality, construc-
tion, retail and cleaning are all above 60 per cent of national average pay
in Norway and Sweden (Swedish construction sector excepted) (Svarstad
and Oldervoll, 2018; Alsos et al., 2019).2 In Sweden less than 1 per cent of
employees had a wage that was lower than 60 per cent of median pay in 2018
(Hällberg and Kjellström, 2020).
3.2 Pressures from above and below

Several factors have put pressure on the existing system of collectively
agreed minimum wages in the Scandinavian countries since the begin-
ning of this millennium. Structural changes, such as external shocks, will
produce different outcomes based on the national system they are filtered
through (Bosch, 2015). Outcomes will depend on the strategies employed
by different actors. The following discussion reviews factors that have
challenged existing systems in Scandinavia, before examining outcomes in
Norway and Sweden.
When labour markets are expanded, either by extension of their bound-
aries or by removing barriers to labour migration, national wage floors can
become subject to erosion, and effective coverage of collective agreement
tends to shrink (Commons, 1909). From a more or less stable situation
when it comes to establishing and adjusting wage floors in the beginning of
the 2000s, the EU enlargements in 2004 and 2007 led to a situation where
member states and social partners had to adjust to a new situation. High
inflows of labour migrants and service providers from low-cost countries in
Eastern Europe, in combination with altered strategies from Scandinavian
end users, have challenged the Nordic way of establishing wage floors.
The existing labour market regimes in these countries have been subject
to pressure both from above, through EU regulations (binding on the EU
member states Sweden, as well as Norway through the European Economic
Area (EEA) agreement), and from below through low-wage competition
(Arnholtz and Andersen, 2018). Pressure from above has not so much been
2 Minimum wages level compared to national average pay. Hospitality: NO: 67, SE: 66,
Construction, NO: 67, SE: 58, Retail: NO: 61, SE: 64, Cleaning: NO: 67, SE: 68
directly related to new EU legislation, but to the interpretations by the
European Court of Justice, especially following the Laval quartet rulings
(Dølvik et al., 2014). This forced Sweden (as well as Denmark) to adjust its
models to fit into the boundaries of the Posting of Workers Directive. The
Laval quartet had less immediate effect on the Norwegian system that due
to pressure from below had evoked its legislation for extending collective
agreements (Alsos and Eldring, 2008).
The EU enlargements have affected manufacturing, construction and
hospitality in different ways. Employers in manufacturing have exploited
the eased access to cheap labour and production costs resulting from the
extension of the EU and EEA boundaries (Müller et al., 2018). This has
been done through a number of strategies involving offshoring as well as
large-scale use of Eastern European labour. Construction has also made
use of cross-country labour mobility. This has led to high inflows of foreign
labour through individual migration and posting (Arnholtz et al., 2018).
This contrasts with the hospitality sector, where labour migrants also have
been used, but more so through recruitment of individual employees both
within the single market and from third countries (in Sweden).
Another challenging factor has been the increased use of temporary
agency work in some sectors. Temporary agency work is regulated differ-
ently in the two countries. In Sweden, agencies are covered by collective
agreements and the principle of equal pay, while in Norway the bargaining
coverage in the sector is extremely low, although new equal pay rules are
now in place following the transposition of the EU directive on temporary
agency work in 2013 (Alsos and Evans, 2018). Using temporary workers,
alongside other strategies such as sub-contracting and offshoring, has been
one strategy for employers in manufacturing and construction to reduce
labour costs and thereby challenging established wage floors (Alsos and
Ødegård, 2019).
The next section examines how these pressures from above and below
have affected wage floors in Norway and Sweden, and whether manufactur-
ing, construction and hospitality have been affected differently. The analysis
includes a focus on the strategic decisions made by both employers’ associ-
ations and trade unions, and how these strategies in combination with state
interventions have led to institutional change in wage-setting.
3.3 Sweden – Successful autonomy?

Sweden has the best prerequisites for establishing and upholding col-
lectively agreed wage floors. As indicated above, high bargaining cover-
age, even in the private service sector, still exist and grants institutional
power to trade unions so that collective regulation of wage floors has
been effective. One of the reasons for the high bargaining coverage is
of course, the sustained high rate of unionization – or organizational
power resources – owing in part to the Ghent system. However, since
the changes introduced by the Swedish centre-right government in 2007,
whereby state support for the Ghent system was reduced, leading to
raised fees for members, the unionization rate has dropped (Kjellberg,
2009). Nevertheless, it is still among the highest in Europe and the bar-
gaining coverage has remained stable.
This can be explained by two institutional factors. First, unlike Norway,
members of employer organizations, are bound by the collective agreements
the organization is part of. Secondly, companies that are not members of an
employer organization, or companies where the employees are not members
of any trade unions, can still be bound by a collective agreement. If the
trade union lacks members in a firm, the trade union can boycott the com-
pany, for instance by having members in other companies refuse to deliver
goods to the firm. This is an effective way of forcing a company to enter into
a collective agreement and even though this is regularly used, the threat
seems to be more important than the actual action. In 2013, strikes or
boycotts were notified against 27 companies, but action was only taken in
7 cases (SOU, 2015: 83).
The system of taking industrial action to establish collective agreements
was the core of the Laval case.3 If the company is a member of an employer
organization, the industry-wide agreement will be applied. Non-member
companies can enter into an agreement that reflects the industry-wide agree-
ment (referred to as hängavtal). As this substitute agreement mirrors the
collective agreement, its benefits are conferred to the employees of non-affil-
iated employers. This system is considered as crucial in explaining how the
Swedish system is able to secure a solid wage floor, including in small- and
medium-sized companies that tend not to be members of the employer organ-
izations (Andersson and Thörnqvist, 2007, with further references). In 2017
there were more than 75,000 hängavtal, covering 215,000 blue-collar work-
ers, and an unknown number of white-collar workers (Medlingsinstitutet,
2018). The construction union Byggnadsarbeterförbundet signed more
than 1,000 of the 4,800 new agreements entered into in 2018, indicating
the special relevance of the hängavtal practice in construction. The trade
unions for hotels and restaurants, along with IF Metall, signed 437 and 315,
respectively, thereby being the blue-collar unions with most hängavtal after
Byggnadsarbeterförbundet (ibid.).
3.3.1 Construction sector: Trade unions reluctant to change

strategies following the Laval case
In the aftermath of the Laval case, the Swedes were forced to alter the sys-
tem for governing the wage and working conditions of posted workers.
In the first phase this was done through lex laval. This amendment of the
3 EU court judgement C-341/05 Laval un Partneri Ltd v Svenska Byggnaddsarbetareförbundet

Posting Act (utstationeringslagen) laid down that industrial action against a
cross-border service provider could not be undertaken if the employer could
justify that the employees did have wages and working conditions in line
with the collective agreements. Furthermore, the justification did not have
to cover the full set of regulations in the agreement, but only the hard core
as regulated by the EU posting of workers’ directive. If the foreign service
provider claimed that this condition was fulfilled, trade unions were not
allowed to use their traditional means, to force a collective agreement upon
the company.
The lex laval did not move away from the fact that foreign service provid-
ers had to respect the wage floor set by the bargaining parties at industry
level; in this sense, it can be interpreted as reinforcing the Swedish model.
However, trade unions were not satisfied as this solution made it impossi-
ble for trade unions to enforce the wage floor. As enforcement according
to the Swedish model is the domain of trade unions and not the state, the
problem with lex laval is that it meant no one had access to the foreign ser-
vice providers in order to check whether wages and working conditions of
posted workers were in accordance with what the service provider claimed
(Ødegård and Eldring, 2016; SOU, 2015: 83) Therefore, in order to avoid ser-
vice providers circumventing lex laval, trade unions argued they still needed
to be able to force the employers to sign an agreement committing them to
minimum conditions, and giving the unions power to enforce collectively
agreed minimum wages.4
The main strategies of the Swedish trade unions were to make foreign
companies sign hängavtal mirroring the industry-level agreements of their
free will and did not want to make the enforcement of minimum condi-
tions the main rule. An indication of this can be found in their reluctance
to provide information on sectoral collectively agreed minimum wage rates.
According to the Posting Act (9a §), trade unions were obliged to provide the
Labour Inspectorate (Arbetsmiljöverket) with a minimum version of the col-
lective agreement that was to be used by posting companies, but few unions
complied with this. The construction union Byggnadsarbeterförbundet
decided not to, as they did not want to ‘disturb the market’ by making
agreed minimum wages well known.5 In other words, they feared that min-
imum rates fixed in the collective agreement would become the standard
wage. Up until then actual wages paid at company level were usually far
above the minimum rates.
This argument is in line with arguments put forward by Norwegian trade
unions arguing against a statutory minimum wage. However, whereas the
Norwegian unions have accepted the collectively agreed minimum wage to
become the going rate for foreign service providers, Swedish trade unions
4 http://www.arbeidslivinorden.org/nyheter/nyheter-2017/article.2017-02-28.9405045719
5 http://arbetsratt.juridicum.su.se/euarb/11-3/06.asp
still want the full regulations of the collective agreement to apply. Different
unions have developed different strategies in this regard. While the con-
struction unions are based in an industry competing in a national market,
the manufacturing union IF Metall has taken a different stance.
3.3.2 Manufacturing sector: Unions negotiate a separate collective

agreement for posted workers
The IF Metall union was the first union to draft a posting collective agree-
ment that could be used as a minimum agreement for foreign service pro-
viders in 2010. The collective agreement given to the Labour Inspectorate
did have higher minimum wages compared to the agreement it was based
on. The reason for this is that other conditions in the underlying agreement,
such as working time reduction and additional payments for different kind
of work was integrated into the minimum wage, making it 2.5 per cent
higher than the rates in the underlying agreement.6
The IF Metall union seems to be in favour of the posting agreement and
does enter into agreements with employers that force service providers to
sign the posting agreement in order to get a contract for work in Sweden. In
2013, IF Metall nationwide signed between 25 and 50 posting agreements.7
Even though the union found this system to work quite well, they would
prefer a different system. They claim that foreign workers still make about
65–70 per cent of Swedish wages, even though different supplements are now
included in the minimum wage.
The question is why IF Metall has chosen this strategy, while other trade
unions hardly sign any such agreements. According to other trade unions
affiliated to LO, many of them hardly experience any problems related to
encouraging foreign service providers to sign the full agreement (LO, 2013).
One explanation that is put forward by LO is that signing an agreement is
often required by the company contracting out the work, either because the
company find this reasonable or to maintain a good relation with the local
trade union (LO, 2013).
One might argue that this different approach is related to access to power
resources, where the parties in manufacturing have a common interest in
keeping labour costs low in order to win in the international competition.
The industry partners in construction on the other hand, operating in a
different product market, could be more interested in protecting themselves
from low-wage competition. However, another explanation might be more
prevalent. Since 1975 IF Metall has signed collective agreements with
companies posting workers to Sweden as part of short-term assignments.
6 http://arbetsratt.juridicum.su.se/euarb/10-4/10.asp
7 https://arbetet.se/2013/01/18/facken-vagrar-banta-avtal/ and SOU (2015:83 p. 211)
These agreements have been different from the industry-wide agreement
and have laid the basis for the posting agreement that is used in EU posting
situations (LO, 2013).
Problems related to posting do not seem to be severe enough to challenge
the wage floor within manufacturing, both because most companies actu-
ally sign a full collective agreement and those which do not still adhere to a
stripped-down posting agreement. Furthermore, even though manufacturing
companies make use of temporary agency workers, this seems to have less
effect on the wage level, as these are covered by collective agreements ensuring
equal treatment (Alsos and Evans, 2018; Håkansson and Isidorsson, 2015).
From June 2017 the posting act was amended, allowing trade unions to
make use of industrial action in order to force service providers to sign a
posting collective agreement. Thereafter trade unions have had a possibility
to get into a position where they can enforce a posting agreement on com-
panies that are reluctant to sign agreements or to comply with those already
signed. This further strengthens the ability to secure the collectively agreed
wage floor – and trade unions’ power position in general.
3.3.3 Hospitality sector: Charting a different trajectory

The Hotel and Restaurant Union was hit hard by the changes in the Ghent
system in 2007 and lost one third of its members in 2007 and 2008 (Kjellberg,
2009). This decline added to an ongoing trend. During the last 20 years,
the number of members has been cut in half, and the decline in hospitality
has been the highest of all industries in Sweden (Kjellberg, 2000; Kjellberg,
2017). Still, the industry has upheld a high bargaining coverage.
Even though the coordinated bargaining model leads to fairly similar
wage increases across sectors, the hospitality sector wage increases of 2.1
per cent on annual average has been in the lower end during the period
2009–2017 (Medlingsinstitutet, 2019), while in the norm setting manufactur-
ing industry it was 2.6 per cent.
While manufacturing companies have a number of different strategies to
use in order to reduce labour costs, this is not the case for hotel and restau-
rants. This might explain why employers in the hospitality sector have used
other strategies in order to keep the wage floor down. The main employer
organization, Visita, has argued that starting wages in the industry are too
high, and that there is a need for higher wage disparity within the sector
in order for the employer to be able to reward skills, and at the same time
make it possible for people outside the labour market to enter work.8 This
is despite the fact that blue-collar workers’ pay within the sector is in the
low end of the national wage distribution when looking at monthly average
income (€2275, SEK 23,800 in 2017 – LO, 2018).
8 http://www.visita.se/omvisita/press/nyheter/visita-och-hrf-har-tecknat-avtal-pa-market/
The argument by Visita can be seen as a reaction towards the agreement
made within the manufacturing industry in the bargaining round in 2017,
where there was an agreement on lifting low-wage earners (those earn-
ing less than SEK 24,000 a month). Beside increasing minimum wages
in the agreement with approx. 2 per cent, branches or companies with
employees earning less than SEK 24,000 were given a larger wage pot to
distribute than those without low pay earners. However, the bargaining
partners disagreed on whether the low wage measures were to come on
top of the norm or was part of the 6.5 per cent 3 years’ settlement. The
interpretation of the norm set by the front running manufacturing sector
was of great importance for the hospitality sector where many employees
had wages below the benchmark on SEK 24,000. A blue print of the low
wage measures would mean a settlement far above the 6.5 per cent norm,
and compressing the wage distribution within the sector further. In the
end an agreement increasing minimum wages with approx. 2.5 per cent
and including the same low wage measure as in the manufacturing indus-
try was made. Vista claimed the total settlement to be within the 6.5 per
cent norm in the frontrunner industries (Medlingsinstitutet 2018). Wage
statistics from 2017 to 2019 show that blue-collar workers in hospitality
had an average annual increase of 2.1 per cent, compared to 2.4 per cent
in manufacturing.9
The 2017 wage negotiation is an example of how the strong coordination
makes it possible to lift low wage services sectors despite decreasing union
density and low organizational power resources on the union side, and how
employers in the private service sector are affected by settlements made by
the manufacturing employers that might leave a very different footprint.
However, as the parties in a bargaining area decide how the norm should be
transposed into their area, low power resources and different priorities may
lead to different results in different bargaining areas.
While EU enlargement and posting seem to be of less relevance for the
hospitality sector, amendments in the Swedish immigration law seem to
have had greater indirect effect on the wage floor. In 2008 the immigration
act was amended in order to make it easier for companies in industries with
a shortage of labour to recruit employees from third countries. The act was
not limited to these industries, and many migrants came to work in low-
skilled jobs in the private service sector, even in industries with a surplus
of available workers, like cleaning and the hospitality sector. The restau-
rant sector alone had above 10,000 work permits from 2009–2015 (Frödin
and Kjellberg, 2017: 86). Some of these were granted to asylum-seekers, who
used this opportunity to stay in Sweden despite their asylum application
having been turned down, and some had been students in Swedish institu-
tions (Frödin and Kjellberg, 2015, 2017). A calculation based on permissions
9 https://www.mi.se/lon-loneutveckling/konjukturslonestatistik/
given in 2012 showed that less than 60 per cent entered the country as labour
migrants (Frödin and Kjellberg, 2018).
In a survey conducted among hotels and restaurants in the Stockholm
region, around two in five companies (42 per cent) that had made use of the
amended immigration law were covered by a collective agreement (ibid.).
In a majority of the companies, there existed no legally binding wage floor.
According to the immigration act, employers may recruit employees from
third countries as soon as the job opening is announced and that hiring is
done on terms equal to those laid down in industry level collective agree-
ments. The state institution, The Migration Agency, must decide whether
employers comply with this. The act further requires the trade union in the
relevant industry to assess the conditions, and to recommend or dissuade
the application.10 In this process the Hotel and Restaurant Union has the
right to examine whether the conditions in the offers of employment are at
least in level with the industry-wide collective agreement.11 This practice
gives the union strong institutional powers to uphold the collectively agreed
wage floor in situations where workers migrate from low-cost countries.
According to Frödin and Kjellberg (2017), however, the Migration Agency
accepts a large number of applications that have not been accepted by the
unions. The reason for these permissions not to be recommended by the
union is related to other reasons that the Migration Agency is allowed to
consider (ibid).
This does not mean that these workers actually obtain the conditions they
are promised. Labour migration in many industries is associated with prob-
lems of sham contracts. Controls made by the hospitality sector union in
2011 revealed that in 61 out of 64 workplaces they visited, each with employ-
ees from third countries, the wages paid were below the collectively agreed
minimum (Hotell- och restaurangfacket, 201212). Different calculations
show that employees entering the Swedish labour market through a permis-
sion after the 2008 amendment had wages that were lower than for all other
employees, in all sectors, including in the restaurant sector (OECD, 2011;
Emilsson et al., 2014). In 2012 the regulation was tightened, and in order to
apply for a work permit, the demand for documentation on actual wages
was strengthened.13
Tightening of rules seems to have made employers seek out other strate-
gies in order to reduce wage costs. The number of jobs with wage subsidies,
as well as jobs defined in the bipartite agreement on probationary wage
levels for refugees, has increased since 2011 (Frödin and Kjellberg, 2018).
10 5 kap. 7 a § utlänningsförordning
11 https://vr m.lr v.lt/uploads/vr m /documents/f iles/LT_versija/Svarbi_infor macija/
Vykdomi_projektai/PublicationReportsFINAL.pdf#page=171
12 http://mb.cision.com/Main/255/9277703/25619.pdf
13 https://onlinelibrary.wiley.com/doi/pdf/10.1111/irj.12126
This is another indication of how employers within domestic-based indus-
tries have limited options to reduce labour costs, and therefore seek out
other solutions in order to keep costs down.
3.4 Norway – Stepping away from the traditional model

In the first few years after EU enlargement in 2004, Norway received more
migrant labour from the accession countries than all the other Nordic coun-
tries combined (Dølvik and Eldring, 2008). The influx was to a large extent
demand driven as the economy was booming. While around 8,000 citi-
zens from the Central- and Eastern European countries that later became
EU-members were registered living in Norway in 2003, the number was
close to 200,000 in 2019. In addition, at least 30,000–40,000 short-term and
posted workers are registered each year (Berge, 2021). The labour migrants
have over the years found employment in a wide range of sectors but are still
highly overrepresented in construction, ship-building, cleaning and hospi-
tality, the focus of this section.
Shipbuilding is in the core of the Norwegian metal sector and can be
characterised as the hub of the pattern bargaining model. Trade union den-
sity and collective bargaining coverage have been high and combined with
forceful local bargaining the trade unions and their members have achieved
strong influence and solid wages.
In ship-building, which constitutes the core of the Norwegian metal
industry, every fourth worker is now a foreigner, mostly from Eastern
Europe (Müller et al., 2018). In addition, an unknown, but most likely
high, number of these labour migrants are employed in domestic or for-
eign temporary work agencies. In hospitality, the share of foreign workers
has grown from 33 per cent in 2008 to 55 per cent in 2019. Most of the
growth is due to recruitment of workers from the East. Construction has
also been highly affected by EU enlargement. In 2019, 40 per cent of the
construction workers were of foreign origin, most of them being labour
migrants and posted workers from Poland and the Baltic states (Jordfald,
2020). These workers are even more dominant among temporary agency
workers in construction that constitute a large proportion of the work-
force in the sector. Estimates show that between 14 and 18 per cent of
workers in the construction industry in the capital area and between 8 and
11 per cent in rest of the country were hired from a temporary work agency
(Nergaard, 2017).
In hospitality, the industrial relations situation has been, and still is,
almost the opposite of the situation in ship-building. Unions are weak,
particularly in the restaurants where the majority of the workers are not
covered by an industry-wide collective agreement (Trygstad et al., 2014). In
spite of this, the collective agreement has traditionally had a certain nor-
mative effect on the minimum wage paid by companies in the sector; the
evidence suggests the majority of companies used to pay at or close to the
minimum wage collective agreed in the sectoral agreement. By contrast in
shipbuilding and construction, the sectoral agreement’s minimum rates set
an initial benchmark against which unions negotiate higher rates through
local bargaining. Overall in Norway, while all three sectors experienced a
rise in the incidence of low wage work after 2004, each responded differently
and at a different pace.
3.4.1 Enforcing minimum wage floors through extension

When joining the EEA agreement in 1994 Norway became fully integrated
into EU’s internal market. In 1993, the Norwegian parliament adopted a
new law on general application of collective agreements, motivated by the
substantial differences in wage levels within the EEA/EU and the absence of
a statutory minimum wage in Norway. The act came as a result of the coop-
eration between the social democrat government and LO. The majority of
European countries have mechanisms for legal extension of collective agree-
ments, but only a few countries use it frequently (Schulten et al., 2015). The
Norwegian system differs from most others (but is similar to the German
AEntG), with the explicit purpose of the act being to protect foreign work-
ers from wage dumping and to facilitate fair competition among companies
operating in Norway. The precondition for enforcing an extension is that it
is documented that foreign workers work under conditions that are gener-
ally inferior to the norms stipulated by nationwide collective agreements for
the relevant occupation or industry, or to the general conditions prevailing
in the relevant location or trade. The decision to accept applications for
extensions is made by the Tariff Board (Tariffnemnda), which is appointed
by the government. The board consists of five members; three neutral mem-
bers, one from the employers and one from the unions. However, during
the first 10 years, the board did not receive any applications for extensions.
The expected influx of foreign workers failed to materialise, and the act
was dormant and more or less forgotten until EU enlargement in May 2004
(Alsos and Eldring, 2008; Schulten et al., 2015).
The trade unions have had ambiguous views on the legal extension of
agreements, fearing that it would exacerbate the free-rider problem and
even more that it would interfere with the strong principle of autonomous
collective bargaining. The numerous reports on wage dumping following
the inflow of low-paid workers from the accession countries, made in par-
ticular Fellesforbundet, the largest private sector union, change its strategy,
with other unions following in the coming years. As of today, parts of nine
nation-wide collective agreements are legally extended; in construction,
shipbuilding, agriculture, cleaning, fish processing, electrical work, bus
transport, road transport and hospitality. These sectors stand out when it
comes to recruitment of labour migrants, which means that a considera-
ble proportion of potentially vulnerable workers not covered by collective
agreements now have a safety net through the legal extension of minimum
wage rates. Significantly, only very few of the provisions in the collective
agreements have been extended, and mainly those relating to minimum
wage rates.
3.4.2 Shipyards: A war on extension

One could expect that those sectors where trade unions (or bargaining
resources) are relatively weak would be quick to demand their agreements
to be legally extended in order to compensate for low coverage of collective
agreements. This has not been the case. In fact, the Industry Agreement,
covering the metal working industry, was one of the first agreements that
Fellesforbundet/LO applied to extend. From 2008 the minimum wage rates,
provisions on travel, board and lodging and working hours were made gen-
erally applicable for the whole ship-building industry. The major reason for
the early call for extension in ship-building was the wide-spread use of tem-
porary agency workers and sub-contractors in the sector, most often not
covered by collective agreements. Prior to the extension, Norwegian and
foreign workers were working side by side, employed by different companies,
and with enormous differences in wage levels. The local unions were partly
accepting of the situation, fearing that increased costs could threaten their
own jobs (Alsos and Ødegård, 2019). But in the end, the situation became
intolerable for the union both at central and local level, and it was decided
to apply for an extension.
The employers strongly resisted and voted against the majority decision
in the Tariff Board. The extension included the agreement’s provisions on
coverage of expenses related to travel, board and lodging, which was seen as
crucial to not undermine the minimum wage floor. As a result, all workers at
the shipyards were at least secured a wage floor, although in most cases far
less than the native workers employed in the local companies. The minimum
rates in the Industry Agreement are relatively low, and unlike other sectors
with extended minimum wages, the rates have not been pushed upwards
through collective bargaining at central level to fill the gap between mini-
mum rates and actual rates in the sector. In part, this is probably the result
of unions recognizing that the shipyards struggle to compete in interna-
tional markets. The shipyards are important also for local employment and
the consequences are harsh for the communities if they close down or off-
shore production to low-cost countries.
In several sectors, the extensions have been met with resistance and
hostility on the employers’ side, but mostly so in the ship-building indus-
try. With support from the employer confederations, nine shipyards
sued the state in 2009, arguing that the extension (and, in particular,
the provisions on travel, board and lodging) was in breach with both
Norwegian law and the EEA agreement (EU law). They lost the case,
and also the following appeals, finally with the Supreme Court ruling in
2013 that the extension was legal. Furthermore, the court stated that it
was “adequately documented that a general application of [the Industry
Agreement] rules relating to compensation payable for travel, board and
lodging expenses are of importance to the stability of the Norwegian
labour market and wage leadership model” (Case HR-2013 – 0496-A,
(170)). However, the employers continued their fight, and later in 2013,
they submitted a complaint to the EFTA Surveillance Authority (ESA),
the body that monitors that the EEA countries comply with internal mar-
ket regulations. In September 2016, ESA issued a formal complaint to
the Norwegian state, agreeing with the employers’ reasoning. Probably
feeling the heat from Brussels, the Tariff Board changed the provisions
on travel, board and lodging slightly when they decided on a continua-
tion of the extension in October 2018. In short, the new regulation says
more explicitly that it only regulates travel within Norway. For foreign
workers, this could mean that they have to pay for the tickets to Norway
themselves, depending on the regulations in their work contracts or in
the sending countries’ regulations, which in practice could reduce the
actual wage outcome. To clarify the consequences of the revised exten-
sion, the leaders of the employers’ association Norsk Industri and the
trade union Fellesforbundet made a joint statement on the interpretation
of the new regulation such that in practice it means as soon as a posted
worker passes the Norwegian border, Norwegian rules must be followed
(Alsos and Ødegård, 2019).14
In spite of this, there is still considerable dissatisfaction among union
members, fearing that the negotiated sector minimum wage floor will
be undermined by posting of workers that must pay their own flight
tickets to Norway. As a result of the Tariff Board’s latest decision,
Fellesforbundet’s largest industrial branch issued a statement in favour
of leaving the EEA-agreement. In December 2018, the ESA decided to
close the case against Norway, stating that the regulations were in com-
pliance with EU law (probably based on a slightly different interpreta-
tion than the Norwegian social partners). A few weeks later the employer
confederations hesitantly admitted that maybe the struggle against the
extensions had not been worthwhile. Above all, this conclusion was
probably motivated by a wish to calm down the rapidly increasing EEA
scepticism among trade unions that had been fuelled strongly by this
case. This was not fully successful as the Fellesforbundet’s national con-
vention in autumn of 2019 ordered a study to look into alternatives to
the EEA-agreement.
First evaluations of wage statistics show that almost all registered workers
in the shipbuilding sector earn the collectively agreed hourly minimum wage
or more. While the native workers’ wages have a wider range, the migrant
14 https://www.vg.no/nyheter/innenriks/i/7lz33K/kamphaner-roeyker-eoes-fredspipe
workers’ wages tend to be clustered around the minimum rate. This is a clear
indication that the extended rates provide a valuable wage floor for all com-
panies in the sector, and that wages most probably would decrease if the
regulation were lifted (Jordfald, 2018).
3.4.3 Construction – Common interests

The inflow of labour migrants and posted workers from low-cost countries
in the east, quite quickly became a challenge for the Norwegian construc-
tion industry. Fuelled by an economic boom in the early 2000s, the industry
was lacking labour, an ideal match for the expanded labour market result-
ing from the EU enlargement in 2004. While some construction companies
could increase their profit based on contracting out part of the work, small-
and medium-sized companies tended to lose in competition. Surveys among
Polish workers in the capital area showed that their wages were far below
Norwegian workers in the same sectors (Friberg and Eldring, 2011; Friberg
et al., 2014). The volume of foreign workers – around half of all construc-
tion workers in Oslo (Arnholtz et al., 2018) – combined with a rise in atypical
employment such as posting, temporary agency work and self-employment
led to both union density and bargaining coverage decreasing considerably.
While 51 per cent of construction workers in Norway were covered by a collec-
tive agreement in 2001, the share had dropped to 41 in 2013 (Nergaard, 2018).
The collective agreement for construction work was extended as early as 2005
in parts of the country, and was the first agreement to be extended nationally,
in 2007. The trade unions’ demand for an extension was mainly supported by
the Federation of Norwegian Construction Industries (BNL) that organises
construction companies. Their position was that employers supported and
understood the need for establishing a general applicable wage floor for the
construction industry (Tariffnemnda decision 21.11.2006 case 4/2006).
The view of the construction employers must be seen in light of the
fierce competition that their SME members met in the years following the
Eastern enlargement of the EU. Facing competition from foreign suppli-
ers, Norwegian employers were eager to extend the minimum wage floor in
order to make sure that they did not lose in the competition. By doing this
they reduced the potential leeway for using wages as a competitive factor,
as the initial intention was with collective agreements when they started to
develop in Norway at the beginning of the 20th century. The strategy of the
employer organization seems to have been supported by their members in
the sector. In a survey among Norwegian companies as many as 70 per cent
of the construction companies regarded extension as a positive measure
(Alsos and Eldring, 2008). As part of the strategy to avoid low-wage compe-
tition, the bargaining parties have also decided to raise the minimum wage
floor in the industry-level agreement in order to reduce the gap between
minimum and actual wages. By employers and trade unions having con-
current interests, they have been able to agree on a strategy that reduces
low-wage competition from foreign service providers without increasing
their own costs. Extending and raising minimum wages have had little con-
sequences for Norwegian construction firms relying on skilled workers, as
their wage level is high above the minimum wage. At the same time, they
have boosted the costs of foreign service providers.
3.4.4 Hospitality – Less controversies and stronger bite

The call for statutory minimum wage regulation (in the form of extension)
was more pronounced in the shipyard sector, which has stronger member-
ship and collective bargaining, than in hospitality, which may seem para-
doxical. At a more fundamental level, the Norwegian blue-collar unions
stand united in their defence of collective bargaining as the main wage set-
ting mechanism, with legal extension as a complementary mechanism – if
need be. There is a deeply rooted scepticism towards a statutory minimum
wage among all the unions in Norway; the main fear is that it would lead to
downward wage pressure and weaken the influence of the collective agree-
ments (Eldring and Alsos, 2012; 2014).
The Hotel and Restaurant workers’ union merged with Fellesforbundet
in 2007. According to one of the officials at that time, the union tradi-
tionally had been dominated by waiters working in well reputed estab-
lishments with generous local wage systems. As such, the union had not
been at the forefront of combatting low wages in other parts of the sector,
and in spite of joining Fellesforbundet it took time to learn from other
sectors. Indeed, in the hospitality sector, Fellesforbundet did not apply
for the collective agreement to be extended until 2017, with the exten-
sion approved from 2018. Hotels and restaurants have had far less use of
agency workers and sub-contracting, but also more often lack collective
agreements. In this sense low-wage competition was not a novelty and
it also implies that the “bite” of the extension from 2018 is higher than
in any of the other nine sectors that currently have legally extended col-
lective agreements (possibly with the exception of the cleaning sector).
Before the extension, 24 per cent of hospitality sector employees earned
less than the minimum rates agreed in sectoral bargaining (Jordfald,
2018). In practice the wage rates in the collective agreement functioned
more as actual wages – which means that they were rarely topped up by
company agreements, and were less functional in setting a minimum out-
side the organised parts of the sector.
The employer organization for the sector, NHO Reiseliv, argued that the
actual wage level in restaurants was below the wage floor in the collective
agreement, especially in rural areas. They therefore feared that an extension
would have a wage inflation effect. Thus while the shipbuilding employers
have continually challenged the empirical evidence on wage dumping in
the sector, the hospitality employers argue that the documented high inci-
dence of low wages proved that making the collectively agreed minimum
wages generally binding would harm the many small businesses in the
sector. Nevertheless, despite expressions of dissatisfaction, the hospitality
employers’ resistance to the extension has been far less strong than among
employers in ship-building. At the time of writing (2020), given the recent
implementation of the extension, it is still too early to measure its effects on
wages paid in the hospitality sector.
3.5 Discussion
In Norway and Sweden wage floors are set through collective agreements,
and a statutory minimum wage is still an alien institution to the Nordic
labour market model. In the last 15 years, the wage setting models of these
labour markets have been challenged both by pressures from above and
below. Both pressures and responses have been different between the coun-
tries and between the key economic sectors. This chapter has analysed
developments in the two countries from a sector perspective and identified
important differences in strategies among the social actors in securing and
challenging existing wage floors, as well as how these strategies relate to
different power resources.
There are many similarities, but also some important differences between
Norway and Sweden. Both countries have relatively high union density
rates. However, this has been challenged by an overall declining trend, and
in Sweden is further undermined by the conservative government’s adjust-
ments to the Ghent system. Nevertheless, the overall ability of each country
to secure a decent minimum wage floor is more closely linked to the cover-
age of collective bargaining. In this respect Sweden has not seen the same
decline in the private services sector as in Norway. This is related to insti-
tutional factors concerning how industry level collective agreements are
invoked at company level, and the ability of trade unions to force unorgan-
ised firms to be covered by these agreements. Thus, Swedish private service
industries, like hospitality, still have a high bargaining coverage, while the
rate is rather low in Norway (the effect of extension of minimum wages not
included). The strong institutions in the Swedish autonomy model therefore
make it more resistant than in Norway to pressures to reduce wage floors
(Ruhs, 2006).
Due to EU law and the lex laval, the Swedes had to adjust the way
cross-border service providers were bound by Swedish collective agree-
ments. They did so without diverging from the principle of setting wage
floors through collective agreements. At the same time, diverse economic
situations in the two countries during EU enlargement made the pressure
from low-wage competition weaker in Sweden than in Norway. Norway
received more labour migrants and posted workers than its neighbouring
country. The difficulties experienced by Norwegian trade unions to com-
bat low-wage competition through high bargaining coverage led them
to require state support for the collectively agreed wage floor through
the extension mechanism. One could argue that this has made the model
less autonomous compared by the Swedish, but on the other hand the
system of wage setting in the affected sectors are still controlled by the
collective bargaining partners. As such, the different strategies between
trade unions in Norway and Sweden cannot be explained by the different
kinds of pressure only. Strength of institutions seems to have played an
important role.
The effectiveness of the minimum wage floors in Norway and Sweden
has partly relied on the ability of unions to secure wage floors for those
workers and employers who fall outside the collective agreement. In Sweden
a number of different institutions have contributed to securing a high bar-
gaining coverage despite pressures following market expansion. In Norway,
the situation has been more challenging. The normative effect of the col-
lective agreements, namely the mark-up set by the agreed minimum wage,
did not prove effective enough facing low-wage competition. This can be
explained through differences between the two countries in regulations
related to covering of collective agreements and strikes. Further, the trade
unions’ ability to act strategically can also be seen as an explanation. While
Swedish IF Metal has been successful in persuading employers to demand
service providers to sign an agreement, this has proven more difficult for the
Norwegian trade union, Fellesforbundet, in part due to lower union density
and bargaining coverage.
One might expect the situation to be more similar in the two countries
in the hospitality sector where union density in Sweden is much lower than
within manufacturing. Still, this does not seem to be the case. Bargaining
coverage is still high in Sweden as employers are automatically covered by
the agreements signed by the employer organisation they are affiliated to.
Other institutional mechanisms, as the Swedish trade unions’ impact on the
application of immigration law, might also be an explanation.
From a sector perspective, diverse responses can be explained through
understanding the different pressures and unions’ access to power
resources. In manufacturing, union density and bargaining coverage is
still high in both countries. Market expansion through increased access to
mobile workers has given firms new strategic possibilities when it comes
to lowering costs. Offshoring and externalization of tasks makes it possible to
secure high wages for national employees, at the same time as lowering the
total production costs. However, this strategy has been more successful for
larger companies where the high demand for labour makes such strategies
more profitable, than for smaller companies that are competing with the
foreign service providers. This indicates that the power balance between
large and small companies within the employer organization is decisive
(Afonso, 2012).
In national-based industries like construction and hospitality, companies’
choices are more limited. This might explain the pressure for lowering the
entry wage and higher wage disparity in the Swedish hospitality industry.
Still, unions with relatively weak institutional power are strengthened by the
institutional framework of the pattern bargaining model. It can be argued
that their weak spots are reduced through the strength of the front running
metal working industries in both countries. This is apparent through the
lifting of wage floors, but in Norway also through the extension mechanism.
It might seem strange to argue that state support is linked to the strength of
trade unions, rather than their weakness. However, in Norway the extension
was not invoked in the hospitality sector until after the trade union was
merged with the metal working union, thereby becoming a more powerful
social actor.
Facing the challenges related to low-wage competition, one might wonder
why Norwegian trade unions, in particular, are still reluctant to introduce a
statutory national minimum wage. So far, this issue has only been voiced by
some of the Norwegian employers’ associations. One explanation is related
to the coordinated wage setting model, as this model has to date managed
not only to secure wage increases for strong trade unions but also to lift the
bargaining power of weaker unions as well. Overall, unions in both countries
still perceive a statutory minimum wage as a potential threat to their ability
to sustain and grow an active membership base and also having the potential
of jeopardizing the collectively agreed, and relatively effective, wage floors.
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4 Minimum wages in Southern
Europe
Regulation and reconfiguration
under the shadow of hierarchy
Oscar Molina
The debate about the regulation, levels and effects of minimum wages in
Southern Europe has gained momentum in the context of the financial and
sovereign debt crises (Schulten et al., 2015; Clemens and Wither, 2019). In
the internal devaluation process taking place in all Southern European
countries during the great recession and the sovereign debt crisis, min-
imum wages were an instrument used by states to achieve the downward
wage adjustment and this has contributed to the re-opening of the debate
around the role of the state in industrial relations (Afonso, 2019; Molina,
2014). Moreover, the increase in unemployment, non-standard employment,
new forms of work organisation in the digital economy and income inequal-
ities has also extended the debate around minimum income schemes and the
role of minimum wages in the broader context of income support policies
(Levin-Waldman, 2018; Palier, 2019). Additionally, the high price sensitiv-
ity of predominant economic sectors in Southern Europe makes minimum
wages particularly sensitive instruments due to the tendency to adopt a
cost-competition strategy in these countries. Finally, in the context of the
single currency, maintaining some control over wage-setting is important for
Southern European states to compensate for the loss of exchange rate policy.
The minimum wage regime in Southern Europe – namely, Greece, Italy,
Portugal and Spain – shares some commonalities compared to the rest of
EU countries (Schulten, 2014). First, there is a prevalence of legal universal
minimum wage set by law, thus reflecting the comparatively more impor-
tant role of the state in the industrial relations systems in these countries.
Secondly, the minimum wage levels are historically low which is associated
to medium-high earnings inequalities and relatively large numbers of low
paid workers (Barbieri et al., 2018). There are however some important dif-
ferences. Italy and, until 2012 Greece, set minimum wages through collec-
tive bargaining and not via state regulation. Moreover, there are important
differences in levels, with Spain exhibiting generally higher levels in mini-
mum wages, especially since the increase in January 2019. Finally, the crisis
has had an asymmetric impact across the four countries, with some coun-
tries experiencing a revitalisation of their minimum wage regime, whilst in
other countries the crisis has had little or no effect.
Minimum wages in Southern Europe 65
This chapter analyzes recent developments in the Southern European
minimum wage regime. In doing so, it combines institutionalist and
actor-centred approaches with the aim of shedding light on those actors
and processes that determine how minimum wages are set, their lev-
els and implementation. Even though minimum wage setting institutions
are discussed and analysed, this chapter pays particular attention to the
role of agency in relation to minimum wage-setting, including the actors
involved in negotiations around reform, their views in relation to the
contested dimensions of minimum wage-setting and the way in which
they interact.
The analysis shows how the regulation, implementation and levels of
minimum wages in Southern Europe exhibit important commonalities, but
also significant diversity. Even though a strong role of the state in the form
of unilateral regulation predominates, and has become even more intense
during the crisis, there remain cases where minimum wages are set by col-
lective bargaining, whilst the stronger role of the state is contested by social
partners in other countries. Moreover, the comparative analysis reveals the
existence of different actor constellations in the four Southern European
countries and conflicts in relation to the levels and impact of minimum
wages. In all four countries, trade unions and employers have similar views
on what their role should be in minimum wage setting vis-à-vis the state.
Moreover, it is argued that the lack of pre-defined formulas leaves the door
open to a discretionary use of minimum wage rules by the government and
constitutes a major source of conflict between actors involved.
This chapter is structured in four sections. Section one provides a
short theoretical discussion around minimum wage setting and the role
of agency. Section two presents a comparative analysis of minimum wage
regimes in Southern Europe, including the role of different actors and the
processes whereby minimum wages are set. Section three compares mini-
mum wage levels, evolution and inequalities in Southern Europe and sec-
tion four analyses the contested dimensions of minimum wage setting in
Greece, Italy, Portugal and Spain. The concluding section provides some
final insights about where Southern Europe is moving in relation to mini-
mum wage setting.
4.1 The role of minimum wages in Southern Europe:

An actor-centred approach
Minimum wages are very often assessed by adopting a somewhat narrow
institutional perspective, i.e., focusing on those sets of institutions and reg-
ulations that explain the way minimum wages are set, their effectiveness
and impact. Among those institutions, industrial relations and collective
bargaining play an important role. Considering the institutional context is
necessary to understand differences across countries, and it presents a first
step in the in-depth analysis of minimum wage systems in any country.
66 Oscar Molina
However, there is ample evidence showing that minimum wages consti-
tute a contested terrain for many reasons. First of all, there is disagree-
ment about the need to have a minimum wage, whether legal or negotiated,
due to the potentially negative impact it may have on the labour market
and the economy more generally. This debate is now framed in the broader
discussion around guaranteed universal income schemes. Secondly, disa-
greements may also exist around the way to set it, i.e., through law or collec-
tive bargaining. Finally, actors may also disagree on the level at which the
minimum wage is set. These three contested dimensions of minimum wages
require the adoption of analytical approaches that incorporate agency into
their analysis. In other words, what is needed is a closer look at the actors
involved in minimum wage-setting, their preferences, coalitions, interac-
tions and discourses in relation to the minimum wage.
4.1.1 Social partners’ autonomy versus the State

One of the key debates in relation to minimum wages in Southern Europe
involves the role of the state vs the autonomy of social partners. The tension
between state intervention in industrial relations and autonomous collective
bargaining is a distinctive trait of Southern Europe where several studies
have pointed out the comparatively stronger role of the state in industrial
relations (Crouch, 1993; Molina, 2014). In the context of the varieties of
capitalism literature, a stronger state in the mixed market economies of
Southern Europe responds to the difficulties of achieving alternative forms
of strategic coordination due to an ideologically fragmented system of inter-
est representation and associational weakness of social partners (Molina
and Rhodes, 2007; Schmidt, 2009). Under these conditions, the state steps
into industrial relations either directly through regulation, or indirectly by
facilitating dialogue and coordination between social partners. According
to this view, in critical economic and political moments that may require
adopting policies in order to curb that situation, there is a stronger propen-
sity for the state to intervene unilaterally compared to other countries. In
the words of Héritier and Lehmkuhl (2008: 2), the “shadow of hierarchy”
implies that governments can threaten to enact adverse legislation unless
potentially affected actors alter their behaviour to accommodate the legis-
lators’ demands.
The impact of a legal as opposed to a negotiated minimum wage depends
on many dimensions, but some authors have shown a functional equivalence
between minimum wage regimes based on legal regulation and those based
on autonomous collective bargaining between social partners (Garnero et
al., 2015). According to these studies, when collective bargaining coverage
is high (either because of erga omnes extension, high union density or any
other form of extension mechanisms), a legal and a negotiated minimum
wage are likely to have a similar impact on earnings’ distribution. When this
is the case, actors’ preferences in relation to minimum wage setting will be
determined by factors other than merely its effectiveness. These can include
retaining power and decision-making capacity, avoiding excessive fluctua-
tions in minimum wage levels due to the colour of the government or achiev-
ing a better fit between socio-economic conditions and minimum wage
levels. Sectorally negotiated minimum wages serve this last objective better
than a national (legal or negotiated) minimum wage. Moreover, a national
minimum wage will be set considering those sectors where earnings are
lower, meaning that compared to a sectorally negotiated minimum wage,
an average national minimum wage will tend to be set at a lower level, all
other factors being equal. Finally, a legal minimum wage is always subject
to political discretion, especially when there is no obligation for the govern-
ment to reach an agreement with social partners. This means that govern-
ments can adjust it depending on political criteria or economic conditions.
4.1.2 Minimum wages and distributional impact

Minimum wages play different roles and have diverse meanings in different
institutional and socio-economic settings. In the case of Southern Europe,
two functions of minimum wages are particularly relevant. First, minimum
wages have a strong re-distributional role in limiting downward wage com-
petition and compressing low paid jobs at the bottom of the earnings struc-
ture. In the two Southern European countries where right-wing totalitarian
regimes ended in the 1970s (Portugal and Spain), the organisational frag-
mentation and weakness of autonomous regulation led to the introduction
of legal minimum wages. In this vein, minimum wages were a key element
to build and consolidate collective bargaining institutions. The introduc-
tion of the legal minimum wage during the transition to democracy and the
adoption of a more liberal agenda points to the legitimation role of the
minimum wage in these countries. In Greece and Italy, which had longer
traditions of autonomous industrial relations and collective bargaining,
minimum wages were set autonomously by social partners at national and
sectoral levels respectively and contributed to strengthen collective bargain-
ing frameworks.
However, as minimum wages in Southern Europe very often acquired
the status of “the going rate” for certain low skilled jobs and/or groups of
workers, their re-distributional impact remained lower than it could be. In a
production structure characterised by cost competitiveness, employers will
tend to use the minimum wage as the target wage for certain jobs, not as
a floor. This means that there will be a large proportion of workers whose
earnings are close to the minimum wage. This effect will be stronger when
there is a national statutory minimum wage, compared to the alternative
scenario of sectorally negotiated minimum wage. The negotiated scenario
also typically establishes grids of incremental wage scales that reward sen-
iority, experience and skill, and therefore lift workers above the wage floor
(Grimshaw et al., 2014).
68 Oscar Molina
4.2 Minimum wage regimes in Southern Europe
With the exception of Greece, the countries in Southern Europe have not
recently experienced significant changes in minimum wage regimes1. In the
other three countries, the actors, mechanisms and type of minimum wage
have remained rather stable over the last decade (See Table 4.1).
Of the four Southern European economies, only Italy has a negotiated
minimum wage. Accordingly, there is no role for the state; but as the anal-
ysis for the Italian case shows, there have been attempts in recent years for
the government to set a legal minimum wage that would complement, with-
out replacing, the negotiated minimum wage. Greece had, until recently,
a negotiated system; but in the context of austerity policies, the govern-
ment was under strong pressure from the Troika to change the minimum
wage regime, meaning that the state would unilaterally set minimum wages
(Karamessini, 2012; Karamessini and Grimshaw, 2017). Overall, the picture
that emerges from Table 4.1 is the existence of high levels of state interven-
tion in minimum wage setting in all four countries, a characteristic that has
been accentuated during the recent economic and financial crisis.
An interesting and very often overlooked characteristic of minimum
wage regimes in Southern Europe is the lack of predefined rules used to
set minimum wages. In those countries where a legal minimum wage is in
place, the level is set considering several variables including inflation, pro-
ductivity levels, economic growth etc. The lack of a clear formula for cal-
culating the minimum wage level opens the door to its discretionary use by
the government, as developments in France and the UK have shown. This
feature constitutes an important source of conflict in relation to minimum
wage-setting in Southern Europe and eventually allows the government to
set wages following different and changing criteria.
4.2.1 Wage setting in Southern Europe

Where they exist, legal minimum wages are central elements of wage-set-
ting systems. However, they play different roles depending on the minimum
wage regime and the characteristics of collective bargaining. There are two
main reasons for this. First, in those countries where there is no legal min-
imum wage, its efficacy largely depends on the structure and coverage of
collective bargaining. Secondly, even when a legal minimum exists, collec-
tive bargaining institutions will determine the number of people who will
be covered by collective agreements that tend to set wages above the legal
minima.
1 The concept of Minimum Wage Regimes has been used by Schulten (2014) as a heuristic
device in order to compare differences across countries in the mechanisms for setting
minimum wages, their levels etc. In this chapter, minimum wage regimes refer to the set of
institutions, actors and processes whereby minimum wages are set, as well as their level
Table 4.1 Differences and similarities in minimum wage regimes in Southern Europe in 2020
Greece Italy Portugal Spain
Type of Minimum Legal Non-legal. Minimum Legal Legal

Wage wages are only established
in collective agreements
Implementation Law or Ministerial Decree Collective Agreement Law or Ministerial Decree Law or Ministerial Decree
Coverage Universally binding, but Depends on the sector Universally binding Universally binding
sub-minimum for employees
under 25 after 2012
Role of the State Decides unilaterally the No role in minimum wage Negotiates with social Consults social partners
minimum wage level, but setting partners
some spaces for consultation
opened recently
Role of Social Consulted by the government Decide through sectoral Consulted by the Ad-hoc bi-partite

Partners collective agreements the government and consultations/
minimum wage levels eventually negotiate a negotiations
tripartite agreement
Role of National OMED (Consultation and No role Institutionalised No role
Social Dialogue Arbitration body) plays a consultation
Institutions coordination role in the
recently established
consultation process
Pre-defined No No No No
Formula Variables considered: Variables considered: Variables considered:
Inflation, productivity inflation, productivity, inflation, productivity,
purchasing power, contribution of labour
combating in work to the Gross National
poverty, poverty and Income and the general
social exclusion economic context
Source: Author’s elaboration

70 Oscar Molina
Figure 4.1 Collective bargaining coverage in Southern Europe, 2007–2016.

Source: OECD. For Greece, the last year available is 2013
Collective bargaining and wage setting in Southern Europe have experi-

enced profound transformations during and since the global financial cri-
sis, which have, in many cases, entailed an erosion of collective bargaining
institutions (Visser, 2016). This erosion has manifested in two key dimen-
sions of collective bargaining systems; a decline in collective bargaining
coverage levels accompanied by a de-centralisation of collective bargaining.
Figure 4.1 shows collective bargaining coverage rates in the four countries
in 2007 and 2015 (or last year available). Collective bargaining coverage in
Southern Europe used to be systematically high, covering around 80% of
the workforce. This is explained by the existence of extension mechanisms
in all countries in the years prior to the crisis. In Spain, the erga omnes
clause implies the automatic extension to all workers within the functional/
geographical scope of the collective agreement. In Portugal and Italy, there
are mechanisms allowing social partners to extend collective agreements,
either through an administrative procedure (Portugal) or court ruling
(Italy). Unfortunately, the only country with a negotiated minimum wage at
a sectoral level, Italy, lacks reliable data on collective bargaining coverage
levels and evolution, though most analysis point to a high level of collective
bargaining coverage that has remained rather stable.
The second important point from Figure 4.1 is that there hasn’t been a
generalised decline in collective bargaining coverage. Only two countries
now have lower coverage rates compared to the beginning of the crisis:
Greece and Portugal. In the case of Greece, this decline is explained by the
elimination of extension mechanisms since 2011. The collective agreements
are now binding only for the members of the signatory parties. In the case
of Portugal, the decline is explained by the decrease in the number of mul-
ti-employer and company agreements signed as a consequence of labour
market deregulation and loss of bargaining power by trade unions.
Another important element in relation to collective bargaining is the
structure of collective bargaining. In a majority of countries, reforms have
been implemented during the crisis period to decentralise collective bargain-
ing and reinforce the role of company level bargaining. In the case of Spain,
the 2012 reform gave predominance to company level agreements through
the extension of opting-out clauses and more unilateral decision-making
power to the employer. However, the effect of the reform has not been as
dramatic as expected due to employers’ support for the sectoral bargaining
structures (Bulfone and Afonso, 2020). In Portugal, many of the sectoral
collective agreements collapsed, therefore opening a scenario of predomi-
nantly company level bargaining. In Greece, the reforms implemented dur-
ing the crisis have implied a departure from the principle of free collective
bargaining and have led to a stronger state role in industrial relations. These
changes included abolishing the “principle of favourability”, which de facto
provided strong incentives for employers to de-centralise collective bar-
gaining. Moreover, reforms also introduced non-union representatives into
firms with the right to conclude company-level collective agreements (the
so-called “associations of persons”) (Voskeritsian et al., 2017; Koukiadaki
and Grimshaw, 2016). The only exception to these trends is Italy, where in
spite of strong pressures to de-centralise, both trade unions and employ-
ers have confirmed the two-tier system whereby national sectoral collective
agreements open possibilities for company level agreements to modify the
terms agreed in the sectoral agreement.
The above trends in collective bargaining contain two main implica-
tions for the future of minimum wage regimes in Southern Europe. First,
in Greece and Portugal, and to a lesser extent Spain (where collective bar-
gaining coverage has declined), legal minimum wages present themselves as
an even more important instrument in limiting the race to the bottom and
reducing inequalities. This is because declining bargaining coverage breaks
the functional equivalence between a legal minimum wage and a negoti-
ated minimum wage. Secondly, in a context of growing de-centralisation in
collective bargaining, again most marked in Greece and Portugal, we can
expect an increase in earnings inequalities. In this context, legal minimum
wages could play an important role in fighting against growing disparities
in the labour market, as the next section shows.
4.3 The evolution of wage inequalities and minimum

wages in Southern Europe
Minimum wages are considered very effective mechanisms to reduce earn-
ings inequalities. Compared to other anti-poverty mechanisms, raising the
minimum wage is expected to have a direct and proportional effect on the
72 Oscar Molina
incomes of poorer individuals and their families. Moreover, compared to
other policies, it is expected to have little or no public or social costs. These
arguments are however contested by those who argue that because of min-
imum wages, employers will increase prices and those at the bottom of the
income distribution will be penalised to a greater degree.
The level and evolution of low wage earners as a proportion of all employ-
ees over the period from 2006–2014 shows a mixed picture for Southern
Europe (Figure 4.2). First, compared to the Euro Area average, Italy,
Portugal and Spain have a below average low-wage incidence. In fact, only
Portugal before the crisis and Greece both before and afterwards have
a higher proportion of low wage earners. Interestingly, the only country
where there is no legal minimum wage, Italy, is the one with the lower pro-
portion of low wage earners. This confirms analyses of the consequences of
functional institutional equivalence between legal and negotiated minimum
wages with high coverage (Garnero et al., 2015). In other words, the combi-
nation of sectoral minima and high collective bargaining coverage can be
regarded as a functional equivalent of a binding legal minimum wage, at
least for earnings inequalities.
The dynamics in all four Southern European countries are neverthe-
less different. In the case of the two countries where collective bargaining
exhibited a decline, Greece and Portugal, we observe opposite trends. In
Greece, there is a sharp increase in 2014 in the percentage of low wage earn-
ers. By contrast, in Portugal, there is a reduction between 2006 and 2014. In
Spain, the percentage of low wage earners increased slightly over the period
Figure 4.2 Low wage earners as a proportion of all employees, 2006–2014.

Source: Eurostat
considered. High collective bargaining coverage is, accordingly, an impor-
tant but not sufficient element to reduce the proportion of low wage earners,
as shown by the contrasting cases of Greece and Portugal.
Declining collective bargaining coverage will have a more significant
impact in those countries where there is a negotiated minimum wage, as any
change in collective bargaining coverage has a direct impact on coverage
and therefore effectiveness of minimum wage. By contrast, where there is a
legal minimum wage, the decline in collective bargaining coverage means
that a larger share of workers that receive a minimum wage will fall outside
of collective bargaining protection and the potential “ripple effects” of the
minimum wage will be limited2. In the Portuguese case, where collective bar-
gaining coverage remains high, notwithstanding the decline experienced in
recent years, the combined effect of high-value minimum wage systems with
still relatively strong collective bargaining coverage (around 70%) explains
the declining incidence of low-wage employment by ensuring long-reaching
ripple effects of a rising statutory minimum wage. By contrast, in the case
of Greece, the weakening of collective bargaining institutions is directly
associated with a significant increase in the share of low-wage employment.
This is largely caused by a spike in the wage distribution at the wage floor
resulting from the inability of unions to put in place a pay scale that incor-
porates pay differentials by skill or experience. Thus, where governments
act to improve pay equity by gradually raising the minimum wage over time,
in the absence of complementary collective bargaining, the positive impact
is likely to be limited to the very lowest paid, protecting against exploitative
pay but not lifting workers out of low-wage employment (Rubery, 2003).
In all Southern European countries, women are more likely to be low wage
earners compared to men (see Table 4.2). This difference is particularly high in
Spain and Portugal, where the proportion of women with low wages exceeds
that of men by more than ten percentage points. The decline in this difference
observed in all countries over the period of 2006–2014 is largely explained by
Table 4.2 Low-wage earners as a proportion of all employees

(excluding apprentices) by sex, 2006–2014
2006 2014
Females Males Females Males
Greece 20.16 12.45 23.48 20.16

Spain 21.24 7.97 19.84 9.78
Italy 14.00 7.52 11.33 7.93
Portugal 26.40 15.37 16.98 6.60
Source: Eurostat
2 Ripple effects refer to wage rises above the level of the minimum wage that are indirectly
caused by uprating of the minimum wage
74 Oscar Molina
the increase in male low wage earners (except for Portugal) together with the
decline in female low wage earners in that same period. The only exception
to this decline is Greece, where the proportion of low wage earners increased
by 16.5% in this period. Notwithstanding, as the proportion of male low wage
earners went up by 62% over the same period, the difference narrowed.
As a consequence, the gender impact of minimum wages is expected to
be particularly significant in Southern Europe, since in these countries
there is a comparatively larger concentration of women in low paid jobs.
Moreover, the crisis has had a stronger impact among low paid workers, a
high percentage of which were women, as the internal devaluation affected
to a greater extent those workers who already had lower salaries before the
crisis. For this reason, we can expect that increases in the minimum wage
will have, other things being equal, a positive effect in reducing the gender
pay gap. When we look at this evidence for the Southern European coun-
tries with minimum wage data, only Spain follows the expected pattern
of an 18% increase in the minimum wage over the period from 2008–2017
in conjunction with a 6% decrease in the gender pay gap3. In the case of
Greece, for the period 2008–2014, the minimum wage decreased by 14%
but there was, nonetheless, a 43% fall in the gender pay gap, which reflects
other factors that led to a near doubling of men in low-wage employment
(Table 4.2). Finally, in Portugal a 31% rise in the minimum wage over the
period 2008–2017 had a positive impact on reducing low wage earners
(see Table 4.2), but was not accompanied by a fall in the gender pay gap; to
the contrary, it increased by 77% in that period. This could be related to the
negative impact of austerity policies on public sector new hiring, employ-
ment levels and wage cuts which have been particularly intense in female
sectors such as education and health (González, 2014). Overall, this sug-
gests the existence of many other factors mediating the relationship between
these two variables and more specifically, affecting occupational sex segre-
gation. Among other things, we know that the crisis had a strong impact on
the public sector, where female employment is particularly important. But
the important policy lesson from this evidence suggests that, unless com-
plemented by other policies to combat occupational sex segregation, the
impact of minimum wages on gender inequalities in the labour market will
be limited in Southern European countries.
An aspect often overlooked when analysing the impact of minimum wage
is the relationship with the self-employed, a group that remains particularly
vulnerable. When we look at the risk of poverty for the actively self-em-
ployed, we observe higher levels in all countries, therefore showing that, on
average, the self-employed have lower income levels in relation to employ-
ees. The difference is particularly high in the case of Portugal, where the risk
of in-work poverty for self-employed workers reaches 26% compared to 8%
3 Gender gap in unadjusted form, Eurostat

for employees and lower in the case of Italy, where the rate for self-employed
is 17% compared to 11% for employees. In principle, self-employed workers
are not directly affected by a minimum wage. However, the increase in mini-
mum wage levels may have several indirect effects on self-employed workers
(Baker et al., 2018). The first is through the outsourcing of dependent jobs
to self-employment. This can be an employer strategy to overcome labour
market regulations, including the minimum wage, by shifting part of the
risks onto the self-employed worker. We could expect this effect to be par-
ticularly important in Southern Europen countries where cost competition
is predominant, and the informal economy is large. The Spanish Central
Bank called attention to this potential impact after a 22% increase in the
minimum wage was approved for 2019 (Banco de España, 2019). Moreover,
even though the self-employed are not directly affected by the minimum
wage, its increase may have indirect costs. In some cases, taxes or social
contributions paid by the self-employed are linked to the minimum wage. In
Spain, for example, the increase in the minimum wage triggers an automatic
increase in social contributions paid by the employer and the self-employed.
Moreover, those self-employed persons with employees will experience an
increase in labour costs. Even though there is no quantifiable evidence on
this, the higher rates of self-employment in Southern European countries,
in particular Greece and Italy, could suggest a potentially stronger indirect
impact of the minimum wage in these countries.
Finally, another important indicator to understand the potential impact
of minimum wages is the risk of in-work poverty. This indicator shows those
workers who, despite being employed, face situations of material depriva-
tion. For this reason, it suggests the extent to which the minimum wage
is close to a “living wage”. In those countries where the minimum wage,
in relation to the average or median wage, is low, we can expect a higher
level of in-work poverty. The data shows an increase of in-work poverty
for employees in all countries since the beginning of the economic crisis
(Figure 4.3). This increase seems to have reversed in the post-crisis years for
Greece and, to a lesser extent, Portugal, whilst in the case of Spain and Italy,
it has grown. This evidence would suggest that minimum wages in Italy and
Spain are low compared to Greece or Portugal.
4.3.1 Minimum wage levels and their evolution

Minimum wage levels in those Southern European countries where there is a
legal minimum wage have remained low according to the Kaitz index, ranging
from 40 to 60% of the median wage (Figure 4.4; see, also, Chapter 1). However,
there are differences in levels and evolution, with Portugal exhibiting the
highest level, coupled with an increasing trend. By contrast, both Greece and
Spain show how the Kaitz index stagnated over the period considered, though
in the most recent years there has been an increase in both countries, one that
is particularly intense in Spain. Even though there is no data available, the
76 Oscar Molina
Figure 4.3 In-work at risk of poverty rate, 2009–2017.

Source: Eurostat using EU-SILC data
increase in the Kaitz index is probably explained by average wages growing

less than the minimum wage since the onset of the great recession.
Even though the Kaitz index, in nominal terms, is the lowest in Spain and
is still below the 60% target in all three countires, when it comes to purchas-
ing power (PPP) of minimum wages, the picture changes. Despite its low
Figure 4.4 Kaitz index, minimum wage relative to the median wage of full-time
workers, 2000–2017.
Source: OECD
Figure 4.5 Monthly minimum wages in PPS, 1999–2019.

Source: Eurostat
number on the Kaitz index, Spain has the most generous minimum wage in
real terms, especially since the 1st of January 2019 (See Figure 4.5). This is
important, since the notion of a living wage relates to the real capacity of
wages to allow workers to have a decent life, including the capacity to satisfy
basic needs such as housing, etc. Minimum wages in Portugal and Spain
have experienced sustained increases in real terms over the last two dec-
ades. By contrast, minimum wages in PPP in Greece experienced a sharp
decline during the crisis and have stagnated in the post-crisis period.
One of the most important consequences of internal devaluation experi-
enced by Southern European countries has been a decline in average earn-
ings. Even though minimum wages experienced low increases or even cuts
during the great recession (as in Greece in 2012, see Figures 4.4 and 4.5) the
Kaitz index remained stable or even increased. This trend has continued
even through the post-crisis years, as minimum wages have remained rather
stable or experienced low increases. Internal devaluation has, accordingly,
triggered stability or increases in the Kaitz Index in Southern Europe.
4.4 Minimum wages in Southern Europe
4.4.1 Setting minimum wages in Greece: From negotiation

to consultation
In the context of Southern Europe, Greece is the country where the mini-
mum wage regime has experienced more profound changes in recent years.
Before 2010, the minimum wage was determined through the General
National Collective Agreement (EGSSE), a cross-sector national agreement
78 Oscar Molina
between social partners and the government. In 2012, with Law 4046/2012
and Law 4093/2012, the government, for the first time since 1990, intervened
in free collective bargaining and the formation of the national minimum
wages through the General National Collective Agreement (EGSSE). These
laws introduced a cut of 22% (and 32% for workers under 25 years old) to
the 2012 national minimum wage (of €751.40 at that time). The new national
minimum wages, applied from December 2012, were set at €586.08 and
€510.95 for employees under 25 years old. Moreover, since 2013 with Law
4177/2913, the minimum wage was set by the government, with the social
partners having only a consultative, but no institutionalised role. The law
that introduced the legal minimum wage in Greece also established that it
would be frozen until 2016.
Already in 2016, the national-level social partners reached a common
position in relation to the minimum wage, according to which there was, no
need to cut it further or to eliminate the 13th and 14th payments. Moreover,
they claim their role in setting it as part of the National General Collective
Employment Agreement (EGSSE) (Lampousaki, 2016). Even though the
proposal was rejected initially by the IMF, in 2018, a new mechanism for
determining the minimum wage came into force. They established specific
dates for a five-month consultation period, starting August 2018 and end-
ing January 2019. This new mechanism provides for the development of a
step-by-step consultation process involving the social partners, special-
ised scientific research bodies, as well as experts from several disciplines
including economics, labour market, social policy and industrial relations.
The consultation coordination committee consists of the president of the
Mediation and Arbitration Service (OMED) as chairman, a representative
of the Ministry of Labour and a representative of the Ministry of Finance.
The new consultation process was contested by the General Confederation
of Greek Workers (GSEE), which showed its disagreement by not attending
the meetings. The GSEE not only asks for setting the minimum wage at the
level before the 22% cut in 2012 (751€) for all workers, but it also seeks to
reintroduce a negotiated minimum wage, not just consultations around a
legal minimum wage set by the government.
Employer organisations remain generally favourable to return to a nego-
tiated minimum wage setting regime and the need to increase it, but at
the same time expressed doubts and set conditions with regard to the way
increases in the minimum wage are calculated. The Hellenic Federation
of Enterprises (SEV) and the Federation of Industries of Northern Greece
(SVVE) stressed that unless a wage increase is the result of improved pro-
ductivity and non-wage competitiveness, it could be problematic for many
companies. By contrast, the Hellenic Confederation of Commerce and
Entrepreneurship (ESEE) proposed a gradual increase of the minimum
wage over four years, to reach €751 by 2022, and stressed the need to reduce
non-wage costs. It also called for the rationalisation of the contributions of
self-employed professionals.
In spite of the differences between social partners on the level and the
criteria to be used to determine minimum wages, there remains a consensus
around the need to return to a negotiated system where social partners have
the power to agree as part of the National General Collective Employment
Agreement (EGSSE).
There is an open debate regarding the impacts of the legal minimum
wage on employment and the labour market, but most studies seem to
suggest that whilst minimum wage has a significant impact on individual
and firm level wages, there is no aggregate employment effect (Georgiadis
et al., 2018). In a similar way, Kakoulidou et al. (2018) show that the cuts in
minimum wage introduced in 2012 had no statistically significant effect on
employment. Finally, Karamanis et al. (2018) find evidence that the min-
imum wage has no significant unemployment effect and that employment
and unemployment rates in the Greek labour market during this period
are due primarily to factors other than increases or decreases of the min-
imum wage.
4.4.2 On the road towards a legal minimum wage in Italy?

The Italian legislation does not provide for a national minimum wage.
The minimum wage is set by each sectoral collective agreement (CCNL,
Contratto Collettivo Nazionale del Lavoro), which lays down minimum
standards for the whole sector and applies them throughout the country. In
the absence of an agreement or mutual consent between the employer and
the employee, wages and salaries may be determined by courts according
to precedents and practices found in similar sectors or CCNL. Local com-
pany-level agreements may step up these standards through provisions on
issues such as pay rates, performance bonuses, and bonuses on productivity.
Even though this system remains in place, some factors have determined
a new emergence of the legal minimum wage issue during the economic and
financial crisis makes it an ongoing debate. A higher unemployment rate
accompanied by an internal devaluation triggered an increase in the num-
ber of people in poverty or below the poverty lines together with the increase
of the working poor. Faced with these problems, some of the governments
during the crisis and post-crisis periods have considered the establishment
of a legal minimum wage as a solution to these problems. For instance, the
original proposal of the Jobs Act in 2014 contemplated the introduction of
an hourly minimum wage in those sectors where there was no national sec-
tor collective agreement. More recently, the Five Stars Movement (M5S)
made a similar law proposal (658/2018). The objective of this proposal was
to implement the constitutional principle of fair pay in relation to those
workers whose earnings were below the poverty line. According to this
initiative, the legal minimum wage should relate to collective agreements,
have a minimum threshold of €9 per hour and take all wage elements into
account (including social contributions). The new coalition government
80 Oscar Molina
between the Five Star Movement and the Democratic Party appointed in
September 2019, still has on the agenda the issue of a legal minimum wage
to be set according to collectively agreed wage rates (Pedersini, 2019).
Notwithstanding these proposals coming from different governments, there
is a consensus among social partners in Italy on the need to maintain the cur-
rent minimum wage setting system through collective bargaining. The larg-
est trade union confederations (CGIL, CISL and UIL) are strongly against
a legal minimum wage, and instead emphasise autonomous collective bar-
gaining for setting minimum wages (Eldring and Alsos, 2012). In addition to
maintaining this important policy prerogative in the hands of social partners,
Italian trade unions also argue that a legal minimum wage would be lower
than the average minimum negotiated at sectoral level. Trade unions defend
the idea of sectoral negotiations for the minimum wage as the best mechanism
to ensure a minimum living wage, whilst allowing adaptation to differences
in productivity levels across sectors. All this can be interpreted as a union’s
strategy to maintain and strengthen their role in collective bargaining.
But employers are also against the introduction of a legal minimum
wage and have criticised the recent proposal made by both the Five Starts
Movement, as well as the Democratic Party (Pd), in order to create a legal
minimum wage (Confindustria, 2019).
In fact, trade unions and employers consider that the best way to deal
with low paid jobs in Italy is to establish a universal basic minimum income
for those who are not covered by collective agreement. This would then
be complemented with the extension of the sectoral minima set in those
national collective agreements which are negotiated by the most repre-
sentative organisations in each sector. This requires clearly defining the
representativeness criteria applied to trade unions and employers as a
pre-condition to identify those sectoral collective agreements whose min-
ima would be extended to workers in that sector. In 2018, CGIL, CISL, UIL
and Confindustria signed the so-called “Patto per la Fabbrica” (Pact for
the Factory) where they committed to measure their representativeness in
order to fight against the extension of so-called Pirate collective agreements
which were signed by small organisations in order to undermine conditions
set in sectoral collective agreements. One year later, in September 2019, the
largest trade union confederations signed an agreement specifying the way
representativeness would be measured on the union side.
4.4.3 Minimum wage in Portugal: Back to negotiation

The minimum wage in Portugal is set by law after rounds of consultation
with social partners. In the periods from 2006–2010 and 2015–2017, those
consultations concluded tripartite agreements. However, in the periods
from 2011–2014, under the Troika (EC, ECB and IMF) intervention, the
minimum wage was frozen unilaterally by the government. This unilateral
intervention was an unusual practice in relation to minimum wage setting.
Decisions about the minimum wage usually follow consultation with social
partners, resulting in some cases in tripartite agreements. The consulta-
tions with social partners take place in the context of the tripartite CPCS
(Standing Committee for Social Concertation).
There are no fixed rules for setting minimum wages, but some variables
should be considered by both social partners and the government when set-
ting the level. These include inflation, productivity, purchasing power, com-
bating in-work poverty, poverty and social exclusion.
The impact of the crisis on the minimum wage regime in Portugal has
had two dimensions. First, it has led to unilateral state intervention, there-
fore abandoning the practice of consulting social partners. Secondly, it has
implied a real decrease in the minimum wage in those years when it was
frozen. During the crisis, the number of workers earning minimum wage in
Portugal increased quite dramatically. Estimates at the end of 2014 put the
share at around 13% of the working population.
In the post-crisis years, the consultation process continued, though an
agreement was not always possible. In 2016 and 2017, employers required
cuts in social contributions paid in order to accept minimum wage increases.
The trade union confederation didn’t accept these cuts and remained out
of the agreement. Growing tensions in relation to the minimum wage hin-
dered an agreement for 2018. When the Socialist government took power in
November 2015, it presented a proposal at the Standing Committee for Social
Concertation (CPCS) on an annual increase in the monthly minimum wage
(from €530 in 2016 to €557 in 2017, €580 in 2018 and €600 in 2019). Trade unions,
including UGT, were generally happy about this increase, even though the
CGTP wanted a higher increase, up to 600 Euros in 2017. Employer confeder-
ations initially opposed this increase; but, shortly afterwards, they accepted it
conditional upon the fulfilment of a series of requirements (including a com-
mitment not to introduce any changes to labor market regulations) that, ulti-
mately, the government couldn’t accept, as this challenged the government’s
plans to change rules allowing the individualisation of working time arrange-
ments and limiting companies’ use of atypical forms of work. Finally, nei-
ther CGTP nor employers agreed to sign an agreement and the government
approved the minimum wage up to 580 per month for 2018.
It is relevant to note that a trajectory of the minimum wage increase to
reach €600 in 2019 is a result of the parliamentary deals with the left par-
ties, and one of the conditions they put forward to support the government
of the Socialist Party (See the section Tripartite and bipartite bodies and
concertation.) The minimum wage increase to €580 in 2018 had considered
this trajectory.
Differences among social partners in relation to the minimum wage regime
are mostly related to the criteria used to determine its level or its impact. As
a matter of fact, it is not unusual to see some of the social partners opt out of
the agreement to increase the minimum wage. The very existence of a legal
minimum wage is, however, not contested by most social partners.
82 Oscar Molina
4.4.4 Boosting the minimum wage in Spain
According to the Labour Code (Estatuto de los Trabajadores), the mini-
mum wage level in Spain is set by the government every year after consulting
social partners and considering four variables: the annual consumer prices
index (Índice de Precios al Consumo); the national productivity average; the
contribution of labour to the gross national income; the general economic
context. However, there is no pre-defined formula or fixed mechanism to
calculate it. Moreover, the variables that should be considered when set-
ting minimum wage levels do not include any reference to what an adequate
minimum wage should be in order to guarantee a decent standard of living.
On the other hand, even though in most cases governments have involved
social partners to set minimum wage levels, there is no obligation to reach
an agreement, nor even to consult them.
The minimum wage regime has remained rather stable over the years.
However, with the 2008–2010 financial and sovereign debt crises, two impor-
tant developments have occurred. First, there has been a return to unilat-
eralism without consultation. Secondly, in 2011, and for the first time since
the introduction of the national minimum wage, the Spanish government
decided not to increase/update the minimum wage for the next year. This
freeze was maintained in 2013.
After some years of unilateral state intervention, the minimum wage for
2018 was the result of a tripartite agreement reached between the govern-
ment and social partners. They agreed to progressively increase the mini-
mum wage to 850 Euros by 2018 dependent on two conditions: the Spanish
GDP would increase by more than 2.5% each year, and Social Security
would register more than 450,000 affiliated people (i.e. workers) each year.
All in all, in order to progressively reach the level of 850 Euros in 2020, it was
agreed by all parties that the salary would increase by 4% (up to 735.90 Euro)
in 2018. This would mean an annual wage of 10,302.60 Euros, as 14 wages
are considered (i.e., including two extra monthly payments) standing around
40% of the mediam wage.
The Socialist government appointed n June 2018 and the new left-wing
coalition government appointed in January 2019, both in agreement with
the left-wing Podemos party, decided to give minimum wages a boost. In
the case of the minimum wage for 2018, the government approved a 22.3%
increase, from 735,90 Euro in 2018 up to 900 Euro per month or 12,600 per
year in 2019. This is the highest increase experienced by the minimum wage
since 1977. Similar to the 2017 increase in Portugal, the minimum wage
for 2019 in Spain was negotiated mostly in the political sphere, with social
dialogue playing a limited role. The governing pact between the Socialist
party (PSOE) and Podemos established four years of gradual increases in
order to reach a target of 60% of the average gross wage of 2024. According
to the new government, increasing the minimum wage was necessary in
order to converge with the EU average minimum wage, both in a context
of economic growth, and also because it would contribute, in a context of
demand to improvement of the general conditions of the economy whilst
preventing poverty at work and encouraging a more dynamic wage growth.
More specifically, this increase was in line with recommendations made
by the European Committee on Social Rights to set the minimum wage
at 60% of the median wage in the economy and contributes to meeting the
objectives of the 2030 Agenda. The government also expects this increase to
have a positive impact on internal demand and an increase in tax revenues
through social security contributions. Whilst trade unions have welcomed
the recent increases, employer organisations (CEOE) have been very criti-
cal. According to their views, it will destroy jobs and become an obstacle
for employment creation. The Spanish Central Bank also warned about the
dangers of excessive increases for employment performance, though with-
out providing any evidence against it. Some organizations of self-employed
workers (in particular, ATA, Asociación de Trabajadores Autónomos) have
also been very critical with these increases, as the social security contribu-
tions they pay for their dependent employees are linked to the minimum
wage. However, other organizations of self-employed workers (UATAE)
have welcomed these initiatives. These differences among organisations of
self-employed are explained by their membership. In the case of ATA, most
members are small entrepreneurs with some dependent workers, whilst in
the case of UATAE, there are mostly solo self-employees.
The increase in the minimum wage for 2019 was preceded by a collective
bargaining agreement signed by the most representative trade union organ-
isations in 2018, the Trade Union Confederation of Workers’ Commissions
(CCOO) and the General Workers’ Confederation (UGT), as well as
employer organisations including the Spanish Confederation of Employers’
Organisations (CEOE) and the Spanish Confederation of Small and Medium-
Sized Companies (CEPYME). The peak-level, inter-sectoral agreement cov-
ers wages and collective bargaining until 2020. Compared to previous peak
level cross-sector agreements, the one signed in 2018 not only set guidelines
for collective bargaining and wage-setting for 2018 and 2019, but it also estab-
lished a base of €14,000 a year for negotiated wages; a clear improvement for
the lowest salaries, which suffered most in the crisis, and comfortably above
the newly implemented statutory minimum wage. The social partners are
keen for this pact to mark a turning point in relation to the internal devalua-
tion which started in 2010 and led to a decline in wages in real terms.
The debate around the minimum wage in Spain is limited to the level
at which it is set, its role in reducing inequalities and the impact it has on
the labour market. Trade unions and employers consider the legal mini-
mum wage a good instrument to fight against social dumping and reduce
inequalities, though employers have cautioned about the negative effects
of the rapid increase experienced in 2019. The establishment of a mini-
mum negotiated wage in the peak cross-sectoral agreement for 2018-2020,
though non-binding, marks a turning point with respect to previous years,
84 Oscar Molina
where social partners only negotiated guidelines for wage increases in the
peak cross-sectoral agreements and shows a shared consensus around the
need to push up wages after several years of internal devaluation.
4.5 Concluding remarks

As an important element of wage setting systems, minimum wages in Southern
Europe have been under similar pressures throughout the crisis years. The
crisis has triggered an increase in unilateral state action in relation to wage
setting. In the case of Portugal, this has consisted in breaking with the tradi-
tion of consulting social partners and setting the minimum wage unilaterally.
Something similar has occurred in Spain, where the government has tended
to overcome social partners and set the minimum wage unilaterally. In the
case of Greece, the negotiated system in place before the crisis was replaced
by a legal minimum wage to be fixed unilaterally. In Italy, the government has
made several proposals to install a legal minimum wage, but social partners
have instead renewed their commitment to a negotiated minimum wage.
As a consequence of these changes, and as part of the internal devalua-
tion implemented in Southern European countries, employees paid at the
minimum wage level have suffered losses in real terms due to a slowdown in
nominal increases and a failure to keep pace with rising prices, and/or the
freezing of minimum wages.
In the post-crisis years, we have seen how these trends have been, to some
extent, reversed. On the one hand, more spaces for negotiations and/or consul-
tation with social partners seem to emerge in those countries where the trend
towards state unilateralism intensified. This has been the case in Greece and
Portugal, though in the former, social partners are still demanding a return
to a negotiated minimum wage. However, both Spain and Portugal have
witnessed in recent years the pre-eminence of party-political negotiations
over social dialogue when setting minimum wages. This shows that, even in
a favourable macroeconomic context, the shadow of hierarchy of the state
remains key in order to understand developments in relation to industrial
relations and the labour market. Moreover, the last two years have witnessed
important real increases in minimum wages. In most cases, these increases
have occurred in the context of multi-annual plans to increase minimum wage
levels according to pre-determined goals. In the case of Spain and Portugal,
the goal of reaching 60% of the average/median wage is explicitly stated.
The analysis has shown how minimum wage setting regimes in Southern
Europe are open to cyclical changes and discretionarily used by governments
due to the lack of well-defined criteria required to set them. Even though
inflation, productivity and general economic conditions appear as criteria to
be considered by governments and/or social partners, less attention is paid
to their role as mechanisms to reduce inequalities to their potential role as
industrial policy instruments (Linder, 1989). Interestingly, there is no policy
debate around the need to embrace the notion of a living wage when setting
minimum wages in Southern Europe. Even though there are general refer-
ences to the idea of a decent minimum wage, and the 60% average wage target,
there isn’t yet a real policy debate around the need to adopt other criteria to
calculate minimum wages, including housing costs, subsistence etc. So far,
the variables used to calculate minimum wage increases rely on economic
conditions, not the living standards. Consequently, minimum wage setting
is, to a large extent, subject to economic and distributional considerations.
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5 Shaping minimum wages in
Central and Eastern Europe
Giving up collective bargaining in
favour of legal regulation?
Marta Kahancová and Vassil Kirov
Central and Eastern European (CEE) member states of the EU share a com-
mon past under state socialism and the transition to democracy and a mar-
ket economy. Nevertheless, in each CEE country, the transition experience
was channeled via country-specific institutional arrangements, resulting
in diverse forms of capitalism - neoliberal (Bulgaria, Estonia, Lithuania,
Latvia, Romania), embedded neoliberal (Croatia, Czechia, Hungary,
Poland, Slovakia) and corporatist (Slovenia) (Bohle and Greskovits, 2012;
Samardžija et al., 2017). Neoliberalism of the Baltics and embedded neo-
liberalism of the Visegrad countries share an early policy orientation that
emphasised privatisation, liberalisation, and deregulation with the aim to
attract foreign direct investment. However, these countries are distinctive in
their approach towards making a radical break with the past, in particular
concerning the choice to preserve social and welfare policies in the light
of neoliberal reforms (Bohle and Greskovits, 2012). Despite these differ-
ences in their systems of political economy and industrial relations, all CEE
countries succeeded in introducing a statutory minimum wage. In addition,
the region has registered relatively high levels of growth in nominal and
real values of minimum wages, although the minimum wage levels are still
among the lowest in the EU (Eurofound, 2017).
While the minimum wage debate belongs to the most important topics
for tripartite negotiations in CEE countries with established structures of
tripartite social dialogue, evidence shows that in several countries differ-
ent mechanisms assure the minimum wage is increased on a regular basis
rather than stalled by disagreements in tripartite negotiations. It could be
an established mechanism with a fixed procedure to settle a minimum wage
increase if social partners fail to come to an agreement (as, for example, in
Hungary before 2002, or in Czechia and Slovakia) or a discretionary govern-
ment decision inscribed in the long-term budget planning (as in Bulgaria).
Acknowledging the diverse mechanisms of minimum wage setting in CEE
countries, this chapter explores and analyses minimum wage negotiations
from an actor-oriented and industrial relations oriented perspective (see
Dingeldey et al., Chapter 1). It asks what role do tripartite social partners,
including representatives of employers, trade unions and governments,
88 Marta Kahancová and Vassil Kirov
play in the annual fixing of minimum wages?; and how do the minimum
wage setting procedures affect and interact with broader processes of col-
lective bargaining at the national and sector levels? In addressing these
questions, the chapter seeks to explain the relationship between two impor-
tant phenomena - namely, steep rises of minimum wages on the one hand,
and a declining power of trade unions, bargaining decentralisation and
a weakening policy influence of tripartite negotiations on the other. The
analysis is based on original empirical evidence collected by the authors as
part of related research on collective bargaining (Kirov, 2019; Delteil and
Kirov, 2016; Fabo et al., 2013; Kahancová et al., 2019). A central argument
of this chapter is that while social partners initially considered the legally
stipulated automatic mechanisms of minimum wage increases a success of
tripartite social dialogue, in a context of changing power relations in nego-
tiations such mechanisms turned out to crowd out institutions of social dia-
logue and collective bargaining.
The chapter consists of three sections. Section one examines the evolution
of minimum wages in CEE countries, including attention to the share of
minimum wage earners in the labour force. This evidence sets the backdrop
for understanding particular actors’ strategies regarding minimum wage
setting. Section two focuses on the mechanisms of minimum wage setting
and the role of social actors in this process in a comparative perspective.
Focusing on Bulgaria and Slovakia as two specific country studies, section
three critically analyses two diverse pathways of minimum wage setting
and the related activities of social partners. The conclusion summarises the
main arguments and draws implications from the experiences with mini-
mum wage setting for more general roles of collective bargaining in the CEE
region.
5.1 Minimum wage developments in Central

and Eastern Europe
Comparative analysis of the evolution of minimum wages in the eleven
countries that entered the EU in 2004 (Czechia, Estonia, Latvia, Lithuania,
Hungary, Poland, Slovenia and Slovakia), 2007 (Bulgaria and Romania)
and 2013 (Croatia) shows that in all eleven countries a statutory minimum
wage exists and constitutes an important benchmark for other wage setting
mechanisms (Vaughan-Whitehead, 2010). In all of these countries, the stat-
utory minimum wage also acts as a reference value for welfare allowances,
unemployment benefits and state pensions; also, for a number of freelance
professions the minimum wage serves as a reference for taxation (Galgóczi,
2015: 302–303).
While the development of minimum wage levels in CEE countries shows
an increase in all countries since 1999, different countries experienced dif-
ferent patterns of increase, fall and stagnation (Figure 5.1). In some coun-
tries, the rise has been substantial: in Romania the minimum wage tripled
Shaping minimum wages in Central and Eastern Europe 89
Figure 5.1 Trends in monthly minimum wages, 1999–2019 (nominal, in euros).

Source: Eurostat (data code: earn_mw_cur) and Eurofound (2020).
in the last decade and in Bulgaria and Lithuania it more than doubled
(Figure 5.1). In Romania, the reason behind such increase was a combina-
tion of a governmental catching-up strategy given the comparatively lowest
level of minimum wage in the EU and high share of minimum wage earn-
ers, with labour shortages and demands of trade unions (Emerging Europe,
2018; Stoiciu, 2019). In contrast, there are several examples of periods of
declining and stagnating minimum wages in the immediate aftermath of the
2008 economic crisis (Bulgaria, Croatia, Estonia and Lithuania) or in later
years (Croatia between 2010–13, Czechia between 2011–12, Poland between
2012–13 and Hungary between 2013–15). These ‘pauses’ in minimum wage
rises are inter-related with changes in approach towards minimum wage
rises and the relative positioning and bargaining power of the social part-
ners, as section two documents.
The overall increasing trend in the level of minimum wages in the
last two decades is related to governmental catching-up strategies dur-
ing the post-crisis period resulting in political will to increase minimum
wages, often after negotiations with social partners (Eurofound, 2020;
Goraus-Tanska and Lewandowski, 2016; Hárs, 2019; Stoiciu, 2019). While
the CEE region should no longer be perceived as a low-wage region,
because of growing productivity and rapid improvements in economic
performance after the inflow of foreign investments in the last 20 years,
several countries are still firmly rooted in a low wage economic model
(Galgóczi, 2017). In Bulgaria, Latvia, Romania and Hungary, the mini-
mum wage level remained below €500 in 2020 (Eurofound, 2020). In fact,
only Slovenia belongs to countries with ‘mid-range’ minimum wage rates
(between 650 and 900 Euros); all other CEE countries are classified as
‘low-range’ countries in a European perspective, with minimum wages
between €500–600 or below €500 for the above-mentioned countries
(Eurofound, 2018; and 2020).
Assessing the relevance of a minimum wage as a regulatory tool on the
labour market derives not only from its steady upwards increases, but also
from the actual share of minimum wage earners. Empirical evidence sug-
gests that countries with highest average growth of the statutory minimum
wage also record the highest share of minimum wage earners (see Table 5.1).
These include Bulgaria, Lithuania, and Romania. The most outstanding
case is Romania, where the minimum wage grew on average by 11% since
2009, while the share of minimum wage earners reached 40% in 2017 (see
also Stoiciu, 2019). In contrast, Croatia, Czechia, Slovakia and Slovenia
belong to countries with a share of minimum wage earners close to the EU
average of 4-5% (Eurofound, 2020). Also, these countries demonstrate a
comparatively low rate of average minimum wage increases between 4 – 6%
(see Table 5.1).
Evidence on the share of minimum wage earners includes part-time work-
ers in a number of countries. For the sake of comparability, the Structure of
Earnings Survey (SES) from 2010 and 2014 compared the share of minimum
wage earners among full-time workers aged at least 21 and working on com-
panies with at least 10 employees, excluding employees in public adminis-
tration, defense and compulsory social security and excluding additional
income from overtime and shift work (Eurostat, 2020). These data show that
the share of full-time workers among minimum wage earners exceeded 10%
in 2014 in Poland (11,7%), Romania (15,7%) and Slovenia (19,1%) (Eurostat,
2019). A comparison with Table 5.1 shows that within the overall lowest
share of minimum wage earners in Slovenia, a significant share of these are
workers in full-time employment. In Romania, a country with the highest
Table 5.1 Statutory minimum wage coverage and annual growth, 2009–2020
Share of minimum wage Rate of average annual minimum

earners (%) wage growth
Bulgaria 17,7% Lithuania 20,2% Bulgaria 9% Lithuania 9%

Croatia 5,4% Poland 10% Croatia 4% Poland 6%
Czechia 3,6% Romania 40% Czechia 6% Romania 11%
Estonia 19-15% Slovakia 5-6% Estonia 7% Slovakia 6%
Hungary 14% Slovenia 5,4% Hungary 6% Slovenia 4%
Latvia 18% Latvia 5%
Source: The authors based on Eurofound (2018 and 2020), Eurostat and Nestić et al. (2017).
Data on share of minimum wage earners for 2017 except Croatia (2015), Czechia (2016), Hungary
(2015), Lithuania (2016), Poland (2015) and Slovenia (2016). Rate of average annual minimum
wage growth refers to geometric average (geomean) for the period 2009–2020.
share of minimum wage earners in the whole CEE region, the share of mini-
mum wage earners is comparatively high both among full-time workers and
workers in other job positions.
In sum, minimum wages recorded a gradual increase all over the region
since 1999, with varying country-specific patterns of high growth, stagna-
tion or evenly spread annual growth. In some countries, the share of mini-
mum wage earners increased; in others, the share of minimum wage earners
remains marginal. We interpret this finding from the perspective of the
multiple functions a minimum wage can play in a society (Rubery et al.,
Chapter 2; see, also, Figart et al., 2002; Rubery et al., 2020). First, the low
share of minimum wage earners suggests that individual solutions to wage
demands are likely to play an important role in these countries. Second,
the widespread practice of minimum wage payments complemented by
undocumented cash payments to avoid income tax, found in South Eastern
Europe (Williams, 2015), means an unknown share of minimum wage
earners are in fact misclassified. It is therefore important to analyse the
minimum wage setting mechanisms in a broader framework of social rela-
tions and political choices instead of a narrow focus linking minimum
wage developments with economic performance.
5.2 Mechanisms for minimum wage determination:

between a legal instrument and collective bargaining
Within the broader societal context, analysis of minimum wage setting
must also consider the interests and political will of the involved actors that
possess some power or discretion over minimum wage setting. This is even
more the case in the context of weak institutions in the CEE region (Trif
et al., 2020) where, with the exception of Slovenia, industry-level and mul-
ti-employer bargaining remains weak, while national tripartism and com-
pany-level collective bargaining are common in most countries (Galgóczi,
2015; Müller et al., 2019). In the context of the contested role of tripartism,
which has been termed as a ‘façade’ or ‘window-dressing’ (Ost, 2000), nego-
tiations about minimum wages gain importance because they constitute a
core activity of tripartite councils in CEE countries.
All CEE countries sought a negotiated process of minimum wage setting
between social partners before adopting a binding decree of law on mini-
mum wage levels by government or parliament (Eurofound, 2020; Galgóczi,
2015; Nestić et al., 2018). Consultations on the minimum wage increase
between the government, unions and employers occurs either prior to gov-
ernment decision or at the final stage of government decision, with or with-
out other specific mechanisms such as indexation linked to developments
in real wages and inflation. In 10 CEE states, the government consulted
social partners regarding the minimum wage rise in 2017 (see Table 5.2).
However, despite consultations, in 5 countries (Czechia, Poland, Romania,
Slovakia and Slovenia) social partners failed to reach an agreement on a
Table 5.2 Role of government and tripartite consultation in
determining the statutory minimum wage in 2017
Country Government Tripartite consultation
Bulgaria R N
Croatia R N
Czechia R+U N
Estonia R N
Latvia R VN
Lithuania R VN
Hungary R VN
Poland R+U
Romania R+U N
Slovenia R+U N
Slovakia R+U N
Notes: R - Decided new minimum wage level after taking into account
recommendations of social partners or other mechanisms (e.g. indexation
related to development of real wage and inflation); U - Decided level uni-
laterally; V - Reached consensus on the level; N – provided non-binding
recommendation on level.
Grey cells refer to cases where decisions regarding minimum wage increase
were consulted with social partners.
Source: adapted by the authors from Eurofound (2018 and 2020)
recommended minimum wage and the government implemented the uprat-

ing unilaterally. While this comparative finding can be associated with the
government’s political commitment to the living wage function of a mini-
mum wage (c.f. Rubery et al., 2020), it suggests that the negotiated minimum
wage setting as a social practice is contested in some CEE countries. In
turn, several countries are turning to a rule-based methodology for min-
imum wage setting. Estonia has been the first country to introduce such a
methodology in 2017, but its implementation remains contested and raises
tensions among partners in finding a consensus on the minimum wage level
(Eurofound, 2020: 28–29).
The government’s strong discretion over the process of minimum wage
setting in the majority of CEE countries relates to the resources of social
actors and their power relations. Trade unions’ role in the determination of
minimum wages through their involvement in national tripartism has in fact
kept the erosion of union influence within reasonable limits (Galgóczi, 2015:
302). At the same time, the fact that trade unions build their influence over
minimum wage determination by relying on political resources, typically
through alliances with political parties, makes unions and bargaining struc-
tures overly dependent on political will for their role in the minimum wage
fixing process (ibid.). In this context, the power asymmetry between unions
and employers has been growing. In turn, in some CEE countries unilat-
eral governmental decisions over minimum wage increases have become
more frequent, while some countries saw a change from negotiated setting
of minimum wages to other mechanisms. In 2019, Croatia adopted a mech-
anism based on an expert committee (Eurofound, 2020), while Slovakia
introduced an indexation mechanism from 2021, linking the minimum wage
level to 60% of average gross nominal wages from two years preceding the
new minimum wage level if social partners fail to agree on a proposed min-
imum wage increase (see Section 3 below).
Governments are motivated to maintain a certain level of minimum wage
for multiple competing reasons (Grimshaw, 2013). These include fiscal rea-
sons, since raising the minimum wage, extending its coverage (for example
among freelancers) and improving compliance (by reducing the practice of
paying envelope wages in cash for example) increases the volume of income
tax revenues for government. In countries where the minimum wage level
significantly influenced the overall wage levels, namely in Hungary, Czechia
and the Baltic States, governments pushed for minimum wage increases
to ease social tensions, increase state revenues and push up general wage
scales. The well-known example is Hungary where the government inter-
vened to raise the minimum wage by 50% in 2000 and 40% in 2001. These
increases exceeded the trade union demands in tripartite negotiations. In
2019, Slovakia’s most important trade unions and employers’ associations
criticised the government for their politicised approach to minimum wage
setting and for announcing a proposal for a new minimum wage level in
2020 without prior negotiations with the social partners.1
In some cases, governments have also intervened unilaterally to reduce
the minimum wage. In 2010 and 2011, the Polish government unilaterally
fixed a minimum wage level that was below the agreement of social part-
ners. Romania saw a governmental suspension of a tripartite agreement for
2008–2014 on minimum wages and a unilateral introduction of wage freezes
to meet the IMF-EU debt settlement requirements. In this case, the declared
minimum wage was 30% below the trade union demand. Hungary faced a
trade-off between an introduction of a flat tax rate on personal income tax
in 2010 while making minimum wages subject to taxation since 2011, caus-
ing a drop in net income levels of low wage earners (Galgóczi, 2015).
In sum, all CEE countries have established tripartite fora where annual
minimum wage increases belong to the most important points on the
agenda. Nevertheless, the role of social dialogue has been weakening in the
determination of minimum wages, as social partners increasingly failed to
reach a consensus on the minimum wage increase, or the government did
not accept the social partners’ non-binding recommendations (Eurofound,
2020). The fact that social partners increasingly find it difficult to reach an
agreement regarding minimum wage growth and that other mechanisms
for minimum wage setting have been introduced weakens their bargaining
1 Source: 2019 interviews with national-level unions and employers that are represented in
the tripartite committee.
capacity and increases the government’s discretion over minimum wage set-
ting. Governments may take decisions informed by economic factors, but
the evidence suggests their decisions are often politically motivated or com-
bine both economic and political factors.
Despite the heterogeneity of the CEE region, CEE countries fit into the
institutional categories of either ‘Isolated minimum wage’ or ‘Distant inter-
action’ with respect to the relationship between the minimum wage and
collectively agreed wages (see Dingeldey et al., Chapter 1). The initial idea
of tripartism was to have the statutory minimum wage act as a base line
and then to motivate trade unions to negotiate sector-specific wage levels at
defined levels above the minimum wage. While this would have promoted a
degree of coexistence between the minimum wage and collectively bargained
wages, in reality the weakening union resources and weak enforcement of
collective agreements among most CEE countries pushed trade unions to
orient their wage policies towards minimum wage increases rather than col-
lective bargaining (c.f. Trif et al., 2020; Kahancová, 2015). This pattern of
wage-setting therefore rather resembles an isolated coexistence of the stat-
utory minimum wage and collectively agreed wages where the minimum
wage setting procedure does not yield a direct impact on collective bargain-
ing procedures or outcomes.
The next section offers a more in-depth perspective on two country
cases – Bulgaria and Slovakia. These cases illustrate contrasting trajectories
in how the intervening role of minimum wage setting institutions informed
the bargaining strategies at the level of sectors.
5.3 Country case studies: The interplay of actors

between collective bargaining and the legal
determination of minimum wages
To provide more in-depth evidence on the interplay of actors’ bargaining
strategies and the changing power relations between unions, employers and
the government in the determination of minimum wages, this section exam-
ines the cases of Bulgaria and Slovakia. In both countries, the minimum
wage is subject to tripartite negotiations, but the final decision on a mini-
mum wage increase is determined by the government if social partners fail
to reach a consensus. While in both countries tensions between the govern-
ment and social partners over minimum wage negotiations were increas-
ing, Bulgaria and Slovakia adopted different pathways of minimum wage
determination.
5.3.1 The case of Bulgaria

The case of Bulgaria illustrates a situation where social partners have sought
a mechanism for minimum wage setting beyond the discretional decisions
of the government.
5.3.1.1 Collective bargaining and its actors
Collective bargaining in Bulgaria takes place between trade unions and
employers’ organisations at industry and company levels where the com-
pany level is the most important bargaining level (Kirov, 2019). Estimates
of bargaining coverage suggest a 20–30% coverage for recent years (ETUI,
2016). Even though bargaining coverage decreased by 11% points between
2002–2012, it is still relatively high compared to other CEE countries.
Between 2001 and 2011 the option to extend collective agreements was not
used because of employer-induced government opposition to the principle of
extension. This situation changed in 2011 when trade unions campaigned to
promote the extension mechanism to collective agreements with anti-crisis
stipulations. Hence, after May 2011 five agreements were extended in indus-
tries such as mining, beer brewing and water supply (Kirov, 2019). Since
2016, however, the extension mechanism has not been used. An important
factor explaining the decline in bargaining coverage is the drop in union
density from 26% in 2002 to 15% in 2012 (Kirov, 2019).
During the transition, the Bulgarian trade union movement was dominated
by two large confederations. The main actors in the development of industrial
relations on the trade union side were the reformed old social structures of the
Confederation of Independent Trade Unions of Bulgaria (Konfederatziata na
nezavisimite sindikati v Balgaria, KNSB) and the newly created Confederation
of Labour (CL) ‘Podkrepa’ (Konfederatziata na truda ‘Podkrepa’).2 In con-
trast to the trade union movement, pluralism is much more prominent on the
employers’ side with five nationally representative organisations.3
5.3.1.2 Minimum wage development

Since 1990, the minimum wage in Bulgaria has been defined by decrees
of the Council of Ministers. The Labour Code stipulates that these deci-
sions are discussed accordingly and in advance at the National Council for
Tripartite Co-operation. The size of the minimum wage is determined as
2 KNSB is the largest confederation with an estimated membership of 250,000 in 2014.

CL Podkrepa was formed in 1989 by a small group of dissidents. After the 1989 regime
change, CL Podkrepa rapidly became the second largest trade union confederation in
Bulgaria with a strong presence in all sectors and regions. The latest available data report
91,738 members of CL Podkrepa in 2012 (Kirov, 2019).
3 The successors of the old structure of managers of state-owned companies, the Bulgarian
Industrial Association (Balgarskata stopanska kamara, BSK) and the Bulgarian Chamber
of Commerce and Industry (Balgarskata targovskopromishlena palata, BTPP) co-exist
with the more recently established Confederation of Employers and Industrialists in
Bulgaria (Konfederaziata na rabotodatelite I industrialzite v Balgaria, KRIB), claiming to
represent a signiﬁcant part of GDP and employment, and the Association of Industrial
Capital in Bulgaria (Assoziaziata na industrialnia capital v Balgaria, AIKB), representing
the former mass privatisation funds.
an absolute value per month and per hour having in mind the normal dura-
tion of working time (eight hours per day and five working days per week,
four working weeks in a month) (Loukanova, 2011). In general, the change
in the minimum wage is introduced in the National Council for Tripartite
Cooperation during the presentation of the State Budget, but the Minister
can set the minimum wage administratively, if agreement is not reached by
the social partners.
According to Tomev et al. (2019), this legislative norm, providing for a
unilateral government decision without meaningful negotiations with social
partners, has been attacked over the last ten years by both trade unions and
employers, albeit from different perspectives and with different arguments.
Trade unions complained when the minimum wage was frozen for nearly
three years between 2009 and 2011 following the economic crisis. However,
since then the government has ensured regular minimum wage increases
each year, despite fierce opposition from employers.
In 2010 the minimum wage deducted by payable taxes reached 189.70
BGN – a level that is below the poverty line4 of 211 BGN. According to
Loukanova (2011), this was the main argument of those who insisted on its
increase in 2011. The minimum wage was kept below the poverty line until
2007 and this was proved by some experts’ calculations in 2002–2005. In the
period 2009–2012 the minimum wage in the country was practically frozen
(at 240 BGN from the 1 January 2009 to 31 August 20115) in response to the
financial crisis.
The recovery since 2013 has been characterised by a continuous increase
of the minimum wage in Bulgaria (from 310 BGN since 2013 to 560 BGN in
2019). During 2013-2019, there was active debate between the social partners
and the government. In general, the employers’ organisations were opposed
to the minimum wage increases, arguing that it would destabilise the econ-
omy and make low wage employees redundant. In January 2017, three of
the largest nationally representative employers’ organisations in the coun-
try6, criticised the government’s decision to increase the minimum wage.
They claimed that the decision violated the law as the decree was adopted
by Bulgaria’s Council of Ministers without preliminary discussion with
the representative social partners in the National Council for Tripartite
Cooperation (NCTC). In May 2017, following the complaint, the Supreme
Administrative Court of Bulgaria (SAC) repealed the decree, which had
4 The poverty line was introduced in 2007 in Bulgaria and before that its functions were
delegated to the minimum wage as a basic income line to determine the social insurance
and social assistance payments.
5 See data about the minimum wage evolution at https://www.kik-info.com/spravochnik/
mrz.php
6 The Bulgarian Industrial Capital Association (BICA), the Bulgarian Industrial
Association (BIA), the Bulgarian Chamber of Commerce and Industry (BCCI) and the
Confederation of Employers and Industrialists in Bulgaria (KRIB).
from 1st of January 2017 increased the minimum wage from BGN 420 per
month to BGN 460. The Council of Ministers had also failed to comply with
the court decision, in force since 2015, which had repealed a 2014 decree to
increase the minimum wage. This repeal was issued because of an unful-
filled conciliation procedure with the NCTC. The NCTC was supposed to
discuss the decree to increase the minimum wage in order to overcome the
SAC decision.
The issue of the minimum wage has gained importance not only at
national level, but also in the framework of the EU semester and more pre-
cisely the Country Specific Recommendations (CSRs), which advised the
government to establish a transparent mechanism for minimum wage set-
ting in consultation with social partners. Tomev et al. (2019) show that this
issue has been repeatedly raised in CSRs since 2014 and is addressed in
the National Reform Programme. In CSRs 2014, 2015, 2016 and 2017 the
European Commission stated:
“The minimum wage is set without a clear and transparent mechanism

and the percentage of workers at the minimum wage has increased more
than twofold over the last six years. The lack of such a mechanism may
put at risk the achievement of a proper balance between the objectives
of supporting employment and competitiveness, while safeguarding
labour income. In addition, it creates uncertainty that can adversely
impact the predictability of business conditions.”
(European Commission, 2018)
According to Tomev et al. (2019: 24), “the establishment of a transparent

mechanism for minimum wage setting (using precise and clear criteria and
indicators) has long been on the social dialogue agenda”, but this process
has intensified since the European Commission CSR. Tomev et al. (2019)
argue that in response to the 2016 CSR, the National Reform Programme
included measures for its implementation and an expert working group was
set up, consisting of representatives of MLSP, the two trade union confeder-
ations and five employers’ organisations. The two nationally representative
trade union confederations, CITUB and Podkrepa, proposed a Conceptual
model for setting the minimum wage (2016), in which the level is negotiated
by social partners (Tomev et al., 2019). However, no “significant progress
was achieved in 2016 due to the diverging positions of employers and trade
unions, and the inability to reach a compromise settlement” (op. cit.). The
main points of disagreement were the lower and upper threshold of the min-
imum wage, particularly the upper threshold. While trade unions proposed
an upper threshold of 50% (CITUB)/60% (Podkrepa) of the average wage,
the employers insisted on an upper threshold of 43–45%.
The deadlock in 2017 meant that the negotiations were shifted from the
working group to political level - with the participation of the Minister of
Labour and the leaders of the social partners’ organisations. The Minister
of Labour initiated consultations on the social partners’ readiness to sign
a tripartite Framework Agreement on the procedure for negotiation and fix-
ing of the amount of the minimum wage for the country (Tomev et al., 2019).
This agreement included a bilateral negotiation procedure. In the case
when social partners fail to reach a joint decision, the Minister of Labour
was supposed to propose a draft Decree setting the minimum wage to the
Council of Ministers. The proposed procedure and scenarios were discussed
at expert level in July 2017, when it became clear that it would be difficult to
coordinate the still divergent views. Employers have firmly insisted on an
upper threshold of no more than 43% of the average wage.
Substantial differences between the social partners also existed on issues
such as the relevant social and economic criteria for minimum wage setting
and the respective weights to be given to these, as well as minimum social
security thresholds, and the so-called ‘seniority bonus’. While trade unions
insisted on giving greater weight to the social indicators, the employers
attached greater importance to economic indicators. Thus, the signing of
a Framework Agreement in 2017 was impossible despite the apparent com-
mon will to move forward.
To break the deadlock in negotiations, social partners decided to base
the future mechanism on the ILO Convention 131 on minimum wage fixing
(Tomev et al., 2019). Under the Convention, the minimum wage ought to be
determined according to a number of important social and economic crite-
ria, including inflation, labour productivity, employment and GDP growth.
In January 2018, Bulgaria ratified Convention 1317, which was assessed
by the European Commission as ‘a step in the right direction’. (European
Commission, 2018: 30).
Employers have warned that the proposed minimum wage increase does
not correspond to the poverty line (or minimum level of income required),
the extremely low growth of labour productivity and employment, and the
dynamics of the average wage in recent years. However, trade unions and the
government support the increase in the minimum wage. The medium-term
budget plans of the current government8 included increasing the minimum
wage to BGN 510 (€260) in 2018 and to a minimum of BGN 610 (€312) in
2020. In the debates, employers have considered the ‘poverty line’ as a suita-
ble lower limit, because all the parameters relevant to the quality of life have
been taken into account and it is calculated on the basis of objective statis-
tical indicators. The employers also say that the requirements of Article 3
of ILO Convention No. 131 should be implemented as part of Bulgarian
labour legislation so that, while determining the minimum wage, the needs
7 In this way Bulgaria joined four other CEE countries (Romania in 1975, Latvia in 1993,
Lithuania in 1994 and Slovenia in 1992). The other CEEC have not ratified the Convention
131.
8 <http://www.minfin.bg/bg/legislation1>
of workers and their families are taken into account, as well as: the overall
level of wages in the country; the cost of living; social benefits; the standard
of living of other social groups. The employers want the maximum limit to
be determined as an average of the ratio of the minimum wage and average
wage in the countries of the European Union with a statutory minimum
wage.
During the social partners’ discussions on the state budget for 2018,
the largest trade union confederation CITUB – organised a national pro-
test for pay increases on 27 October 2017 under the banner of ‘Income,
Rights, Dignity’. More than 10,000 workers from all economic sectors pro-
tested in front of the Council of Ministers. The national protest delivered
the Declaration of Working Bulgaria, addressed to the government and
employers, calling for action on various key topics involving labour rights.
The CITUB national protest demanded reforms from the government such
as an income policy that would achieve 60% of the average European gross
domestic product, minimum monthly income levels of at least BGN 800
(€408), and an average monthly wage of BGN 1,700 (€866) by 2022. In addi-
tion, the CITUB wanted the minimum wage to provide normal living sup-
port, with differentiated amounts paid according to an employee’s level of
educational attainment – for example, at least BGN 700 (€357) per month
for university graduates at the start of their career. In addition, the protest-
ers insisted that seniority pay should be preserved, as well as the current
additional remuneration with annual increases in line with the growth in
average pay.
In sum, the case of Bulgaria illustrates a situation when the minimum
wage has been routinely fixed unilaterally by the government, provoking
protests of trade unions and employers in different periods and for different
reasons. Although there has been a continuous push from the European
Commission for a clear and transparent mechanism for minimum wage
setting, for the time being social partners have not been able to reach an
agreement, particularly on the lower threshold of the minimum wage. As a
consequence, the unilateral fixing of the statutory minimum wage by gov-
ernment has not yet been replaced with a more transparent mechanism.
The meaningfulness of the minimum wage for collective bargaining is rela-
tively limited. Despite a few exceptions, real wage bargaining at the sector
level is not practiced and sectoral collective agreements often merely repli-
cate Labour Code provisions. Nevertheless, the statutory minimum wage
remains very relevant for low wage workers, including those working in the
public sector (Kirov, 2019). In this context, the influence of the minimum
wage on company-level bargaining remains indirect.
5.3.2 The case of Slovakia

As the only country in CEE, Slovakia introduced a mechanism for mini-
mum wage setting at the level of 60% of the national average nominal wage
from two calendar years preceding the year for which the minimum wage
is set.9 While trade unions consider this a historical success, the new mech-
anism also undermines negotiated minimum wage setting and collective
bargaining.
5.3.2.1 Collective bargaining and its actors

The new minimum wage setting mechanism has been shaping up in condi-
tions of a of a transparent hierarchy of trade unions and employers’ asso-
ciations, established national tripartism and sectoral bargaining coexisting
with company-level bargaining. Despite formally well-established bargain-
ing institutions, bargaining coverage gradually declined from 52% in 2000
to 30% in 201510. This is due to fragmentation of unions and employers and
their increasing focus to seek legislative solutions to regulate working con-
ditions instead of collective bargaining (Kahancová, 2015).
Access of unions and employers to legislative regulation occurs mainly,
but not exclusively, through their representation in national tripartite social
dialogue. There are four peak-level employers’ federations and one trade
union confederation recognised representative in national tripartism. In
2019 the national tripartite council consisted of seven government represent-
atives, seven representatives of the trade union confederation (Konfederácia
odborových zväzov SR, KOZ SR), and seven representatives of employers’
associations11.
5.3.2.2 Minimum wage determination

The trend of seeking legal solutions instead of negotiated ones broadly
applies also to developments related to the minimum wage. Slovakia has
a legally stipulated minimum wage, which has been renegotiated in the tri-
partite council on an annual basis. The history of tripartism dates back to
1990 when the tripartite Council for Economic and Social Accord (Rada
hospodárskej a sociálnej dohody, RHSD) was founded. The most important
outcome of tripartite negotiations has been the conclusion of an annual
9 Minimum wage in year N is set as 60% of the national average nominal wage in year N-2.
10 Source: Dataset on Industrial Relations, Database on Institutional Characteristics of
Trade Unions, Wage Setting, State Intervention and Social Pacts (ICTWSS dataset), ver-
sion 6.1, November 2019, data code AdjCov. <http://uva-aias.net/en/ictwss> [ accessed
November 29, 2019].
11 On the employers’ side, the Association of Employers’ Federations and Associations
(Asociácia zamestnávateľských zväzov a združení, AZZZ) has three representatives in tri-
partism, the Republic’s Union of Employers (Republiková únia zamestnávateľov, RÚZ) has
two representatives, and the Association of Industry Federations (Asociácia priemysel-
ných zväzov, APZ) and the Federation of cities and municipalities (Združenie miest a obcí
Slovenska, ZMOS) have one representative each in tripartism.
national-level General Agreement (Generálna dohoda, GD). In the 1990s,
the GDs presented particular responsibilities for the government in the pro-
cess of economic and social reforms and stipulated a minimum wage. Next
to policy-related recommendations through memoranda and standpoints
supporting the government’s legislative proposals on economic and social
policy, negotiations of the minimum wage belonged to key topics of tri-
partism already in the 1990s. However, after 1996 tripartism faced increas-
ing tensions under an authoritarian government rule. In light of escalated
tensions, the dominant trade union confederation KOZ SR refused to sign
a GD for 1997 and allied with the political opposition (Ost, 2000: 513).
Tripartite consultations were suspended in 1997–1998 and reconvened again
in 1999 after a government change and the enactment of new legislation on
tripartism (Act No. 106/1999 on Economic and Social Partnership). Due to
growing discrepancies in social partners’ standpoints on particular policy
domains, the last GD was concluded in 2000 to stipulate recommendations
in economic, income, employment and social policy domains (Czíria, 2012).
Tripartite negotiations were reintroduced after 2000 and received a revised
regulation in form of Act No. 103/2007 on tripartism. Nevertheless, tripar-
tite negotiations stipulated only non-binding recommendations to the gov-
ernment. Thereby the actual role of social dialogue in the process of setting
the minimum wage has been gradually weakening and the discretion over
the final decision in minimum wage setting was increasingly shifted onto the
government (c.f. Fabo et al., 2013).
In 2006, the leading social-democratic political party SMER entered gov-
ernment and a standardised legislation procedure with a predefined indexa-
tion mechanism for the minimum wage followed in 2007 (Act No. 667/2007
Coll. on the minimum wage). The law stipulates that if social partners fail
to agree, then the next year’s minimum wage will be set at least at the level
of the current minimum wage plus the index of annual growth of the aver-
age nominal wage. This index is published by the Statistical Office for the
calendar year preceding the year in which the minimum wage setting takes
place. The statutory monthly gross minimum wage is adjusted pro rata for
employees working in part-time employment. In addition, in a manner more
commonly associated with emerging economies outside Europe (Grimshaw
and Bustillo, Chapter 10), the Labour Code also stipulates a specific six
legally binding minimum wage levels based on the complexity of the job
content. These levels are considered as a statutory benchmark for particu-
lar job types (not occupations), and should also be reflected in collective
agreements.
The indexation mechanism influenced the interests and priorities of tri-
partite social partners. In fact, their willingness to achieve a consensus
regarding minimum wage increases diminished in the knowledge that there
is a mechanism for uprating if they fail to agree. Thus, while minimum wage
setting was still among the core topics of tripartite social dialogue after
2008, the past decade has not witnessed an agreement on the minimum
wage level. This freed up political space for the government to exercise dis-
cretion over and above the indexation mechanism (see below), against a
backdrop of the overall weakening of tripartism and the advisory char-
acter of tripartite agreements with no effective enforcement mechanisms.
In contrast to Bulgaria, where social partners still have opportunities to
influence the government’s decision, in Slovakia the precise indexation
mechanism prevented further interventions by social partners and the ulti-
mate decision is at the discretion of the government and implemented via a
Government Decree.
While the existing indexation mechanism has secured regular minimum
wage increases, it has been subject to extensive criticism especially by
employers, because regularly securing a minimum wage rise. Nevertheless,
there is consensus that minimum wage setting had become highly politi-
cised prior to 2007 and that the fixing of its level needed to be more closely
related to the development of the average wage in the Slovak economy and
not to the electoral cycle of political parties in government (Uhlerová, 2019).
5.3.2.3 The minimum wage and collective wage bargaining

Since the early 1990s the minimum wage has reflected Slovakia’s economic
development and increased accordingly. Figure 5.2 compares the percent-
age change in minimum wage and in the average gross wage. Between 1998
and 2003, the minimum wage grew significantly faster than the average
wage. Between 2003 and 2006, under a right-wing government coalition,
minimum wage growth slowed down and remained at or below the growth
of average wages. Furthermore, there were two stagnation periods in which
Figure 5.2 Changes in minimum wage and average gross wage in the Slovak econ-
omy (in EUR and in percentage, 1993–2018).
Source: the authors, using data from the Slovak Statistical Office and <www.minimalnamzda.sk>
[accessed March 20, 2019].
the minimum wage did not increase – first, during the years of economic
transition (1993–1995) and second, during the economic crisis of 2007–2008.
Since 2008, with the exception of 2014 when the minimum wage growth cor-
responded to the growth of average wages, the minimum wage as grown
faster than the average wage. This period corresponds with the introduction
of the new indexation mechanism and the diminishing role of unions and
employers in fixing the level of the minimum wage. In 2010-2013, the rate
at which the minimum wage growth exceeded the growth of the average
wage was stable. Viewing these developments in the political context and the
approach of the incumbent government to social dialogue, we observe that
the two largest growth periods, in the late 1990s and the late 2000s occurred
under two very different governments.
In the late 1990s, Slovakia’s right-wing reformist government aimed
for the Slovak economy to catch up with neighbouring countries, attract
foreign direct investors, meet the criteria for country to enter the EU and
introduce liberalizing yet stabilizing labour market measures to boost the
economy. The second growth period when the minimum wage growth
exceeded the growth of the average wage falls under the ruling of the lead-
ing social-democratic party SMER and its government coalition. In this
period, the Slovak economy was growing, unemployment declining, and
the indexation mechanism was in place. Although the indexation mech-
anism stipulates minimum wage growth based on the growth of average
nominal wages in the preceding year, the government is free to implement
a minimum wage that exceeds the indexation rate (similar to the French
coup de pouce, see Delahaie and Vincent, Chapter 8). The evidence in
Figure 5.2 confirms that the government’s decision on the minimum wage
indeed exceeded the level of average wage growth, especially in the most
recent years (2015-18); the minimum wage rises also surpassed the level of
collectively agreed wage increases (see Tables 5.3 and 5.4). The reason for
extensive minimum growth lies in several factors, including the practiced
indexation mechanism, the economic situation and political will, but also
the interest of trade unions to target their activities at minimum wage rise
instead of wage rise through the (continuously weakening) sectoral collec-
tive bargaining.
Although there is no direct interaction between minimum wage set-
ting procedures and collective bargaining, the minimum wage represents
an important benchmark for wage bargaining at the sector level and the
company level. In the overall context of the minimum wage indexation
mechanism and weakened influence of tripartite negotiations on minimum
wage setting and the unions’ and employers’ strategies to seek legislative
regulation instead of negotiated solutions, it appears that the significant
minimum wage increases in recent years have not left extensive maneuver-
ing space for sector-level and company-level wage bargaining. The data in
Table 5.4 show that the minimum wage grew faster than collectively agreed
wages after 2014.
Table 5.3 Average collectively agreed nominal wage increases in selected sectors
(in percentage, private sector only, 2014–2018)
By trade union federation in the sector 2014 2015 2016 2017 2018
Trade union federation of workers in 2,8 2,7 4,0 4,0 5,0

mining, geology and oil industry
Metalworkers’ trade union federation 3,0 2,9 3,2 3,8 4,5
(OZ KOVO)
Trade union federation of energy and 2,3 1,9 2,0 3,0 4,5
chemistry (ECHOZ)
Integrated Trade union federation (IOZ) 4,2 3,6 3,8 3,5 4,1
Trade Union Federation of workers in the 2,0 2,0 1,9 2,0 2,5
finance and insurance sector (OZPaP)
Trade union federation of agricultural 2,7 3,5 4,4 4,7 4,2
workers in Slovakia (OZPPaP)
Trade union federation Woods, Forest, 2,6 3,0 2,6 3,1 5,0
Water
Trade union federation of food industry 2,6 2,2 3,2 6,0 5,1
in the Slovak Republic (OZP)
Trade union federation of workers in 3,0 3,3 3,5 4,9 6,0
commerce and tourism (OZPOCR)
Trade union federation of healthcare 3,4 3,5 3,5 4,3 5,6
and social services (SOZZaSS)
Trade union federation of railways (OZŽ) 2,5 2,5 3,0 6,1 5,0
Total 3,2 3,5 3,6 4,5 5,7
Source: Information system of working conditions (survey data), 2014–2018, Trexima Bratislava
and the Ministry of Labour, Family and Social Affairs of the Slovak Republic.
Table 5.4 Wage growth dynamics in Slovakia: % changes to minimum wage,

average wage and collectively agreed wage*
% growth % growth % growth average collectively

Year minimum wage average wage agreed wage
2014 4 5,7 3,2

2015 8 3,4 3,5
2016 7 4,7 3,6
2017 7 5,5 4,5
2018 10 6,7 5,7
2019 8,3** 7,4 n/a
2020 11,5 n/a n/a
* All data refer to changes in nominal gross monthly wages. Collectively agreed wage refers to
an average increase negotiated in company-level collective agreements in 11 sectors listed in
Table 5.3.
** the actual % of minimum wage growth in 2019 reached 8,3%, while a growth stipulated by the
indexation mechanism would have referred to a 3,7% growth in minimum wage
Source: authors’ calculation based on the Slovak Statistical office (average wages), minimum
wage data at <www.minimalnamzda.sk> [accessed March 20, 2020], Trend (2018a) and the
Information system of working conditions (survey data on collectively agreed wage increases),
2014–2018, Trexima Bratislava and the Ministry of Labour, Family and Social Affairs of the
Slovak Republic.
The fact that the minimum wage grew higher than collectively stipulated
wages leads to two other important challenges in the relationship between
minimum wage and collective wage bargaining. The first is the extent to
which the statutory minimum wage informs collectively bargained sectoral
minimum wages in the private sector and/or contributes to the erosion of
sector-level wage bargaining. The second is the challenge to public sector
wage setting, where tariffs for the lowest grades have remained for several
years below the minimum wage.
In the private sector, wage bargaining at the sector level has been facing
erosion and currently it is only the metal sector where sector-specific wage
setting is implemented. Here the minimum wage and its six statutory levels
according to the performed job content are transformed into sectoral stand-
ards, which exceed the statutory minimum wage and represent a negotiated
sector-specific minimum wage (Kahancová et al., 2017). In some other sec-
tors, multi-employer bargaining is implemented, stipulating sectoral wage
increases in percentage terms but not actual sectoral wage levels.
In the public sector, until early 2019 the lowest tariffs were actually below
the statutory minimum wage and have been subject to recent increases to
align the sectoral wage levels with the statutory minimum wages. Annual
increases in the minimum wage in 2019 and 2020 have been influenced by
the government’s political preferences due to forthcoming elections in 2020
and, as such, have exceeded the rate stipulated by the indexation mechanism
and by the annual growth rate of average gross wages (see Table 5.4). In
turn, this created major pressures on public sector tariffs, which are subject
to annual collective bargaining, separately for state service and for pub-
lic service (Kahancová and Martišková, 2016). While public sector wage
bargaining is regularly practiced on annual basis, the pressure for wage
increases in tariffs were stronger after the lowest tariff scales remained
below the statutory minimum wage following minimum wage increases.
Employers had compensated the difference via individual bonuses. This
discrepancy was solved via collective bargaining for public service, stipu-
lating 10% annual wage increases for 2019 and 2020 (Trend, 2018b). With a
further minimum wage increase in 2020, the discrepancy with public-sector
tariffs again pushed public sector social partners into having to renegotiate
tariffs (Trend, 2019). Since in Slovakia public sector negotiations are tripar-
tite with a significant influence of the government, such negotiations take a
long time and the outcome of negotiations is subject to the political will of
the government.
5.3.2.4 From indexation to fixing the minimum wage

at 60% of the average wage
In 2019 and 2020, the minimum wage was again increased by governmen-
tal discretion after the social partners failed to find a consensus. In 2019,
the minimum wage was increased by 8% (to 520 EUR) after a unilateral
governmental decision and then, in 2020, by 11.5% (to 580 EUR). While
the rise of the minimum wage is welcomed by some parts of the society,
dissatisfaction with the current minimum wage setting mechanism has been
growing. As mentioned above, the main point of criticism is the scope for
extensive political influence, which has led to minimum wage levels exceed-
ing the recommended indexation rates; for 2019, the different growth rates
were 8.3% and 3.7%, respectively (Trend, 2018a). The debate has therefore
now shifted from the fact that the automatic indexation mechanism does
not motivate unions and employers to find a consensus about the minimum
wage to a new debate, namely, how to limit the extent of political influence
of the government on minimum wage setting. Not only employers, but also
trade unions are voicing their criticism that the government announced
a proposed minimum wage level for 2020 without prior negotiations with
representative employers’ associations and trade unions in tripartism
(Uhlerová, 2019).
Given the growing gap between the government’s and the social partners’
discretion over minimum wage setting, yet another solution to minimum
wage setting has been sought. Following a long-term trend of minimum
wage increases within the context of the international benchmark that min-
imum wage should stand at 60% of the median wage to guarantee decent
living and working conditions, a parliamentary approval of the Amendment
to the Act on Minimum Wage from October 2019 stipulated that from 2021
Slovakia will become the first EU member state to directly fix its mini-
mum wage at 60% of the average wage in the economy (KOZ SR, 2019). In
turn, large raises to the minimum wage were expected, but as explained
below, the Covid-19 crisis blurred the prospects of such radical minimum
wage increases.
Trade unions consider this legislative amendment to be their historical
victory and claim this piece is the “legislation of the decade” (KOZ SR,
2019). However, viewing this development in the broader context of the
erosion of collective bargaining in Europe (Müller et al., 2019), it seems
that this automatic minimum wage setting mechanism deepens the ten-
sions in terms of the trade unions’ long-term goals and their role in the
post-socialist society. While on the one hand trade unions strive to secure
improvements in living standards and consider the rise of minimum wage
as instrumental to this aim, at the same time such arrangements increas-
ingly sideline the role of social dialogue and collective bargaining. The
introduction of the automatic minimum wage setting mechanism is yet
another example showing the preference of weak CEE unions for legislative
solutions, which in the long run undermine the role of negotiated minimum
wage and collective bargaining. While bargaining is still practiced at sec-
toral and company level, high increases in minimum wages, coupled with
the fact that Slovakia recognises six levels of minimum wage according to
job content (Trend, 2018c), leaves little scope for wage bargaining at the
sector level. In fact, sectoral wage bargaining has been diminishing and is
only present in very few sectors, including the metal sector and the chem-
ical and pharmaceutical industry sector (Martišková et al., 2020, relevant
collective agreements).
In the 2020 Covid-19 crisis, the introduction of the automatic setting
of the minimum wage from 2021 in under strong pressure, claimed as not
sustainable in the current crisis. While trade unions remained strongly
committed to the agreed mechanism setting the minimum wage for 2021
as 60% of the average wage in the economy in 2019, employers and the gov-
ernment claim the unsustainability of this automatic mechanism in crisis
conditions.12 Negotiations about the minimum wage level for 2021 were
reopened, but social partners failed to come to a conclusion. In result, the
previous mechanism, with unilateral government decision, upon consul-
tation with employers, has been practiced instead of the newly introduced
automatic mechanism. For 2021, the government accepted a minimum
wage of 623 EUR, which equals to 57% of the average wage in 2019. This
governmental proposal will be subject to parliament approval in form
of an amendment to the Act on Minimum Wage. During the negotia-
tions, the government proposed a minimum wage for new labour market
entrants and long-term unemployed reaching 75% of this amount, how-
ever, this proposal was not approved (Teraz, 2020). This result of the 2020
negotiations facilitated an open conflict between the government and
trade unions, which call for respecting the already approved Minimum
Wage legislation.
5.4 Conclusions
This chapter discussed the minimum wage setting procedures and their
interplay with collective bargaining in the CEE region. It has provided evi-
dence and analysis of the changing influence of actors on minimum wage
setting procedures and the interplay of minimum wage setting with collec-
tive bargaining. While CEE resembles a region with declining bargaining
coverage and weakening policy influence of trade unions, negotiations over
minimum wages still resemble a fundamental issue for the functioning of
tripartite social dialogue in the region. Despite different transition paths from
state socialism and economic development patterns in the 1990s, all CEE
countries introduced a statutory minimum wage already in the early 1990s.
Minimum wage negotiations have remained since then a key feature of
12 Since the mechanism is based on minimum wage setting as 60% of the average gross wage
from two years ago, there is a discrepancy between Slovakia under crisis and GDP fall
in the aftermath of the Covid-19 crisis, while the benchmark for 2021 minimum wage
setting is the average wage from 2019 when the Slovak economy experienced economic
and wage growth.
tripartite fora. At the same time, however, the influence of trade unions and
employers’ associations on minimum wage setting has diminished in several
countries while government discretion has increased.
The focus on Bulgaria and Slovakia has highlighted country-specific dif-
ferences in the actors’ roles in minimum wage setting procedures and the
interplay with other levels of wage bargaining in the context of a general
erosion of tripartism and growing government power over minimum wage
setting. While the Bulgarian example demonstrates how social partners
struggled to introduce a transparent mechanism for minimum wage setting,
the Slovak example shows how the formal existence of such a mechanism still
gave space to politically informed minimum wage determination and under-
mined the fundamental principles of social dialogue. It also did not decrease
the uncertainty in social partners’ strategies regarding the formation of the
minimum wage and finally motivated the adoption of an automated mini-
mum wage setting mechanism side-lining the impact of social partners.
While in the Slovak case, minimum wage setting involved national indus-
trial relations actors, Bulgaria experienced during the last year a major
influence of the European Commission through the new European eco-
nomic governance of the European Semester and country specific recom-
mendations, which pushed for transparency in minimum wage setting and
criticised its growth as a risk for economic stability.
Finally, both examples illustrate a certain trap. While in Slovakia employ-
ers and trade unions gradually lost discretion to influence minimum wage
setting and finally opted for an automated minimum wage setting mech-
anism that cemented their lack of influence on the minimum wage in the
future, in Bulgaria unilateral government decisions and pressures from the
EC encouraged actors to agree upon such mechanism. Despite only a dis-
tant co-existence of minimum wage regulations with collective wage bar-
gaining at the sector and company levels, we argue that the long-term focus
of the debate on national statutory minimum wage and politically moti-
vated minimum wage hikes in the last decade contribute to the erosion of
sector-level wage bargaining. This is because a fast rising minimum wage
narrows the manoeuvring space for sectoral and company-level actors to
negotiate further wage increases.
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Part II
The combined effects

of minimum wages and
in different sectors
6 The interplay of minimum wages and
collective bargaining in Germany
How and why does it vary across
sectors?
Gerhard Bosch, Thorsten Schulten
and Claudia Weinkopf
Compared to many other European countries minimum wages were intro-
duced in Germany quite recently. Traditionally, pay had been negotiated
autonomously by employers and trade unions without any direct state
intervention in the wage-setting process. The introduction of a statutory
minimum wage in 2015 was mainly the result of an ongoing erosion of the
German collective bargaining system which began in the mid-1990s. As a
result, Germany saw a rapid growth of its low wage sector and a signifi-
cant increase in wage inequality. Moreover, in the early 2000s there was a
widespread view that Germany needs higher wage dispersion in order to
tackle its problems on the labour market as unemployment was at that time
one of the highest in Europe. It was the former social-democratic chancel-
lor, Gerhard Schröder, who in his speech to the World Economic Forum
in Davos proudly recognised that Germany created “one of the best low-
wage sectors in Europe” (Schröder, 2005). At the same time, the German
trade unions had to recognise, that in growing parts of the economy they
had no longer the bargaining power to set effective wage floors. Thus, the
debate on statutory minimum wages went beyond expert circles and became
a national issue (Bosch and Weinkopf, 2008).
The introductions of the statutory minimum wage in 2015, as well as the
prior emergence of new collectively agreed and extended minimum wages at
sectoral level, have led to the development of a new German minimum wage
regime. The traditional German wage-setting system has been replaced by
multifaceted systems across sectors with a very different interplay between
collective bargaining, sectoral minimum wages and the national statutory
wage floor. The great diversity in German wage setting reflects the growing
dualisation of the German labour market and the different power resources
of the respective industrial relation actors.
The aim of this chapter is to analyse the outcome of the new German min-
imum wage regime as well as the new interplays between minimum wages
and collective bargaining. The structure is as follows. Section 1 presents
an outline of what has happened with German collective bargaining in the
past 25 years and what were the drivers for the change of minds as regards
the need for a statutory minimum wage in Germany. Section 2 provides
116 Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf
an overview on the new German minimum wage regime with the introduc-
tion of a national statutory minimum wage and the emergence of new sec-
toral minimum wages. Section 3 analyses the interplay of minimum wages
and collective bargaining and section 4 expands this analysis by providing
two case studies on how the statutory minimum wage influences collective
bargaining in the low wage sector. Finally, section 5 draws conclusions
and discusses possible future developments of Germany’s system of wage
formation.
6.1 Erosion of collective bargaining and increase

of the low-wage sector
Germany had been numbered among the countries with ‘autonomous’ col-
lective bargaining systems, in which companies or employers’ associations
and trade unions negotiate pay and many other employment conditions,
such as the duration and scheduling of working time, usually at sectoral
level and without any direct state intervention. The state had only a support-
ive role when it comes to the extension of collective agreements. In practice,
however, this instrument had been limited to a very small number of
sectors (e.g. construction, hairdressing or security services) so that less than
2 percent of all sector-level agreements had been declared as universally
binding (Schulten, 2018). In contrast to many other European countries,
such as France, Belgium, the Netherlands or Spain, extensions have never
been used on a broader base to stabilise collective bargaining especially in
sectors with low trade union density (Schulten et al., 2015).
There are some fundamental pre-conditions for a successful operation of
autonomous wage-setting systems. The most essential elements are strong
trade unions that can negotiate with employers and their associations on
equal terms. If employers refuse to conclude collective agreements, trade
unions need the power to exert collective pressure, which requires a strong
organisational base. However, even in the heyday of trade union strength in
the 1970s, German unions had never been able to organise little more than
one third of the workforce. Consequently, the German system had been
particularly dependent on the willingness of companies, without any direct
pressure being exerted, to become members of employers’ associations.
Until German unification in the early 1990s, Germany had a comprehen-
sive system of sector-level bargaining whereby between 80 and 90 percent of
all workers were covered by a collective agreement. The bargaining coverage
was several times higher than the union density and depended largely on a
much higher organisational density of the employers’ associations. The high
degree of employers’ adherence to collective agreements had at least two
reasons. The first was the relatively low level of unemployment in former
West Germany, which strengthened the trade unions’ bargaining power and
made unilateral wage-setting at company level without the protection of the
employers’ associations in the event of disputes appear rather unattractive.
The interplay of minimum wages and collective bargaining in Germany 117
Secondly, in the old German corporatist system, with its tightly intercon-
nected companies that took a long-term approach, the employers’ asso-
ciations and chambers of commerce and industry were also able to push
through rules on fair wage competition by exerting moral pressure.
6.1.1 The continuous erosion of collective bargaining

Since the mid-1990s, German collective bargaining entered into a period of
continuous erosion. In West Germany the bargaining coverage decreased
from 76 percent in 1998 to 53 percent in 2019. East Germany was never able
to fully adopt West German collective bargaining structures, and the cov-
erage decreased from 63 percent to 45 percent (Ellguth and Kohaut, 2019;
Kohaut, 2020; Figure 6.1).
The erosion of German collective bargaining reflected some more funda-
mental changes in the economic and political development of German cap-
italism (Lehndorff et al., 2009). As a result, more and more employers were
no longer willing to accept sector-level collective agreements and switched
towards more unilateral forms of employment regulation at company-level.
Moreover, the employers’ associations reacted to the declining acceptance
of collective bargaining with the introduction of a new membership status
whereby the member companies were no longer automatically bonded by the
sectoral agreements signed by their associations (Behrens and Helfen, 2019).
Figure 6.1 Collective bargaining coverage in Germany, 1998–2019 in % of workers

employed in companies covered by collective agreements.
Source: IAB Establishment Panel
Finally, it became evident that in many sectors the German trade unions did
not have the power to defend or to reach compliance with collective agree-
ments. Indeed, since the 1990s union density has shown a strong decline,
so that in 2017 only around 15 percent of the workers in Germany were still
members of a trade union (Dribbusch et al., 2018).
Behind the erosion of German collective bargaining there was also a
development of growing sectoral differentiation, so that it is less and less
possible to talk about one single German model (Müller and Schulten,
2019; Schulten, 2019). In the public sector as well as in many manufacturing
industries such as automobiles, chemicals etc. there is still a large majority
of workers covered by collective agreements. In other sectors, in particular
in many private services sectors, the collective agreements often cover only
a minority of the workforce. All in all, the collective bargaining coverage
ranges from only 18 percent in wholesale trade in East Germany to 98 per-
cent in public administration (both East and West Germany) (Table 6.1).
The sectoral variation also applies to the distribution of works councils in
Table 6.1 Share of employees with collective agreements, incidence of low hourly
wages and representation at workplace level in Germany, 2017 in percent
Coverage by Incidence of Share of employees

collective agreements low hourly in companies with
(employees) wages work councils**
West East
Sector Germany Germany
Agriculture 48 21 high n. a.
Utilities, waste, mining 85 72 low 79
Manufacturing 63 35 63
Construction 63 54 low 17
Wholesale trade 40 18 high 28
Retail trade 40 28
Transport & logistics 58 (27) medium 46
IT-services 19 (18) low 35
Financial intermediation 83 66 low 74
Hotels & restaurants 39 26 high 9
Health & education 60 45 medium 44
Economic, scientific & 49 50 medium 25
professional services
Non-profit activities 65 41 medium n.a.
Public administration 98 98 low n.a.
Total 57 44 22.7% 39
* coverage by collective or firm-specific agreement (numbers in brackets are not very reliable due
to a small number of observations); ** private companies with 5 or more employees
n.a.: no information available
Source: Ellguth and Kohaut 2018: 300 (CB-coverage and works councils); Kalina and Weinkopf
2017 (low-pay incidence).
Figure 6.2 Collective bargaining coverage in Germany according to wage quin-

tiles, 2014 in % of workers employed in companies covered by collective
agreements.
Source: German Structure of Earnings Survey 2014
companies, which are often a precondition for the coverage and successful
implementation of collective agreements.
The erosion of collective bargaining was particularly pronounced in tradi-
tional low-wage sectors. In 2014, the bargaining coverage was only 27 percent
among workers in the two lowest wage-quintiles while it was 66 percent
among the highest wage quintile (Figure 6.2). In other words, there is a clear
correlation between the wage level and the likelihood of being covered by a
collective agreement in Germany. Usually, sectors with a low collective bar-
gaining coverage also have a much higher incidence of low pay (Table 6.1).
6.1.2 The strong increase of the low-wage sector

International research has revealed that a high bargaining coverage is usu-
ally associated with a more compressed wage structure and a much smaller
incidence of low pay (Hayter and Weinberg, 2011; Bosch and Weinkopf,
2013). Until the 1990s, this had also been the case in Germany where a high
bargaining coverage limited the share of low-wage workers (OECD, 1996).
From the mid-1990s onwards, however, the decline in German collective
bargaining went along with a significant increase of the low-wage sector
(Bosch and Weinkopf, 2008; Bosch, 2018; Kalina and Weinkopf, 2020). The
share of low-wage workers increased from 16.6 percent in 1995 to a peak
Figure 6.3 Share of low wage earners in Germany, 1995–2018 in % of workers earn-
ing below 2/3 of the median wage.
Source: Kalina/Weinkopf (2020).
of 24.1 percent in 2011 and slightly declined towards 21.8 percent in 2018
(Figure 6.3). Accordingly, Germany has one of the largest low wage sectors
within Europe which is only surpassed by a few Eastern European coun-
tries (Eurostat, 2016). The share of low-wage workers was particularly high
in East Germany where for two decades it varied between 35 and 40 per-
cent, while only in recent years there was slight decline. In West Germany
the low-wage sector increased from nearly 12 percent in 1995 to around 20
percent in recent years (Figure 6.3). To sum up, the declining bargaining
coverage and the increase of the low-wage sector are two sides of the same
coin which framed the background for the long-standing debate about a
statutory minimum wage in Germany and its final introduction in 2015.
6.2 The emergence of a new German minimum wage regime

Today, the German collective bargaining system is very heterogeneous and
exclusive, which is reflected in significant sectoral differences in the share
of low-wage workers and pay levels. These considerable variations across
sectors had been an obstacle to form a joint strategy within the trade union
movement to campaign for the introduction of a statutory minimum wage
(Bosch, 2018; Schroeder et al., 2017). In the first half of the 2000s, the trail-
blazers had been the Food, Hotels and Restaurants Workers’ Union (NGG)
and the Unified Service Sector Union (ver.di). They had already recognised
that the chances of negotiating acceptable rates of pay within the existing
collective bargaining system were becoming slimmer and slimmer. In other
sectors, such as the metalworking and chemical industries, the traditional
autonomous bargaining system was still functioning very well. The unions
in these sectors – namely the German Metalworkers’ Union (IG Metall)
and the Chemical Workers’ Union (IG BCE) – have originally opposed the
introduction of a statutory minimum wage because they feared this would
further weaken the collective bargaining and the influence of unions.
However, the manufacturing unions also had to realise that the outsourc-
ing of activities to temporary work agencies or subcontractors not bound by
collective agreements meant that the low-wage sector was exerting increas-
ing pressure on their collectively agreed rates and was eating away at their
membership. After intensive debates within the trade union movement that
lasted several years and was initially very heated, the German Trade Union
Confederation (DGB) decided at its national congress in May 2006 to cam-
paign for a statutory minimum wage of €7.50 per hour which was raised in
2010 to €8.50 per hour.
In addition to a nation-wide statutory minimum, the unions had also
called for the introduction of more sectoral minimum wages, which should be
determined by collective agreements and afterwards extended to the whole
sector. The role model here was the construction sector which had already
introduced such a sectoral minimum wage in 1996 (Bosch et al., 2011). The
extension of sectoral minimum wages took place on the basis of the German
Posted Workers Act – the German transposition of the EU Posted Workers
Directive 96/71/EC. Originally, the task of the Posted Worker Act was to
avoid the undermining of national collective agreements through companies
which hired posted workers from other countries. Because of the increas-
ing low-wage sector, however, this act was diverted from its original pur-
pose. Since 2007, it was mainly used as a ‘reform workshop’ (Däubler, 2012)
for also regulating domestic wage competition in certain branches. Until
2013, sectoral minimum wages had been negotiated in more than 10 sectors,
including construction, construction related trades (e. g. painting, roofing
and electrical trade), cleaning and care services among others (see below).
Although the sectoral minimum wages successfully upgraded low-wage
jobs wages in the respective sectors, they generated only small aggregate
effects in terms of reducing the share of low-wage workers in the economy as a
whole. In the sectors with the most low-wage workers, such as retail or hotels
and restaurants, the employers and their associations were so fragmented or
at odds with each other that no minimum wage agreements ever materialised.
Regarding the relatively small number of sectoral minimum wages, they were
never able to develop as a substitute for a national statutory minimum wage,
so that the latter remained at the core of the political agenda.
Initially, there was a strong resistance against a statutory minimum wage
coming from all political parties in the German Parliament with the excep-
tion of the Left Party (Die Linke). The Red-Green coalition between the
Social Democrats (SPD) and the Green Party (Bündnis 90/Die Grünen),
who was in power in the first half of the 2000s, had regarded “too high”
wages for more simple tasks as one of the major sources for high unem-
ployment in Germany and, therefore, had promoted the increase of the low
wage sector in particular through the famous “Hartz Laws” (Knuth, 2014).
The view was broadly shared by the Liberal Party (FDP) and the Christian
Democratic Party (CDU), which since the mid-2000s became again the
major ruling party in German Government.
A strong opposition also came from the German employers’ and business
community which argued that the introduction of a statutory minimum
wage would lead to much higher unemployment. In support, they could
draw on several studies of German mainstream economists who predicted
job losses ranging from several thousand to more than a million (e.g. Bruttel
et al., 2019), although studies on sectoral minimum wages in Germany had
already shown that there were no negative employment effects (Möller, 2012;
Bosch and Weinkopf, 2012; Herzog-Stein et al., 2020).
Despite the strong resistance from the political and the economic sphere,
the trade union campaigns for the introduction of a statutory minimum
wage were able to gain overwhelming support by German people – among
them supporters of all major political parties. The unions had mainly drawn
on normative arguments, that existing low wage levels were not fair and
that every worker should get a decent wage, which allows her or him a life
in dignity (Futh, 2018). After the SPD lost the general election in 2009 and
had to resign from the Federal government, it finally changed its position
and became a strong supporter of a statutory minimum wage. With strong
support from the trade unions it put the demand for a statutory minimum
wage at the core of the general election campaign in 2013. Afterwards, the
SPD made its entry into another “great coalition” with the CDU dependent
on the introduction of a statutory minimum wage set at €8.50 per hour, so
that finally the CDU also had to agree.
The introduction of the statutory minimum wage on 1st January 2015
was eventually part of a legislative package entitled the “Act on the
Strengthening of Collective Bargaining” (Tarifautonomiestärkungsgesetz)
which also intended to facilitate sectoral minimum wages and the general
extension of collective agreements in order to re-strengthen the German
collective bargaining system (Schulten, 2018, 2019).
6.3 The interaction of the statutory minimum wage

and collective bargaining
As international research has shown, there are several different forms of
interaction between collective bargaining and statutory minimum wages
(Bosch and Weinkopf, 2013; Grimshaw and Bosch, 2013; Grimshaw et al.,
2014; Bosch et al., 2019; see also Chapter 1 in this volume). The range goes
from systems where the minimum wage has a very strong role and largely
determines the development of collectively agreed wages to systems where
both forms of wage setting coexist relatively independent from each other.
The interactions depend very much on the level of the collective bargain-
ing coverage, the relative value of the minimum wage in relation to other
wages as well as on the concrete institutional setting of wage formation.
For Germany, the picture is even more diverse as there are not only one, but
several forms of interaction depending very much on the particular circum-
stances in the various sectors.
6.3.1 Different types of interactions

Bosch and Weinkopf 2013 (see also Grimshaw and Bosch, 2013; Grimshaw
et al., 2014) developed a typology of interactions between the statutory
minimum wage and collective agreements for the comparison of different
national wage-setting systems that was updated in the introduction of this
volume. Until the mid-1990s, Germany represented a type of “collectively
negotiated minimum wages” whereby minimum wages were determined via
autonomous collective agreements at sectoral level with – apart from a few
extensions – almost no state intervention. Thus, collective agreements func-
tioned as a substitute for a statutory minimum wage.
Today, the wage-setting systems in Germany differ so much between sec-
tors that various types can be found. The public service as well as the metal
and chemical industries with their high trade union density, strong work
council and a high bargaining coverage are still well functioning examples
of the old autonomous bargaining system. The agreed minimum wages in
these sectors are far above the national statutory minimum wage. Collective
bargaining and statutory minimum wages have almost no interaction and
represent the institutional type of “distant coexistence”.
Other sectors like construction or cleaning have collectively agreed min-
imum wages which are above the level of the statutory minimum wage and
have been extended to the whole sector. These sectors stand for a type of
“negotiated minimum wage” at sectoral level. In January 2020, there were
nation-wide sectoral minimum wages in 12 sectors (Figure 6.4). In some
sectors there were still different sectoral minimum wage levels for West and
East Germany. A few sectors such as construction or roofing have two levels
of sectoral minimum wage, one for unskilled and one for skilled workers. In
general, the level of sectoral minimum wages shows a great variety between
€10.00 and €18.00 per hour and is in any case well above the level of the stat-
utory minimum wage. Apart from these sectoral minimum wages, which
are all based on a national collective agreement (although it sometimes con-
tains regional differences), there are very few sectors such as hairdressing
or security services, where in some regions the wage agreements have been
declared generally binding, so that they determine de facto sectoral mini-
mum wages at regional level (Schulten, 2018).
Moreover, there are many sectors especially in private services such as
hotels and restaurants or retail trade where the collective bargaining cov-
erage is rather low so that for the majority of non-covered workers in these
sectors the statutory minimum wage is the only binding wage floor. In these
sectors the type of an “isolated minimum wage” is dominating. Finally, there
Figure 6.4 Collectively agreed and extended sectoral minimum wages in Germany
in € per hour, April 2020.
* not yet generally binding.
Source: WSI Collective Agreement Archive 2020.
are also sectors in which collective agreements have determined rather low
wage levels often close to the statutory minimum wage, so that adjustments
of the latter had a direct impact on (the lowest) collectively agreed wages.
Examples for this type of “close interaction” are fast food restaurants or
hairdressing, which we will analyse somewhat more in detail (see below).
6.3.2 Effects of the statutory minimum wage on collectively

agreed wages
According to the German Minimum Wage Law (Mindestlohngesetz –
MiLoG) there should be a clear hierarchy between collective bargaining
and the development of the statutory minimum wage. When it comes to the
adjustment of the minimum wage the law states that it should mainly follow
the prior average development of collectively agreed wages. The priority
of collective bargaining, which is grounded in the strong notion of collec-
tive bargaining autonomy, has also been underlined by the composition of
the German Minimum Wage Commission. Here, the decision on the min-
imum wage adjustment is taken as the result of quasi negotiations between
representatives from employers’ associations and the trade unions, while
the government can only approve or reject that decision.
Considering the wage levels in collective agreements, however, there are
some sectors with collectively agreed wage groups nearby the statutory
minimum wage, so that changes of the minimum wage can evolve a direct
impact on collective bargaining (Bispinck, 2017; Lesch, 2017). Examples
for collective agreements with rather low wage levels can be found particu-
larly in some private service sectors such as hairdressing, fast food sector,
hotels and restaurants, agriculture, bakery trade or temporary agencies.
In agriculture and hairdressing, the lowest collectively agreed wage group
for non-qualified workers is explicitly determined at the current level of the
statutory minimum wage of €9.35 per hour.
According to a recent analysis of the WSI Collective Agreement Archive, in
January 2020 only 0.2 percent of all wage groups in current collective agree-
ments were below the level of the national minimum wage of €9.35 per hour
(Figure 6.5). Around 4 percent were between the statutory minimum wage
and €10. All in all, the direct influence of the statutory minimum wage on
collective bargaining is currently rather small and limited to very few sectors.
A somewhat greater impact could be expected, if the minimum wage
would be increased up to €12 as it is currently demanded by some trade
Figure 6.5 Distribution of wage groups in German collective agreements in January

2020, in %*.
* on the basis of around 4.400 collectively agreed wage groups in 42 sectors; covering only agree-
ments which expire after 2018.
Source: WSI Collective Agreement Archive 2020.
unions and political parties in Germany (Schulten and Pusch, 2019). The
€12 threshold would affect somewhat more than one sixth (17.8 percent) of
all collectively agreed wage groups. However, the lowest wage groups in
collective agreements are usually only used for non- or semi-skilled staff.
Therefore, the number of workers directly affected by an increase of the
minimum wage towards €12 would be much smaller, although there might
be some spill-over effects to higher wage groups.
Finally, by far the largest part of more than 60 percent of all workers
under collective agreements earn an hourly basic wage of between €12 and
€20 and would be hardly affected even by a somewhat larger minimum wage
increase. The same holds true even more for the about 20 percent of workers
with an hourly wage of more than €20.
It is likely that the largest influence of the statutory minimum wage on
collective bargaining took place when it was introduced for the first time in
2015 at a level of €8.50 per hour. In the years before 2015 there had been a
considerable proportion of between 10 and 15 percent of the wage groups
in collective agreements which were below that threshold (Figure 6.6).
Obviously, the demands and public debates on the introduction of a statutory
Figure 6.6 Wage groups in collective agreements below the threshold of the statu-
tory minimum wage in %*.
* on the basis of around 4.800 collectively agreed wage groups in 42 sectors; including expired
agreements which are valid only due to the after-effect
Source: WSI Collective Agreement Archive 2020
minimum wage already had a significant impact on collective bargaining
in some low-wage sectors and supported the above-average wage increases
(Bispinck, 2017).
When it came to the introduction of the national minimum wage in
January 2015, there had been still around 6 percent of the collectively agree
wage groups below the threshold of €8.50. A large part of them came from
older agreements which had already been expired for several years and were
only valid through the after-effect mechanism. In addition to that, there
were also a few sectors as agriculture, for instance, which used the oppor-
tunity provided by the German Minimum Wage Law to conclude wages
below the minimum wage level for a transitional period up to 2018. In the
years after 2015, the share of wage groups below €8.50 decreased further
down to 1 percent, which came almost exclusively from older and expired
agreements.
With the first increase of the national minimum wage to €8.84 in
January 2017, it passed some collectively agreed wages, so that there were
again 5.5 percent of all wage groups below the new minimum wage level
(Figure 6.7). The same happened in January 2019 when the second increase
of the minimum wage towards €9.19 became valid. At that time, 4.4 percent
of the wage groups in collective agreements were below the new minimum
wage. A similar situation emerged in January 2020 when the national mini-
mum wage further increased towards €9.35 and 4 percent of all wage groups
were below the new minimum wage level.
6.4 Close interaction between statutory minimum wages

and collective bargaining – two case studies
from the low wage sector
While the overall influence of the statutory minimum wage on collective
bargaining in Germany has been rather limited, this section analyses two
sectors where the introduction and regular adjustments have had a direct
impact on pay levels. We selected the cases of the fast food sector and hair-
dressing, where the lowest collectively agreed wages are typically at the level
or only slightly above the statutory minimum wage, so that the introduction
and adjustment of the latter had a significant impact on collective bargain-
ing in these sectors.
6.4.1 Fast food sector

In contrast to the overall hotel and restaurant sector, the special segment
of the fast food sector in Germany has relatively high collective bargain-
ing coverage. There is a nation-wide collective agreement between the food,
hotels and restaurants workers union (Gewerkschaft Nahrung Genuss
Figure 6.7 Development of the lowest wage grade in the collective agreement for the
fast food sector in comparison to the national minimum wage* per hour in €.
* in January of the respective year
Gaststätten, NGG) and the Employers’ Association for fast food restau-
rants (Bundesverband der Systemgastronomie, BdS). It covers about 830
companies with around 120,000 employees. While the organisational power
of the union in the sector is rather limited due to a large number of precar-
ious workers and a high labour turnover, the employers’ association man-
aged to have a rather large number of member companies including larger
restaurant chains such as McDonald, Burger King, Starbucks etc. All mem-
bers of the BdS are obliged to use the collective agreements negotiated by
the association, which are regarded as an instrument to improve the image
of the sector (Schulten and Specht, 2020).
The lowest agreed wage levels in the collective agreement, however, have
always been at a rather low level and were actually paid to a significant
number of workers, especially to the large proportion of temporary staff.
When it came to the introduction of a statutory minimum wage of €8.50
per hour in 2015, the lowest wage levels in the national collective agreement
for the fast food sector were far below and needed a significant adjustment
(Figure 6.7). Accordingly, the lowest wage rates were increased by €0.80 per
hour in West Germany and by €1.44 in East Germany, so that the lowest
collectively agreed wage was lifted up to €8.51, just one cent above the stat-
utory minimum wage.
After its first and second increases in 2017 the statutory minimum
wage again caught up with the lowest agreed wage in the fast food sector
and made a corresponding adjustment necessary. Although the union
had called for higher wage increases to create a certain distance from
the statutory minimum wage, the employers claimed they were not able
to afford it. Between 2015 and 2020 it was de facto the introduction and
the adjustment of the statutory minimum wage which was the driver for
wage increases in the fast food sector (Figure 6.7) – displaying a type of
“close interaction”.
In preparation for the 2020 collective bargaining round, however, the
union changed its bargaining strategy fundamentally. It no longer called for
a certain percentage wage increase but argued that no fast food worker in
Germany should be paid below €12 per hour (Schulten and Specht, 2020).
An increase of the lowest collectively agreed wage level to €12 would have
corresponded to an increase of about 30 percent. However, €12 had already
become an established figure in the German public debate as the trade
unions, as well as many politicians from various political parties, called
for a significant increase of the statutory minimum wage to that level (see
below). In the meantime, the hourly wage of €12 became widely regarded
as a threshold for a fair and decent minimum wage, so that the union used
that notion also for their bargaining strategy. In addition, the fast food
employers faced a growing labour shortage in early 2020 and were therefore
ready to accept higher wage increases. Finally, an agreement was reached
in early March 2020 – just two weeks before the economic lockdown due to
the Covid-19 pandemic – according to which significant wage increases were
concluded over a period of four years so that the lowest wage grade will be
nearly €12 by 2024 (Figure 6.7).
With this new agreement, the union was able to break the old bargaining
logic and to create a significant distance from the statutory minimum wage.
It also became an example of how demands for a higher statutory minimum
wage and an increase of collectively agreed wages could mutually enforce
each other. Moreover, the example of the fast food sector was also used in
the debate as a role model for how to increase the statutory minimum wage
gradually to a significantly higher level (Herzog-Stein et al., 2020). In the
end of June 2020, the German Minimum Wage Commission proposed a
gradual increase of the minimum wage to €10.45 per hour over the next two
years, which, due to the Corona crisis, starts slowly at first, but rises much
faster later on (Bispinck, 2020).
6.4.2 Hairdressing
The collective bargaining landscape in hairdressing is rather fragmented
with different agreements at regional or company level. While in West
Germany most Federal States have sectoral collective agreements, in East
Germany there are only a few company agreements mainly for larger hair-
dressing chains. The bargaining coverage is also rather differentiated, as in
many regions only minorities of hairdressing workers are covered by col-
lective agreements, while in a few West German Federal States the regional
agreements have been declared as universally binding so that almost the
entire sector is covered.
Considering the structure of the sector with a dominance of small hair-
dressing shops, it is extremely difficult for the unions to recruit members
and to develop organisational power. The major power resources for the
unions are, therefore, the social image of the sector in public and the
growing problems of finding sufficient new recruits. The possibility of
collective bargaining, however, depends first of all on the employer’s abil-
ity to organise the shops within hairdressing guilds and on its interest
to determine a certain competitive order for the sector. If a hairdressing
guild has an interest in collective bargaining it usually also favors the
extension of collective agreements in order to avoid downward competi-
tion from outsiders.
In the early 2010s the lowest wages both for unskilled (without training
and professional experiences) and semi-skilled workers (with some train-
ing and professional experiences but without exam) in hairdressing were
far below the €8.50 per hour which at the time was the unions’ demand
for a national statutory minimum wage. In order to improve the image
of the sector, the employers agreed already in 2013 to the introduction
of a sectoral minimum wage determined by a national collective agree-
ment, which was declared generally binding. The agreement led to signif-
icant wage growth and led to a gradual increase of the sectoral minimum
wage, up to €8.50 by 2015. After the introduction of a statutory minimum
wage, however, the hairdressing employers no longer saw a need for a
sectoral minimum wage. Considering the regional wage agreement for
hairdressing in the German Federal State of North Rheine Westphalia,
from 2016 the national statutory minimum wage became also the lowest
collectively agreed wage for unskilled workers (Figure 6.8). Moreover, the
adjustment dynamic became also the driver for the overall wage increases
in the sector.
In the years 2017, 2019 and 2020 the trade unions were able to negotiate
a stronger wage dynamic for semi-skilled workers against the background
of increasing labour shortages in the sector. While the lowest agreed
wage for unskilled workers continued to follow the statutory minimum
wage, the lowest wage rate for semi-skilled workers grew much faster and
significantly widened the difference with the statutory minimum wage
(Figure 6.8). To sum up, hairdressing is another example of “close inter-
action” where the statutory minimum wage has had a strong influence on
collective bargaining in the sector and has strongly supported the wage
dynamic in the sector.
Figure 6.8 Development of the lowest agreed wages for semi-skilled and unskilled
workers in the collective agreement for hairdressing in North Rhine-
Westfalia in comparison to the national minimum wage* per hour in €.
* in January of the respective year; unskilled = without training and professional experience; semi-
skilled = two years of training but without exam plus two years of professional experience
6.5 Conclusions and outlook

Until the mid-1990s, Germany was considered as a country with comparatively
low income inequality a small share of low wage earners due to a comprehen-
sive system of collective agreements and a high bargaining coverage (OECD,
1996). Since then the situation in Germany had changed dramatically. The
German labor market is now split into two different worlds, which do not have
much in common. In the core of the German economy, mainly in the public
sector and the medium and big companies in the manufacturing sector, we still
find a high bargaining coverage, strong works councils, and decent wage levels
and mostly supportive employers. In the growing periphery, mainly in private
services, but also in the increasing number of small companies in manufac-
turing, wages are set unilaterally by the employers and because of the absence
of works councils even the minimum wage is often not enforced (Bosch et al.,
2019). The growing low wage sector had also severe impacts on the core work-
forces, which were reduced in size due to outsourcing processes and forced
into making concessions. This negative ripple-effect of the low wage sector is
one major factor behind the continuous decline of collective bargaining.
The introduction of a national statutory minimum wage and the emer-
gence of new sectoral minimum wages did not automatically reduce the
low wage sector. Sectoral minimum wages were only agreed upon in a few
industries and the statutory minimum wage was set at a relatively low level.
Nevertheless, there was a significant increase of the wage income for those
at the bottom of the wage ladder and after a long time of increasing wage
inequality even a slight reverse due to wage compression effects in the two
lower deciles of the income distribution has emerged. However, the statu-
tory minimum wage has remained not only below the low wage threshold
(two thirds of median full-time earnings), but also the poverty threshold,
as it corresponds only to 46 per cent of the national median wage (Schulten
and Lübker, 2020).
Five years after the introduction of the statutory minimum wage the results
are rather ambiguous: On the one hand it contributed to a significant wage
increase without having any negative effects on employment as predicted by
many economists. On the other hand, it was not sufficient to diminish the
low wage sector or even to overcome the dualised structure of the German
labour market. Moreover, the intersection between the statutory minimum
wage and collective bargaining is mainly characterised by “distant coexist-
ence”: The minimum wage mainly affects parts of the economy which to a
large extent are not covered by collective agreements, while collective bar-
gaining is mainly relevant for better paid workers. There are only a few sec-
tors in which a positive “interaction effect” between the minimum wage and
collective bargaining has occurred so that the minimum wage could help to
stabilise collective bargaining and to push up the collectively agreed wages.
In order to make the German wage setting system more stable and inclusive,
there are currently two approaches under discussion: The first is a more sub-
stantial increase of the statutory minimum wage. In the meantime, there is a
broad political alliance ranging from the trade unions, the left political parties
(SPD, the Greens, Die Linke) to the labour wing of the Christian Democrats
which demand a structural adjustment of the minimum wage to the level of €12
per hour which is regarded as a reasonably decent level to live on. From the
2020 level of €9.35 an increase to €12 would correspond to a growth of 28 per-
cent and would cover around 10 million workers (Schulten and Pusch, 2019).
The latter would lead to a significant intervention in the wage-setting system
as the number of affected workers would be more than twice as high as the
number of around 4 million workers affected by the introduction of the min-
imum wage in 2015. A minimum wage of €12 would also have a much greater
impact on collective bargaining as nearly 18 percent of the collectively agreed
wage grades are still below that threshold (see Figure 6.5). However, a statu-
tory minimum wage of €12, which would correspond to around 60 percent of
the national median wage, has the potential to upgrade the wages in many sec-
tors and would definitively diminish the low wage sector. Whether or not such
an extraordinary increase of the minimum wage would also have a positive
impact on collective bargaining coverage is, however, far from certain.
Therefore, there is a second approach under discussion, which puts much
more emphasis on the strengthening of collective bargaining (Bosch, 2019;
Müller and Schulten, 2019; Schulten, 2019). At stake here is the development of
new organizing strategies which are often linked to conflicts at company-level
regarding the introduction or defence of a works council and/or a collective
agreement. As organising strategies require large financial and personal
resources and given that union budgets are shrinking, there are also relatively
strict limits to such a strategy. Therefore, the preferred revitalisation from
“below” has to be complemented by a revitalisation from “above” which relies
on political support for collective bargaining. The trade unions agreed upon
a list of political demands to strengthen collective bargaining. They include
among others less restrictive criteria for the extension of collective agree-
ments, mainly by reducing the veto power of the employers’ representatives
in the Collective Bargaining Committees at the Labour Ministries at national
and regional level. More extensions are seen as a core element to increase the
bargaining coverage (Schulten, 2018). In addition to that the unions call for
a stronger use of prevailing wage laws in public procurement and an exten-
sion of the so-called after-effect of collective agreements, which continues to
bind employers to collective agreements after their expiry and after the exit of
employers from the employers’ association. Furthermore, the unions demand
re-regulation of atypical forms of work, which hinder trade union representa-
tion. However, all these issues are rather technical and much more difficult to
campaign for than a single figure for an uprated statutory minimum wage.
The two strands of the debate are not yet sufficiently linked. In the sec-
ondary segment of the labour market, the focus is more on an increase of the
statutory minimum wage, in the primary segment more on strengthening
collective bargaining. There is the danger that the dualisation of the labor
market is breaking up earlier solidaristic political alliances whose aim was
to include all categories of employees (Emmenegger et al., 2012). To reduce
income inequality of market incomes substantially both are needed: A
higher minimum wage improves the working conditions at the bottom of the
income distribution, but as an isolated instrument (as witnessed in the UK
in particular) it risks holding back the wage gains for middle income groups,
which eroded in the last years. There are also at a certain point limits to
the increase in the statutory minimum wage. A fair remuneration of skills,
responsibility and a compensation of hard working conditions can only be
guaranteed by collective agreements with their differentiated wage grids.
The aim must be to bring together the different strands of the demands for a
reform of the German wage setting system in a joint campaign.
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7 Downward convergence
between negotiated wages
and the minimum wage
The case of the Netherlands
Wike Been, Paul de Beer and Wiemer Salverda
Although the Netherlands has had a statutory minimum wage for 50 years
now, the interplay between the minimum wage and collective bargaining
has changed significantly over time. In this chapter we analyse how the
lowest pay of employees in the Netherlands was for a long time primarily
determined by collective bargaining at the sectoral level, but recently the
role of the statutory minimum wage has become more important due to
a general decline of the lowest collectively negotiated wage rates. We pay
special attention to the role of minimum youth wages, which are excep-
tionally low in the Netherlands and which play an important role in some
sectors. The overall focus therefore is on questions regarding the inter-
action between minimum wage setting and collective bargaining and its
development. The first section in the chapter starts with a general dis-
cussion of the legal framework of the statutory minimum wage and its
uprating mechanism. The analysis describes the evolution of the mini-
mum wage rate over time, compared to the overall wage developments,
collectively negotiated wage increases and labour productivity. The sec-
ond section focuses on the role of collective bargaining at the sectoral level
and the level of the lowest wage rates in collective agreements, comparing
these to the statutory minimum wage and the overall wage development.
The analysis demonstrates that the lowering of the relative level of the
lowest negotiated wage rates has created room for a strong increase of
low-wage employment in the Netherlands – a development encouraged by
the Dutch government during the 1990s. The third section seeks to under-
stand the evolution of the lowest wage rates in collective agreements by
means of case studies in three sectors: Cleaning, supermarkets and the
metal industry. Based on interviews with negotiating representatives from
both the employers and the union side, the analysis illuminates the inter-
play between the minimum wage and collective bargaining as perceived
by them. Depending on the employment structure and the power relations
between social partners in the three sectors under investigation we find
different types of interaction (as lined out in the introduction). The chapter
ends by drawing out the key conclusions.
138 Wike Been, Paul de Beer and Wiemer Salverda
7.1 Minimum wage policy and its effects
7.1.1 Legislating the minimum wage

The discussion on the minimum wage in the Netherlands should be under-
stood in the context of the Dutch neo-corporatist model, today often called
the “polder model”. In this model, the government shares its responsibil-
ity for designing and implementing social and economic policies with the
social partners, namely the trade unions and the employers’ associations.
Although there has been a statutory minimum wage for half a century in
the Netherlands (see below), the social partners have nevertheless played
a significant (advisory) role in the repeated adjustments of the law and the
uprating of the minimum wage. The discussion on the minimum wage goes
back to 1945–1946, when unions and employers agreed to a minimum wage
sufficient for an unskilled worker to live in one of the big cities with a family
with two children. This idea was taken as a guideline by the College van
Rijksbemiddelaars, the official body at arm’s length of the government that
ratified collective labour agreements (CLA). When in 1963 strong industrial
action put an end to the prolonged wage moderation, employers and trade
unions agreed to a national minimum income of 100 guilders per week (€45,-),
applicable to all male employees older than 24 years and to younger ones
already earning the adult wage according to the CLA. That income was
deemed to be the minimum necessary for a decent life for a family with
children, taking into account children’s allowances provided by the state.
However, the social partners could not agree about the uprating and the
government set the new amounts (SER, 1966: 5). After two years the mini-
mum wage was extended to female employees due to EU legislation on equal
pay. In 1969, more than 50 years ago now, the government introduced a
statutory minimum wage for all employees aged 24 and older (down to 23 in
1970). This provided the same entitlement also to workers not covered by a
collective agreement which was around 30% in the private sector at the time.
The Dutch minimum wage is notorious for the very long tail of youth min-
imum wages introduced in 1974 by Ministerial Decree of a separate mini-
mum wage for each year of age between 15 and 22 years, each defined as a
specific percentage of the adult minimum wage (Figure 7.1). The percentages
have been altered several times. Very recently, the applicable age of the adult
minimum wage was lowered from 23 years to 22 years in 2017 and then to
21 years in 2019 as a result of collective action by the trade union FNV and
youth organisations. In consultation with the Social and Economic Council
(SER), the top organism of the “Polder model”, the government proposed
this two-step lowering and promised employers a subsidy to cover the costs.1
1 The subsidy is financed from a rise of employers’ social contributions, but its burden will
probably be borne by the employees as far as it shrinks the room for wage bargaining.
Downward convergence to minimum wage 139
Figure 7.1 Youth minimum wage ladders 1974, 1983, and 2019 (% of adult minimum
wage), and average monthly amounts for 1/1/2019 (euros).
Reading note: In 1974 the youth minimum wage at age 15 equalled 40% of the adult minimum
wage; as of 1 July 2019 it amounted to €491 per month for a full-time week.
Source: Ministry of Social Affairs and Employment
Figure 7.1 shows the monthly levels since the latest change in July 2019 of
all minimum wages, running from €491 at age 15 to €1,309 at age 20 and the
adult minimum wage of €1636 from age 21. Evidently, this system creates
great opportunities for employer arbitrage between youth and adults to the
extent that these wage differences exceed possible differences in productivity
(which seem small or even non-existent in the relevant, low-skill jobs such as
shelf-stacking in super markets). Such options for arbitrage do not only con-
cern the exact youth minimum wages but all levels of youth pay above that
level up to the adult minimum wage.
The minimum wage excludes overtime pay and other extras but it is legally
topped up with an annual holiday allowance of 8%. It is a gross amount
including income tax and social contributions borne by the employee but
excluding employers’ contributions. The former deducts around 9.5% for
a full-time employee, the latter currently adds about 18% of costs to the
employer.2 The minimum wage is legally defined as a monthly, weekly or
daily amount, depending on the payment period of the company. Notably,
it is not defined on an hourly basis as it applies to what is called the “normal
working hours”, which in practice amounts to the full-time working week
2 Calculated for the year 2019 at <www.berekenhet.nl/werk-en-inkomen>

which varies across CLAs from 36 to 40 hours per week. Youth minimum
wages imply very low hourly pay levels, starting from about €3 at age 15 up
to €10 for adults.3 Employees with a part-time job receive a pro rata amount
of the minimum wage depending on their own working hours. Note that
until 1993 the minimum wage applied only to employees who worked at
least one third of those CLA-defined full-time hours. Introducing an hourly
minimum wage has been debated on several occasions, e.g. early- 2000s and
mid-2010s, but has come to nothing because it would affect different parts
of the economy differently because of the variation in working hours across
collective agreements and corresponding sectors.
Traditionally, minimum wage enforcement was based on private law:
Individual workers would have to take their employer to court. In 2007,
this was replaced by administrative enforcement, which means that the
Labour Inspectorate can impose a fine if it finds an employer violating the
law. The effective monitoring and enforcement have become increasingly
complicated due to the strong growth of atypical employment relations,
such as (bogey) self-employed, on-call contracts, payroll contracts, posted
workers, contracting and labour migrants. New legal stipulations in 2016 try
to improve this by better pay specifications and legal applicability to piece
work and assignment agreements.
The statutory minimum wage includes an indexation mechanism for the
regular uprating of its level, again based on Ministerial Decrees, aimed at
ensuring that minimum-wage earners share in the general growth of pros-
perity in the country. It is currently operationalised as an automatic adjust-
ment to the average change of the collectively negotiated wages.4 This is
commonly done on a half-yearly basis. It was complemented in 1973 with
an obligatory evaluation every three years (four years since 1991) of circum-
stances that could motivate a special adjustment of the level. However, no
additional increase due to special uprating has taken place since the 1980s.
In the Netherlands, the minimum wage is of crucial importance for the
level of social benefits. With the introduction of the minimum wage, the
idea was that the adult minimum wage ought to provide a sufficient income
for a family to live on (SER, 1966: 10). Thus, the government gradually ele-
vated the public old-age pension to that level between 1970 and 1974, and
increased it further afterwards. In 1974 the government introduced the
so-called “net-net-linking” which aligned the income from social assis-
tance and from the public pension to 100% of the net income from the full-
time minimum wage. This was formally enacted in 1980. Consequently, the
3 The youth wages lend the Netherlands’ wage distribution as long a tail of low pay as
Germany had before it introduced the minimum wage in 2015 (Salverda and Mayhew,
2009, Table 9). This contrasts with the UK or France, for example, where there is hardly
any tail below the minimum wage threshold.
4 The change is calculated by the government’s economic think tank, the Netherlands
Bureau for Economic Policy Analysis (CPB).
evolution of collectively negotiated wages underlying the uprating of the
minimum wage translates into an increase of all minimum social benefits.
This led to a renewed discussion about the uprating mechanism that came
to a conclusion with a new law in 1992 that codified the current situation.
It allows the government to block the uprating if either wage developments
are deemed to negatively affect job growth or a growth in the use of social
benefits would incite a sizeable increase in social contribution or taxation.
The prime implication of this linking concerns the dynamics of uprating,
which is written in stone and has remained the basic tenet of the Dutch
social security system regardless of the subsequent evolution of the mini-
mum wage until this very day. Consequently, any increase or reduction of
the minimum wage is automatically translated into an equivalent change in
social-security spending. Thus, any adjustment of the minimum wage rate
has direct implications for the incomes of a much larger group of house-
holds than simply the workers who earn the minimum wage. Evidently, as
the analysis below shows, this has far-reaching implications for minimum
wage policy in the Netherlands.
7.1.2 The level of the minimum wage and general wage trends
This section addresses the evolution of the level of the minimum wage over
time and its relation to the overall wage development. The level of the Dutch
minimum wage is driven by its regular uprating. In the mid-1970s the spe-
cial 3-year adjustments were used to raise the level in order to catch up with
the effects of fixed-amount increases in collectively negotiated wages that
disproportionally benefited the lower wage rates and lifted them above the
minimum wage, and also with the developments in actual earnings exceed-
ing the trend in negotiated wages (SER, 1979: 11). Nowadays the opposite
prevails as the minimum wage itself has gained precedence over the lowest
collectively negotiated rates and actual earnings trends are ignored. Instead,
the government used the special adjustments to freeze the nominal level in
2004 and 2005 (AMvB, 2003).
The net-net-linking mechanism implies that a large increase in collec-
tively negotiated wages results in a significant increase in the minimum wage
and all minimum social benefits. In the wake of the well-known Wassenaar
Accord (Stichting van de Arbeid, 1982), employers and unions in the Social
and Economic Council agreed to delink public-sector collectively negoti-
ated wages (Salverda, 2013; SER, 1982: 62–63), social benefits and the min-
imum wage. All three were nominally lowered by the government in 1984
by 3% - while consumer prices still rose by more than 3% annually – and
remained frozen for the rest of the 1980s. Again, the minimum wage was not
fully adjusted to the negotiated wage growth in 1992 and frozen from July
1993 until January 1996. In 2004 and 2005 a new freeze was based on a social
pact concluded by the government with the social partners. Surprisingly,
over the years since the 2008 financial crisis the uprating of the minimum
Figure 7.2 Adult minimum wage, average collectively negotiated wages and actual
wages, hourly labour productivity, 1964–2017.
(wages with CPI deflator, productivity with GDP deflator; 1979=100)
Reading note: In 2015 hourly productivity is 56% above the level of 1979.
Note: Hourly wage: OECD Economic Outlook no 99 wage, rate corrected for the latest number
of employees published by CBS. The average collectively negotiated wage is available as an index
number only.
Source: CBS (Statline); Ministry of Social Affairs and Employment
wage has not been affected but, evidently, the influence of negotiated wage
growth, which has stagnated, has much diminished.
Figure 7.2 compares the evolution of the minimum wage to collectively
negotiated wages, both deflated by consumer prices. Initially, the mini-
mum wage slightly lagged behind negotiated wages, as the in-built delay
of the uprating would suggest. Special uprating occurred in 1973, 1974 and
1976 because of CLA rises that benefited the lowest wage rates and faster
growth in actual earnings compared to negotiated wages. However, regular
uprating was already lagging behind negotiated wages in 1976, 1979, 1980
and 1981. On balance, the minimum wage increased more strongly than the
average negotiated wage and it reached its highest real value in 1979, 61%
above the level of 1964. After 1979 both the minimum wage and negotiated
wages declined by 13% until 1985. The subsequent freezes shifted the min-
imum wage further downwards until 1997, opening up a 10% gap with the
trend of negotiated wages up to 1985 that has remained largely unchanged
since,5 with a slight widening due to the freeze of 2004–2005. In real terms
5 This combines a rise in the private sector with a decline in the public sector (Salverda, 2013).
the level of the adult minimum wage increased by 7% from 1997 to 2003
and then fell again by 2% in 2005, followed by a 4% rise towards 2010, to
decrease again towards 2014. Over the 50-year period, 1964–2017, one might
claim that average negotiated wages have increased by 38% and the mini-
mum wage by 31% in real terms. However, given that the current real min-
imum wage level is now equal to that of 1973–74 it is clear that second half
of the gains booked between 1964 and 1979 have still not been recovered.
A second finding from Figure 7.2 is that collectively negotiated wages
themselves have lagged behind the growth of actual average real hourly
wages6 and therefore the minimum wage has lagged even more behind aver-
age prosperity growth than the CLA wages suggest.7 Actual hourly wages
increased more in line with the minimum wage than with negotiated wages
over the 1970s and after that showed also a brief (1979–1981) and smaller
(−7%) decline. This was followed by a gradual increase up to 25% above
the 1979 level in 2009, which has trended slightly down for the rest of the
period to 2017. The ratio of the minimum wage to the actual average wage
increased until 1976 to around 68% and stayed roughly flat until 1983 but
then started a free fall of 20 percentage-points, which was followed again by
a slow further decline. In 2014 the minimum wage amounted to about 44%
of the average actual hourly wage. The effects for youth minimum wages are
stronger because of the 2% reductions of the early 1980s. The average youth
minimum wage fell substantially more (−40% between 1979 and 1997) than
the adult minimum wage, and it equals about half the adult minimum wage.
Actual youth hourly wages sank from 67% of the general average in 1979 to
only 45% nowadays – one of the lowest levels in Europe (Salverda, 2015).
Thirdly, wage negotiations have for a long time barely compensated for
rising prices and left the benefits of productivity growth8 entirely in the
hands of employers. During the 1970s, productivity grew in line with the
minimum wage and actual wages. Subsequently, productivity kept growing,
albeit with some short-lived recessionary fluctuations in the early 1980s, the
mid-1990s and 2009, up to a level of 54% above that of 1979. By contrast,
both the minimum wage and negotiated wages were at the same level in 2017
as in 1973–74, opening up a 94% gap with productivity growth. Actually
earned wages fill this gap halfway, but also lag behind productivity growth,
especially after the turn of the century.
Thus, workers who have been paid the statutory minimum wage have
experienced a multiple decline. They lagged behind collectively negotiated
6 Salverda (2009) discusses the divergence between CLA wages and actual earnings.
7 This is the average over all hours worked. It is a running average and may have grown
less due a composition shift as part-time employment has grown very strongly and is on
average paid less.
8 Deflating the GDP prices would be more appropriate for comparing to productivity growth.
However, the conclusion remains similar: A 11–14% growth for the minimum wage and
negotiated wages and a 72% growth in actual earnings still lag 94% productivity growth.
wages which in turn lagged behind actual earnings which in turn lagged
behind productivity growth. Obviously, this evolution has equally affected
those receiving social benefits (with a slight exception for the public pen-
sion). This prolonged wage moderation seems an important cause for the
freeze of real household gross income among the lower half of the income
distribution over the last 35 years (Salverda, 2014).
7.1.3 Employers, unions, the government and the minimum wage

This section critically assesses the views of the key social actors regarding
the statutory minimum wage and the role of the government. Table 7.1 lists
the timeline of the Dutch minimum wage to provide a basis for further dis-
cussion of the behaviour of the parties involved: The union federations and
employer associations – the social partners – and the government. It tran-
spires clearly that the government has played a dominant role in the evolution
of the minimum wage. It enacted the statutory minimum wage in the first
place, surmounting a long unwillingness of the social partners, and it made it
more inclusive over time, extending it to young workers, and putting an end
to the exemption of employees working less than one third of the full-time
working week. In addition, it has unilaterally determined to the majority of
decisions to uprate or even lower the level of the minimum wage. This is illus-
trated by the unique lowering of the level in 1984, the nominal freezes and the
incomplete upratings. This leaves only the years 1990-1991, 1996-2003, and
the period 2006 to the present day with undisturbed adjustments. Commonly,
the government took the initiative and then discussed this with the Social and
Economic Council. In particular, these government interventions reflect the
huge significance that the level of the minimum wage has obtained for the
level of public spending since the net-net-linking was introduced in 1974.
Understanding the role of social partners in reaching minimum wage
agreements these have to be placed in historical context – in particular,
the post-war rise of communist trade unions (excluded from the negotia-
tions) in 1945-46, and the fierce industrial action in the early 1960s, which
put pressure on employers especially because of the expectation that the
labour market ought to provide a minimum family income even for the least
qualified workers. Increasingly, however, the aim of a minimum income has
disappeared from the socioeconomic radar. The rapid expansion of dual-
earner households complicates the relatively easy relationship between
labour-market earnings and household incomes that characterised the full-
time single-breadwinner model. Its demise hampers what social partners
can actually do for household incomes, since these are now strongly affected
by the number of earners within a household and their working hours. This
happened in conjunction with the extension of the minimum wage to work-
ers who would not necessarily have a dependent family to maintain, and
also with the expansion of social and employee insurance provisions which
reached its apogee in 1975. Ultimately, the direct intertwining of social
Table 7.1 Evolution of minimum-wage legislation and application, 1964–2015
Parties involved
Social
partners
SER/Labour
Collective Foundation/
Year(s) Events bargaining pacts dialogue* Government
1945-46 Agreement on minimum x

pay in bargaining
1946-1963 Updating in collective x
agreements
1964 Introduction of x
negotiated MW at
age 25
1965-1968 Uprating x
1969 Introduction of statutory x
MW at age 24
1970 Extension of MW to x
age 23
1971-1973 Frequent uprating x
1973 Enacting of max. x x
3-yearly special
uprating
1974 Introduction of Youth x x
MW ages 15-22
1974 Policy decision of x
net-net-linking
1975-1979 Frequent uprating x
1980 Lowering of youth MW x
percentages
Legal net-net-linking in x
WAM act
1980-1982 Uprating adjusted x
1981 Lowering of Youth x
MW percentages
1983 Lowering of Youth x
MW percentages x
Nominal freeze of all
MW
1984 3% nominal decrease x
1985-1989 Nominal freeze of all x
MW
1990-1991 Normal uprating x
1991 Shift from 3- to 4-yearly x
special uprating
1992 WKA act regulates x x

linking mechanism x
Adjusted uprating
(Continued)
Table 7.1 (Continued)
Parties involved
Social
partners
SER/Labour
Collective Foundation/
Year(s) Events bargaining pacts dialogue* Government
1993 End of small jobs x

exclusion from MW
1993-1995 Nominal freeze of all x
MW
1995 End of consultation x
over special uprating x
No special uprating
1996-2003 Normal uprating x
1999 4-year evaluation: no x x
uprating
2004-2005 4-year evaluation: x x
nominal freeze of all
MW
2005-now Normal uprating x
* SER: Social and Economic Council; Labour Foundation of trade union federations and
employer associations; Pacts dialogue refers to specific negotiations of the government with
the Labour Foundation.
Source: SER (1981, Appendix 4) and SZW (2010).
security with the minimum wage seems to have put the government in the
driver’s seat of caring for household subsistence, and may have stimulated
the social partners to abide by that adage. In its last debate on a special
uprating of the minimum wage held in 1999, the Social and Economic
Council concluded that the level of the minimum wage, and therewith mini-
mum social benefits for households with dependent children, lagged behind
the rise of actual earnings and the incomes of working households and did
not share in the general increase in economic welfare (SER, 1999: 28–29).
However, both employers and trade unions argued that increasing the min-
imum wage would reduce low-wage employment, even if the increase could
have been small. They advised against a special uprating and instead recom-
mended separate government measures for supporting the real incomes of
poor households (SER, 1999: 71–72). Thus, priorities of income policy took
the lead while the idea of a minimum household income to provide a decent
living of the family – similar to the concept of a living wage (see discussion
in Chapter 2) – was dropped. Hence, the role of the minimum wage became
restricted to the furthering of fair pay for the efforts and skills of individual
workers, their working environment and the broader distribution of wages.
Evidently, it can pit unions and employers more easily against each other
when they no longer share a common perspective. As part of these recom-
mendations in 1999, the Social and Economic Council also advised to bring
the lowest wage rates in their collective agreements further down to the min-
imum wage – which is the main topic of the next section.
7.2 The minimum wage and collective bargaining

Around 80% of all employees in the Netherlands are covered by a CLA.
The lion’s share of CLAs include a list of the wage scales that the employer
should use in determining the pay of his employees. Particular wage scales
are often related to specific positions and occupations within the com-
pany and are usually based on a classification system. A typical wage scale
includes ten to twelve annual steps.
As a consequence of this system, the impact of the statutory minimum
wage on the pay of Dutch workers and on the share of minimum wage earn-
ers is largely mediated by collective bargaining. If the social partners in a
sector or a company agree on a lowest wage rate that lies above the statutory
minimum wage, then no employee in this particular sector or company can
be paid the minimum wage. Thus, the incidence of the minimum wage and
the lowest pay levels are directly affected by collective bargaining.
There may also be an effect in the opposite direction: A change in the level
of the statutory minimum wage may affect the lowest wage rates in collective
agreements. The most obvious case occurs if a rise lifts the minimum wage
above the lowest wage rate in the CLA. The legal minimum wage then in
fact substitutes for the lowest collectively negotiated wage in the sector or
company (we would term this as close interaction, see introduction). A rise
of the minimum wage may also affect collective bargaining. If unions prefer
a specific distance between the lowest wage rate and the minimum wage, a
consequence of a rise of the minimum wage may be that the unions demand
an increase of the lowest wage rate by at least the same percentage (distant
interaction, see introduction).
Basically, these mechanisms give the social partners a lot of power
over the bite of the minimum wage and the size of low pay employment.
However, the actual power resources of the unions and the employers vary,
both between them and over time. The high collective bargaining cover-
age rate is mainly determined by the willingness of employers’ associations
to close collective agreements, since only one in six employees is a union
member, these days. Around 1980 this was still one in three – indicating a
strong decline of unions’ organisational power on average. Since all employ-
ees who work for a company that is a member of an employers’ association
are covered by the collective agreement that the association has closed, it
is mainly the membership rate of employers that determines the high col-
lective bargaining coverage rate. Moreover, the collective bargaining cov-
erage is furthered by the mechanism of mandatory extension of sectoral
agreements. The (advisory) role of the social partners at the national level is
largely determined by the willingness of the government to share responsi-
bilities with them. Whereas there were strong institutional ties between the
trade unions and political parties in the past, when Dutch society was still
characterised by the “pillarization” between a social-democratic, catholic,
protestant and neutral or liberal pillar, these ties have been largely severed.
This has weakened the societal power of unions. Overall, one could say that
the power balance between the employers and the unions has tilted to the
side of the employers over time (de Beer and Keune, 2018).
The following section analyses the evolution of the lowest collectively
negotiated wage rates and the interaction with the statutory minimum wage.
7.2.1 The evolution of lowest collectively negotiated wage rates

compared to the minimum wage and their incidence
The analysis draws on a dataset of the Ministry of Social Affairs and
Employment of 96 collective agreements in 2015. The data cover about 87%
of all employees covered by a CLA which is sufficient to draw general empir-
ical conclusions. It is notable that the level of the lowest wage rates in Dutch
collective agreements varies widely.
Figure 7.3 compares the evolution of the weighted average real level of
the lowest collectively negotiated wages (deflated by inflation) with both
the minimum wage and average collectively negotiated wages since 1983.
Figure 7.3 Index of the real minimum wage, the weighted average of the real nego-
tiated lowest wage rates and the real average negotiated wage (1983=100).
Note: The lowest wage rates are weighted with the number of employees covered by the collective
agreements.
Source: Salverda (2009, 2010), CLA database SZW, Ministry of Social Affairs and Employment,
CBS (Statline); calculations by the authors.
Remarkably, over the entire period, the trend growth in the lowest negoti-
ated wages follows the minimum wage much more closely than the average
negotiated wages, with the exception of the years 1985-1990. In this period the
nominal minimum wage was ‘frozen’, but the lowest wages in CLAs followed
the overall collectively negotiated wage increases. In 1990 they increased even
more than the collectively negotiated wages. But after 1994 the lowest negoti-
ated wages followed the minimum wage instead of the collectively negotiated
wages. From 1994 to 1997 the nominal lowest negotiated wages were lowered,
resulting in a sharp drop of the real level of the lowest wage rates by 8%. After
1997 the lowest wage rates lagged further behind collectively negotiated aver-
age wages and increasingly approached the minimum wage trend, indicating
that the lowest negotiated wages in the wage distribution have been increas-
ingly influenced by the annual changes in the minimum wage.
Between 1985 and 1995 the positive gap between the lowest negotiated
wages (on average) and the minimum wage grew from less than 2% to 12%.
However, this gap narrowed over the next ten years to just 3% in 2004. After
an intermission from 2005 to 2008, the average lowest collectively negoti-
ated wage declined further to less than 2% above the minimum wage in 2017
(Salverda, 2009; 2010).
To analyse the evolution of the lowest wages in CLAs further, the remain-
der of this section focuses on the period from 2005 until 2015, for which data
on individual CLAs are available from the CLA database of the Ministry of
Social Affairs and Employment.
As a consequence of the gradual fall of the lowest negotiated wages rela-
tive to the minimum wage, an increasing share of the CLAs sets the lowest
wage rate at the same level (or below) the minimum wage. In 2005 only 23%
of employees were covered by a CLA that included a lowest wage equal
to or below the minimum wage. This number started to increase in 2007,
reaching 58% in 2013 and slightly decreased afterwards to 56% in 2015. If we
add the employees who are not covered by a CLA (around 20%), the share
of employees for whom the statutory minimum wage is the potential floor
of their wage, is now about 77%, while this was no more than 43% in 2005.
Consequently, the importance of the minimum wage for the lower end of the
wage distribution has increased sharply in the past two decades.
The level of the lowest wage rates in CLAs relative to the statutory mini-
mum wage can be adjusted in three ways through actors’ strategies. The first
way is the basic (initial) percentage increase that is applied to all wage scales
as part of a new CLA. This increase keeps the relative level of the lowest wage
compared to the other collectively negotiated wages in the particular sector or
company constant. The second way is a specific adjustment of the lowest wage
rates that deviates from the basic pay rise. Although this is not a standard ele-
ment of collective bargaining, the union(s) or the employer(s) can have specific
reasons to prefer a different adjustment of the lowest wages compared to the
other wage scales (see below). In some CLAs the lowest wage rate is explicitly
linked to the statutory minimum wage, which means that the change of the
lowest wage may differ from the general wage increase, if the adjustment of
the minimum wage deviates from the general negotiated pay rise. In other
CLAs the level of the lowest wages is fixed at a certain nominal amount,
meaning that they lag behind both the regular pay rise and the increase of the
minimum wage. The third is the introduction of a new lowest wage rate below
the existing one or, alternatively, the abolition of the existing lowest rate, as a
result of which the second lowest wage rate becomes the new lowest wage rate.
A complete analysis of the kinds of wage adjustments negotiated in the
many agreements over this ten-year period is outside the scope of this chap-
ter. Nevertheless, it is possible to infer the importance of the various ways
of adjusting the lowest wage rates by analysing the size of the year-on-year
change of the lowest collectively negotiated wage in individual CLAs com-
pared to the minimum wage (de Beer, Been and Salverda, 2017). By exam-
ining all annual changes of the lowest wage rate in CLAs for which we have
information in two consecutive years in the period from 2005 to 2015, we
conclude that in 55% of the cases (weighted by the number of employees cov-
ered by the CLA) the change of the lowest wage was equal to the change of
the minimum wage. In 8% of the cases the nominal level of the lowest wage
was frozen, which resulted in an average relative decline of the lowest wage
compared to the minimum wage by 1.7% annually. In only 1% of the cases,
the lowest wage was lowered by more than 5% compared to the minimum
wage, which probably indicates that a new lowest wage rate was introduced.
In 2% of the cases, the increase of the lowest wage exceeded the rise of the
minimum wage by more than 5%, probably indicating that the existing low-
est wage rate was abolished. In the remaining 35% of the cases the change
of the lowest collectively negotiated wage differed from the change of the
minimum wage but by less than 5%, which may signal that the lowest wage
was equal to the overall collectively negotiated wage increase.
If we add the various types of changes, we conclude that the lowering
of the lowest collectively negotiated wage compared to the minimum wage
contributed on average 4.5 percentage points to the relative decline of
the lowest wage rates in the period 2005-2015, whereas relative increases
of the lowest wage rates contributed to a 2.8 percentage point increase of
the average distance between the lowest wage rate and the minimum wage.
Consequently, an important finding is that the overall relative decline of the
lowest wage rates by 1.6 percentage points between 2005 and 2015 appears
to be the result of rather diverging developments in different CLAs.
7.2.2 Government policy and collective bargaining on lowest

wage rates
In trying to explain the evolution of the relative level of the lowest negoti-
ated wages since the mid-1990s, it is important to also look at government
policies during this period that might be interpreted as period that might be
interpreted as a restriction of unions’ negotiation power.
Although collective bargaining is free in the Netherlands and the gov-
ernment has not directly intervened in collective agreements since 1982, the
Minister of Social Affairs and Employment can nevertheless try to influence
negotiations. In the 1990s, the government repeatedly insisted on the low-
ering of the lowest collectively negotiated wage rates in order to increase
employment at the lower end of the labour market. In 1994 the Minister of
Social Affairs and Employment threatened to withhold the administrative
extension of CLAs in which the lowest wage rate was still too far above the
minimum wage (Trouw newspaper 11 May, 1995). Although he did not effec-
tuate this threat, it was effective nonetheless, as the average gap between the
lowest wage rate and the minimum wage halved from 1994 to 1997, from 12
to 6% (Figure 7.2). We can say that the government encouraged the close
interaction of minimum wage and collective bargaining (see introduction).
In 2013, the social partners and the government concluded a social agree-
ment that addressed the consequences of the economic crisis for the labour
market. One element of the pact was the promise of the employers to create
100,000 jobs for persons with a disability.9 The social partners agreed that all
CLAs should include specific lowest wage rates for this group starting at the
level of the statutory minimum wage. In a letter of the Labour Foundation of
21 February 2014 (Stichting van de Arbeid, 2014) the peak level organisations
of the social partners called on their members to introduce new lowest wage
rates starting at the level of the minimum wage, if they did not already exist.
As we noticed above, in 2014 the average lowest wages were indeed lowered,
although in only four CLAs a new lowest wage rate was introduced – and
none in 2015. This time the call on the social partners to create new lowest
wage rates therefore appears to have had only a minor effect.
7.2.3 Evolution of the incidence of low-wage employment

The impact of a relative reduction of the lowest wage rates in CLAs on
low-wage employment is contingent on the extent to which the lowest wage
rates are actually used by employers. If the lowest wage rate is empty, i.e. no
employee is paid at this rate, then a reduction of the lowest wage rate will
have no effect whatsoever. Unfortunately, there is no information about the
number of employees in the lowest wage rates in various sectors. However, it
is possible to derive some indirect evidence on the impact of the reduction of
the lowest wage rates from CBS data on the number of employees that earn
up to the minimum wage or 5, 10, 15, 20 or 30%, respectively, above it. The
following analysis focuses on employees aged 25 to 65 years old, in order to
exclude young workers who are covered by the youth minimum wage.
9 Initially, the current government intended to grant the employers an exemption for paying
the minimum wage to this groups, but after fierce protests it decided to withdraw this
proposal.
Figure 7.4 Percentage change of employment (jobs) by wage group, age 25–65,
2009–2018 (%).
Source: CBS (Statline)
Figure 7.4 shows the evolution of the number of jobs (and full-time equiv-
alents) by wage group from 2009 to 2018. It is clear that there has been a
profound shift of the wage distribution towards the lower wage groups. The
numbers of jobs that are paid up to 115% of the minimum wage increased
strongly, whereas the number of better paid jobs hardly grew at all. The
number of jobs paid at most 5% above the minimum wage almost doubled,
whereas the jobs that were a little better paid (5 to 10% above the minimum
wage) increased by more than a third. Almost two thirds of the total net job
growth of 278,000 from 2009 to 2018 consisted of jobs that were paid at most
30% above the statutory minimum wage. This is not caused by an increased
concentration of part-time jobs among low-wage employment, because the
concentration of employment growth in the lowest pay categories is even
larger if measured in full-time equivalents.
Remarkably, the number of jobs paid equal to or below the minimum
wage declined slightly. It is not clear whether this is a real phenomenon or
an artefact due to the way that Statistics Netherlands calculates the relation
between the actual wage and the minimum wage.10
It is quite likely that this evolution is related to the relative reduction of the
lowest negotiated wages in this period, which created a great deal more room for
workers to be paid below the level of 115% of the minimum wage. Consequently,
10 Since there is no uniform hourly minimum wage in the Netherlands, because it depends
on the standard working hours in a sector, CBS has to estimate the hourly minimum wage
in case of part-time jobs.
the changes of the lowest wage rates in the CLAs contributed significantly to the
growth of low-wage employment in the Netherlands in the past ten years.
7.3 Collective bargaining on lowest wage rates in three sectors

The previous section noted a distinct evolution of the lowest collectively
negotiated wage rates and of low-wage employment over time, but national
statistics and aggregate information on lowest wage rates in collective agree-
ments do not allow us to infer causal relationships between the minimum
wage and the lowest wage rates. Therefore, this third section focuses on the
negotiations in three specific sectors: The cleaning sector, supermarkets11,
and the metal industry. While the first two sectors are typical examples of
low-wage sectors, in which one can expect the statutory minimum wage to
have a significant impact on collective bargaining, the third sector is an
example of a relatively well-paying sector, where much less influence of the
minimum wage is to be expected.
For each sectoral case study interviews were conducted with negotiators
on both the union side and the employers’ side. The interviews took place in
June and July 2016. Union interviews included the negotiators of the FNV as
well as of the CNV (the two largest trade union confederations). Employers
interviewed involved the negotiators of the most important sectoral employ-
ers’ association(s) (see de Beer et al., 2017). Interview questions included
views on the minimum wage and the lowest wage rates, the role that these
play in collective bargaining, the importance of low-wage employment in
their sector, and their expectations and preferences regarding the future
of the minimum wage and the lowest wage rates. Interviews were recorded
with the permission of the interviewee and transcribed.12
7.3.1 Three sectors compared

The nature of employment differs quite strongly between these sectors. The
supermarket sector is characterised by a large share of short-hours part-time
jobs, mainly occupied by students that hold these jobs besides their school
or studies. As a consequence, the youth minimum wage plays an important
role. The cleaning sector is also characterised by many short-hours part-time
jobs, but they are largely held by (generally lower educated) adults, many of
them combining several jobs in the sector. Finally, employees in the metal
industry are often better educated and there are many more full-time jobs
than in the other two sectors. Table 7.2 presents the characteristics of the
three sectors. The supermarket sector having the fewest enterprises out of
the three sectors is a reflection of a larger share of big companies. All three
sectors have collective agreements that (together) cover the whole sector.
11 In this study we focus on the actual stores. Distribution centers are not included.
12 The work was funded by the Hans-Böckler-Stiftung in Germany (project number
S-2014-801-3-B).
Table 7.2 Characteristics of the cleaning, supermarkets and metal sectors
Cleaning Supermarkets Metal
Total number of 14,310 3,675 268,905

enterprises a;b
Percentage of 97 78 90
small enterprises
(<20 employees)a
Nature of Primarily low Primarily low Primarily skilled
employment wage, low skill wage, low skill work
Collective One collective Two main collective
Two collective
agreement(s) agreement legally agreements agreements: 1 for
extended to the (identical except
those companies
sector for pensions), one
with over 34 and one
is legally extended
for those with up to
to the sector 35 employees with
different wage tables.
Nature of the Minimum Minimum character. Minimum character,
collective character but For the lower wage companies pay
agreement(s) very few pay groups companies generally well above
above the level set generally stick to the level set
the wage level of
the collective
agreement
4th quarter 2017 (CBS, 2019)

a)
NACE codes: Cleaning = 812; Supermarkets = 471; Metal = 24-30 + 33

b)
Whereas companies in the metal sector generally pay 10 to 20% above the
agreed level, in the supermarket sector this is practice for the higher wage
groups only. In the metal sector, the employers’ representatives explained
that they payed above the level set by the collective agreement in order to
attract and keep personnel and to create the image of an attractive sector
while leaving room for individual companies to choose their own strategy.
In the supermarket sector this is not general practice, because of the fierce
price competition in the branch in which the wages make up most of the
operating costs. Companies in the cleaning sector rarely pay more than the
level set in the collective agreement which is explained, according to a union
interviewee, by ‘the consequence of the open tender system’ in this market.
According to an employers’ representative, companies that pay above the
minimum level agreed in the collective agreement, run the risk of losing
their contracts because their services will be more expensive to the client
than those of the companies paying at the level of the collective agreement.
Figure 7.5 shows the evolution of the level of the lowest adult wage rate in
each collective agreement as a percentage of the statutory minimum wage.
The lowest wage rate in one of the collective agreements in the metal sector
is set at the minimum wage level (M&T metaalbewerkingsbedrijf) and there-
fore the level is constant at 100%. In the other sectors the lowest wage rate
lies above the statutory minimum wage. The distance fluctuates somewhat
Figure 7.5 Evolution of the lowest collectively negotiated adult wage level as a per-
centage of the statutory minimum wage.
Source: CLA database SZW, Ministry of Social Affairs and Employment, calculations by the authors.
but is overall rather constant, particularly when compared with the average
trend for all collective labour agreements described in section 7.2. However,
the very recent trend for the cleaning industry is an exception. The large
drop in 2018 is caused by a change of the entire wage system, that was nego-
tiated during this bargaining round.
Table 7.3 summarises the characteristics of the youth wage rates in the
collective agreements of the three selected sectors. Only the metal industry
Table 7.3 Characteristics of the youth wages in the collective agreements at the
time of the interviews (2016)13
Cleaning Supermarkets Metal
Defined as percentage of the percentage of the 4 different youth

lowest adult wage lowest adult wage scales depending
category in the category in the scale on educational
scale level
Minimum level 45% at age 17 or 30% at age 15 (they The lowest of the
younger reflect the percentages 4 youth scales is
of the statutory set at the statutory
minimum youth minimum.
wages but applied to
the lowest adult wage
scale in the collective
agreement instead)
Increase Steps of 10% each See statutory minimum See statutory
year youth wage increase minimum youth
wages
Ends at Age 22 Age 22 (23 until mid Age 23
2016)
13 Since the time of the interviews, the law regarding youth minimum wages has been
changed (see Section 7.1.1.).
has a youth wage rate that is set at the statutory minimum. In the other
two sectors the youth wage rates deviate from the statutory minimum youth
wages in several ways. First, the age at which employees are entitled to the
full adult salary is reduced by one year from the, at that time, legal age
of 23 years. Second, the wage levels are a fixed percentage higher because
they are related to the adult wage levels that are higher than the statutory
adult minimum wage. In addition, in the cleaning collective agreement
the youth wages start at the age of 17 (instead of at the age of 15 as the
statutory minimum wage does) and the age-related percentages exceed the
statutory ones.
7.3.2 The negotiation process: Whether and how to take into

account the statutory minimum wage
Whether and how the negotiators take into account the statutory minimum
wage when discussing uprating the wage rates, varies strongly between col-
lective agreements. A direct link between the statutory minimum wage and
the lowest wage rates in the collective agreement is most clear in the metal
sector in the collective agreement ‘M&T Metaalbewerkingsbedrijf’, since
the lowest wage equals the minimum wage (close interaction). This has been
made official policy: The lowest wages are automatically adjusted twice a
year in accordance with the uprating of the statutory minimum wage level.
The negotiators of this collective agreement state that there is no discussion,
because it has become the standard to use the statutory minimum as the
lowest wage level in the collective agreement – thus reflecting a strategy or
fall back to close interaction (see introduction). In contrast, the negotiators
of the other collective agreement in the metal sector state that the statutory
minimum wage does not play a role whatsoever, because the lowest wage level
in the collective agreement lies far above the statutory minimum. This displays
a strategy of distant co-existence (see introduction). Therefore, they see the
uprating of the wages in the collective agreement as an independent process.
There is also a rather clear link between the statutory minimum wage and
the lowest wage rates in the cleaning industry. Because the lowest wage rates
are so central, the trade unions focus on bargaining for a settlement for these
wages. In their campaigning during 2016 they have established a wage goal
of 130% in relation to the minimum wage. Hence, the statutory minimum
wage level serves in this sector as a reference point for wage bargaining,
displaying a strategy of distant interaction. In 2018 the entire wage system
was changed as a result. Previously, the main wage scale was characterised
by an eight-year long flat rate after which one would go up a step reaching
the general level of payment in the industry. Starting from 2018 onwards this
system has been changed into a four year period. In this new system, one
starts at a lower salary than was previously the case but the wage increase
is steeper, resulting in a higher wage level after that first period. The level of
payment reached after four years approximates the 130% which was aimed
for by the trade unions. On both sides, negotiators are keen to keep it at this
level, because it is good for employees (stated by the unions) and because it
is good for the public image of the sector (stated by the employers’ organisa-
tion). The representative of the employers’ organisation stated that during
previous bargaining rounds they proposed to link the uprating of the wages
one-to-one to the statutory uprating of the minimum wage level. Their
motivation was that they believed this wage level to be in line with market
conditions. Unions did not agree, stating that they wanted to retain room
for bargaining.
In the supermarket sector the statutory minimum wage increase is seen
by employers as the preferred benchmark for the wage increase: “From now
on we want to keep up with the statutory minimum wage development at
the minimum, because the wage increases have been at a minimum level
over the last few years. More reduction is not possible, as the lowest possi-
ble level has already been reached”. Moreover, the increase of the statutory
minimum wage is related to the sectoral wage increase in an indirect sense:
according to the employer representative the wage increase often equals the
indexation plus a little extra. This means that both the statutory minimum
wage increase and the sectoral wage increase follow the indexation. Even
though the uprating of the minimum wage level plays a role, the absolute
level of the statutory minimum wage does not. The reasons given are that
the wage levels “have always been above the minimum wage level”, so they
were not forced to take it into account. Thus we see a mixed strategy of close
interaction and distant coexistence.
The youth wage rates are related to the statutory minimum youth wages
in the same fashion as the adult wage rates are, either because they are set
at the statutory minimum (M&T metaalbewerkingsbedrijf) or because they
are set at a certain percentage of the lowest adult wage rates (supermarket
and cleaning sectors). In the wage setting process, the effect of the uprating
of the adult wage scales on the youth wages is taken as a given in the metal
and cleaning sectors. The most important reason for this is that young peo-
ple only form a small minority of the employees.
At the time of the interviews, a statutory change of the youth minimum
wages was going to take place in the near future (see section 7.1). Negotiators
in all sectors anticipated that they would not take immediate action. In the
metal industry, these changes would just be copied into the collective agree-
ment because the lowest youth wage rates are set at the statutory minimum.
In the collective agreement of the cleaning sector, the negotiators stated that
they accepted that the distance between the collectively negotiated youth
wage rates and the statutory youth minimum wages would become smaller.
Only when they are overtaken by the statutory minimum level, employers
state that they intend to upgrade the wages accordingly. Also in the super-
market sector, where the youth wages are important for the total wage bill,
there is no intention to uprate the youth wage rate in accordance with the
statutory changes. They accepted that the distance between the statutory
minimum and their own wage rates would become smaller. They rather
expected that in the long run, the statutory minimum would converge on the
level of youth wages in the sector. The union representatives also pointed
out that the reduction of the statutory adult age to 21 years old would not
really affect the sector, as most employees are younger. Union representa-
tives in the supermarket sector are – contrary to the employers’ organisa-
tion – in favour of a further increase of the youth wages for all age groups,
but they acknowledged that this would be difficult to achieve, as low youth
wages are an employer strategy to reduce the total wage bill and are part of
the business model of the sector.
7.4 Discussion
Half a century after its introduction, the impact of the statutory minimum
wage in the Netherlands on the lower end of the wage distribution is chang-
ing. The purchasing power of the statutory minimum wage reached its
peak at the end of the 1970s and has declined considerably since then. As
a consequence, it has lagged behind the general trend of average income in
the Netherlands. This is due in particular to strong government interven-
tions in the level of the minimum wage in the 1980s followed by less drastic
measures in the 1990s and 2000s. However, partly it is also caused by the
indexation mechanism itself which links the minimum wage to the average
development of collectively negotiated wages. Since these collectively nego-
tiated wages have lagged behind the actually earned wages, which lagged
behind productivity growth, the relative level of the minimum wage has
declined strongly.
Ostensibly, the current system is based on a broad consensus, among
unions as well as employers and most political parties, that a statutory min-
imum wage is necessary. Still, the fact that the relative minimum wage level
has lagged increasingly behind average wages and productivity for more
than three decades now, may also be interpreted as implicit support for the
thesis that a lower minimum wage is required to create more room for jobs
in the bottom half of the wage distribution. The social partners seem to have
accepted this since the crisis of the early 1980s and put the evolution of the
minimum wage on the automatic pilot.
For the unions this offered opportunities to raise the lowest wage rates in
CLAs increasingly further above the minimum wage, until the average gap
was around 12% in 1994. However, since then this gap has shrunk again to
about 2% currently. Initially, this was the result of strong government pres-
sure to create more room for low-wage jobs for vulnerable groups. It is more
difficult to explain the further erosion of the lowest wage rates after 2000,
since the largest trade union FNV actually pleaded for an extra increase of
the lowest wages in CLAs. This rather points to a loss of bargaining power
of the unions, especially in sectors with a large share of low-wage employ-
ment which often are also sectors with a large proportion of flexible jobs
and a low union density. From our interviews with union and employer rep-
resentatives this chapter concludes that there is generally low awareness of
the level of the statutory minimum wage – the cleaning industry seems an
exception. In general, both trade union and employers’ representatives at
the sectoral level state that the mandatory minimum wage does not play a
significant role in collective bargaining. Nevertheless, we have shown that
the statutory minimum wage has become increasingly more relevant for the
lowest wage rates in collective labour agreements.
As a consequence, the actual bottom of the wage distribution, which is
determined by the lowest collectively negotiated wages, has sunk even more
than the relative level of the minimum wage. It also means that the min-
imum wage has become increasingly more important for the wage distri-
bution. The share of employees for whom the statutory minimum wage is
the potential floor of the wages in their collective agreement has increased
from 43% in 2005 to about 77% currently. Whereas the lowest wages were
largely determined by collective bargaining for most of the past half cen-
tury, despite the existence of a statutory minimum wage, now the minimum
wage is again the real bottom of the wage distribution.
Moreover, employers have actually used this extra space by paying an
increasing number of jobs just above the minimum wage. From 2009 to
2018, the number of jobs that pay up to 15% above the statutory minimum
wage has increased by 23% while the number of better paying jobs increased
by only 2%.
So, whereas the relative decline of the minimum wage first created room
for the unions to show their muscles by raising the lowest negotiated wages
ever further above the minimum wage, the opposite has happened in the
past fifteen years. The unions lost bargaining power, the lowest negotiated
wages declined even more than the minimum wage and the minimum wage
became the real lower end of the wage distribution.
This may explain why in April 2019 the largest trade union, FNV,
launched a campaign to increase the minimum wage level to 14 euro an
hour (for a 36-hours working week in 2020) based upon the argument that
the current level (of about 10 euro) is not sufficient to provide for a decent
living standard. In addition, the Socialist Party (SP) filed a motion in par-
liament in July 2019 to increase the minimum wage with 10% based upon
the same argument. These developments, in addition to the successful cam-
paign of the FNV in collaboration with youth organisations to increase the
youth minimum wage levels to enhance fair pay, suggest that the uprating
of the level of the statutory minimum wage has after more than half a cen-
tury once again become a political theme. This became evident during the
campaign for the parliamentary elections in March 2021, when almost all
political parties, from the extreme right to the extreme left, included a raise
of the statutory minimum wage in their election manifesto.
Since it is now quite likely that the minimum wage will be raised in the near
future, it is interesting to consider what the impact of a significant increase
of the minimum wage would be for collective bargaining in the Netherlands.
First of all, it would imply that the lowest wage rates would no longer play
any role in collective bargaining, because they would all be overtaken by the
minimum wage. Only indirectly would collective bargaining still be relevant
through the uprating mechanism that links the increase of the minimum
wage to the average collectively negotiated wage increase. Moreover, a sub-
stantial rise of the minimum wage would also mean that workers who now
earn just a little above the lowest negotiated wage would also start earning
the minimum wage. As a consequence, the bite of the minimum wage would
be much bigger. Whereas now less than 4% of employees aged 25 to 65 years
earn the minimum wage, this proportion would more than double to about
9% if the minimum wage would rise by 10%. Although this would imply a
considerable rise in income for low paid workers, assuming that their jobs
would not be endangered, it would also mean that collective bargaining
would play no role anymore for determining the wages of the 9% lowest
paid workers unless the unions would be able to negotiate even higher wage
rises. Else, the unions would no longer be relevant for the wages at the lower
end of the labour market. It is therefore questionable whether a strong rise
of the minimum wage would really be helpful in strengthening the position
of the unions.
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8 The SMIC as a driver for
The interplay of collective bargaining
and minimum wage in France
Noélie Delahaie and Catherine Vincent
The French minimum wage (SMIC, “salaire minimum interprofesionnel de

croissance”) is both one of the oldest and highest minimum wages in Europe.
Laid down by a statutory law, which requires strict revision of the SMIC
according to a technical procedure, it exerts a significant pressure on the
wage-setting dynamic. Therefore, despite its strongly embedded institutional
role in the French labour market, the statutory minimum wage is regularly
questioned by politicians, experts and employers’ organisations. Pegged to
both inflation and average gross earnings, it sets the pace for the development
of wages, particularly wages agreed by sector level collective bargaining.
The first section of this chapter outlines the institutional framework of the
minimum wage and collective bargaining. Collective bargaining has been grad-
ually reshaped through a process of decentralisation and individualisation in
which the room to manoeuvre has been delegated to company agreements for
wage settlements. Then, the second section examines the linkages between the
SMIC and collective bargaining at sector level: To what extent does the SMIC
exert a gravitational pull on the lowest collectively agreed wage rates and does
it vary by sector? Focusing on three specific sectors – the metal industry, super-
markets and banking (see appendix Table 8.5 for an overview) – Third section
explores the pay bargaining strategies of sectoral actors regarding the low-wage
end of the distribution, particularly the extent to which the SMIC can be a tool
for reducing wage inequalities. By the end of the 2010s, the wage data reveal
a convergence (and downward trend) for all low wages towards the statutory
minimum wage. This raises the question, addressed in the empirical analysis,
how can sectoral negotiators fight against the narrowing of agreed wage scales?
8.1 Statutory minimum wage and collective bargaining:

An institutional framework
8.1.1 Characteristics of the French statutory minimum wage

The first minimum wage in France was implemented in 1950 as a statutory
law: The “Minimum inter-professional guaranteed wage” (“Salaire minimum
interprofessionnel garanti”, SMIG) was set at subsistence level, regardless
The SMIC as a driver for collective bargaining 163
of industry or occupation, and was weighted geographically (the lower the
weight, the further the distance away from Paris). Indexed to inflation only,
the SMIG did not keep pace with the development of average gross earnings.
Thus, in 1970, a revised minimum wage, which was automatically adjusted
to economic growth, was created - named the “Minimum inter-professional
growth wage” (“Salaire Minimum Interprofessionnel de Croissance”, SMIC).
While the SMIG was a guaranteed minimum income helping workers to
meet the basic needs of their family, the SMIC was designed as a dynamic
response that would widen employees’ participation in the benefits of eco-
nomic growth and narrow wage inequalities. Since 1970, the rate of SMIC
has been unilaterally set by the government and its adjustments depend
upon two indicators:
• The annual rise in the consumer price index1. If the inflation rate
exceeds 2 percent within a year, an exceptional adjustment takes place
immediately; and
• At least half the increase in the purchasing power of the gross hourly
wage earned by blue-collar workers and employees (SHBOE, ‘Salaire
horaire de base des ouvriers et des employés’).
Furthermore, the government may grant an additional “boost”, the

so-called “coup de pouce”, according to the socio-economic and political
context. The last “boost” dates back to July 2012 just after the presiden-
tial election of François Hollande (+2 percent). At the time of writing
(April 2020), the SMIC gross hourly rate is €10.15, an increase of 1.2 percent
over 2019.
It is essential to keep in mind that the SMIC is defined as an hourly rate.
Its level is fixed by a decree on 1 January each year. The SMIC is the mini-
mum legal compensation for all workers over the age of 18. If the collectively
agreed minimum wage is lower than the SMIC, the employer must pay a
supplement to reach the SMIC amount.
In January 2019, more than 2.3 million employees in the private sector
benefited from the SMIC uprating, representing 13.4 percent of all employ-
ees (Pinel, 2019)2. Women are over-represented among the beneficiaries of
SMIC increases. In 2019, nearly three fifths of employees (58.5 percent)
affected by the increase in the SMIC were women; relatedly, beneficiaries
1 The exact index used is the consumer price index (excluding tobacco) of households in the
first quintile of the distribution of living standards.
2 It is worth noting that this figure exceeds that of employees paid at the SMIC level. Indeed,
some employees may be affected by the annual increase in the SMIC for their basic wage
while they are receiving a total compensation above the SMIC when all bonuses are taken
into account. Thus, between 2007 and 2013, the proportion of employees that received
compensation close to the minimum wage ranged from 6 percent to 7.5 percent (Ananian
et al., 2018).
164 Noélie Delahaie and Catherine Vincent
were three times higher among the part-time employees (29.8 percent) than
the full-time employees (9.3 percent). The typical minimum wage earner
is therefore a woman working part-time in the services sector. There is
also segmentation by firm size. The incidence of MW beneficiaries is
higher in very small companies (28.3 percent in companies with less than
10 employees, compared to 10.1 percent in others), yet larger numbers of
beneficiaries work in large firms (65 percent work in companies with 500
or more employees), reflecting the overall greater share of employment in
large firms.
The existence of a relatively high value statutory minimum wage has
always been very controversial in France, but criticism has increased in
recent years and some commentators have even proposed radical reform.
In 2008, in order to offset the discretionary nature of SMIC coup de pouce,
a committee of independent experts was set up. Its annual report provides
information on the employment effects of the minimum wage and com-
ments on the appropriateness of a potential coup de pouce. Every year since
then the committee has voted against an extra-legal uprating. Moreover, in
2017, the committee made a radical recommendation to end the automatic
annual revaluation of the minimum wage (see Box 8.1).
Box 8.1
The positions of the expert group on the SMIC committee

Since the creation of the minimum wage, economic debate has focused on its
existence, its level and the indexation method (Gautié, 2018; Concialdi, 2020;
Husson, 2020). Over time, a consensus was forged among political and tech-
nocratic elites on the need to lower the cost of labour. While not questioning
the existence of the statutory minimum wage, its supposed effects on the cost
of labour have been offset by increasingly extensive exemptions of employ-
ers’ social contributions for low wages, and then, from 2000, by tax rebates
(‘prime pour l’emploi’, PPE), usually called a negative tax.
The procedure for setting the minimum wage has always been closely
controlled by the government. Government takes a decision after consult-
ing the National Commission for Collective Bargaining (CNNC), which
brings together representatives of employers’ organisations and trade
unions. However, the role of the social partners was marginalised with the
creation of a “group of experts” in 2008, charged with recommending the
annual minimum wage increase. The group of experts hears the represent-
atives designated by the member organisations of the CNNC and appends
their opinions to its report, which is then addressed to the government and
made public. The CNNC gives a reasoned opinion to the Minister of Labour
on the fixing of the minimum wage. Unlike the situation in the UK (Low
Pay Commission) or in Germany (Mindestlohnkommission), the group of
experts is appointed by the government and is mainly composed of senior
officials or academics and neither the trade unions nor the employers par-
ticipate. Since its creation, the recommendations of the group of experts
have adopted an approach to wages that focuses on the issue of labour costs
and have systematically spoken out against any coup de pouce. In addition,
the group has recommended maintaining employer tax and social security
exemptions.
Shortly after his election in 2012, President Hollande launched a consulta-
tion with selected economists and members of the CNNC to review the SMIC
upgrading rules. Given the existing consensus among the social partners on
the SMIC upgrading rules, the government only introduced minor techni-
cal changes in the determination of the minimum wage. However, the expert
group’s 2012 report called for longer-term reflection on certain characteristics
of the minimum wage: Its geographic homogeneity, as a function of age, as
well as on the very principle of automatic revaluation.
The recommendations of the new members of the group of experts
appointed after the 2017 presidential election mark a break with the compro-
mises made between the different actors. While rejecting the notion that the
minimum wage ought to be differentiated by region or by age, the new group
of experts made a strong recommendation to end the automatic uprating for-
mula of the SMIC, a procedure they claimed is “without equivalent in relation
to developed countries with a national minimum wage”.
8.1.2 The wage setting mechanism

Compared with other European countries, collective bargaining was set
up belatedly in France (in 1950). In the following decades, the extension
mechanism3 imposed the sectoral level as the pillar of the French bargain-
ing system and enabled all employees in a sector to enjoy the advantages,
mainly regarding the wage rates, that had been negotiated by unions and
employers’ organisations. Although collective bargaining in France can
legally take place at three levels4 – the multi-sector level, sectoral level and
company level, in descending order of priority – from the 1950s to the end of
the 1980s, sector-wide bargaining was the most common level at which col-
lective agreements were negotiated; company-level bargaining took place in
only a handful of major companies.
The role of the state, however, remains one of the most peculiar fea-
tures of the French collective bargaining system. The strength and spread
3 This procedure was implemented since 1936. The contents of sectoral agreements extended
by the Ministry of Labour are binding on all the employers in a similar activity, with or
without registered membership in a professional association. This extension procedure
helps to offset the weakness of employee representation, as well as the employers’ lack of
incentives to bargain.
4 The Collective Labour Agreement Act of 1971 legalised the triple level where collective
bargaining took place.
of collective bargaining has never relied on the existence of strong and
encompassing bargaining parties, but on the support from the state, par-
ticularly in the form of extension procedures and the legal minimum wage.
Political intervention both reflects and maintains the loose links between
social partners. As a result, the key role of state intervention and a long-
standing mutual distrust between employers and trade unions explain
the relative weakness of collective bargaining. Therefore, the SMIC acts
as a gravitational pull for wage bargaining at sectoral level and sets the
pace for annual wage increases. In some ways, it has the same effect as
centralised national wage agreements in other countries. This underlines
the influence of state wage settlements in defining wage developments and
explains the similar pattern of real wage and productivity evolution over
time (Husson et al., 2015).
At sectoral level trade unions and employers’ organisations have always
negotiated an agreed lowest wage rate, referred to here as the collectively
agreed minimum, which corresponds to the wage floor for a given set
of qualifications. However, they are not involved in negotiating actual
wages paid by individual firms, as is the case in Germany, for example.
Each sectoral wage agreement sets the overall wage hierarchy (between
the first and the last qualification coefficient), the internal wage hierarchy
(between each successive coefficient) and the base rate for each coefficient.
In France, the sectors are under the obligation to open wage bargaining
at least once a year, but not to reach an agreement. The social partners
have the freedom to set the calendar for this annual bargaining. The main
purpose of annual wage bargaining at sector level is to determine the per-
centage increase in base wage rates. Agreed wages granted to the lowest
qualification levels often achieve compliance with the statutory minimum
wage only with difficulty and the SMIC rise often serves as a reference for
extending increases throughout the wage scale. Nevertheless, the regula-
tory capacity differs according to sector (Jobert, 2003; Castel, Delahaie and
Petit, 2015). In some industries, the sectoral regulation is still central, as it
creates real wage convergence in all companies: For example, in the con-
struction and petrochemical industries, but also in industries composed
of very small businesses, such as auto repair shops. In most other areas,
particularly in the metal industry, employers’ federations have sought to
negotiate sectoral base wage rates that preserve some leeway for higher
actual wages in large companies, either through company-level negotia-
tions or individualised and variable compensation (performance-related
bonuses, profit-sharing, etc.).
Actors at sector level are thus not the only stakeholders with a concern
for wage policies, as room for manoeuvre is left for bargaining at com-
pany level (see below). By the early 2000s, performance-related pay had
progressively replaced general wage increases and brought about a form
of management wage practices whose purpose was to adjust labour costs
and offer incentives for higher performance (Castel et al., 2014). These
individualizing policies may be subject to negotiation in the company, but
they are also often agreed outside collective bargaining in the form of a
discussion between employees and their employer. The following analysis
reviews the key institutional developments driving the decentralisation
of bargaining towards company level, a trend that has its counterpart
in many other European countries (Delahaie et al., 2012; Leonardi and
Pedersini, 2018).
8.1.3 The rise of collective bargaining at firm level

Since the mid-1980s, in France there was an early development, compared
with most continental European countries, towards the decentralisation of
collective bargaining to company-level. It was an institutional process of
coordinated decentralisation, characterised by a specified range of issues
for which derogations are possible within an overarching system that
remained coordinated by law and the favourability principle (Tallard and
Vincent, 2014).
At the outset, company-level bargaining was regarded positively by trade
unions – above all, the CFDT (“Confédération démocratique du travail”) –
as a way to invigorate workers’ participation and to enable union repre-
sentatives to better defend and represent employees’ interests. Contrary to
unions’ expectations, however, during the following three decades, the role
of sectoral bargaining changed. The significant increase in company-level
bargaining was triggered by a change in the outlook of employers’ organi-
sations during the late 1990s, when they discovered the benefits of company
bargaining, through which they could take advantage of the weakening
of the trade unions. From 2000, in order to gain flexibility of employ-
ment relations and to circumvent – and eventually eliminate the domina-
tion of sectoral agreements, the main employers’ organisation, MEDEF
(“Mouvement des entreprises de France”), advocated company agreements
with or without trade union mediation. Then, the overhaul of collective
bargaining finally occurred in May 2004, when a right-led government
introduced a limited reversal of the hierarchy of norms5. Decentralisation
of the collective bargaining system has been reinforced since then by
5 In the 2004 law, plant-level agreements could derogate from higher-level bargaining
agreements, even with regard to less favourable provisions for workers. Nonetheless, three
provisions made it possible to frame – or even limit – resort to such derogations. First,
derogation was forbidden regarding agreed minimum wages, classifications, vocational
training and supplementary social protection. Second, industry-level negotiators could
‘lock up’ other topics and exclude them from company-level derogations. Third, the law
granted the majority unions the right to challenge the validity of opting out of company
agreements.
successive legislative reforms, introduced by both right-wing and left-wing
governments. While sectoral bargaining remained the dominant level
for labour regulation in SMEs, large companies took the opportunity of
greater autonomy and relaxation of centralised labour market regulation.
The priority given to the company slowly eroded solidarity among workers
in the same industry and resulted in a bargaining system that was less and
less coordinated (Vincent, 2019).
The onset of the 2008 crisis had the effect of briefly reactivating a policy
of tripartite concertation. However, these tripartite summits were placed
under threat of legislative action and framed by government “roadmaps”
whose features were often very close to employers’ demands. Also, these
negotiations frequently revealed deep disagreements among the trade
unions. Against the backdrop of the Euro zone debt crisis, in order to
meet the demands of the country-specific recommendations within the
framework of the 2015 European semester, the socialist government ended
up imposing an overhaul of collective bargaining without concertation.
Despite numerous strikes and mass demonstrations organised by a coali-
tion of CGT (“Confédération Générale du travail”), FO (“Force Ouvrière”)
and some autonomous and student unions over a four-month period, the
2016 Labour law was finally adopted by the Parliament in August 2016.
To win over CFDT support, the announced reversal of the “favourability
principle” was limited to working time, overtime pay, paid holidays and
weekly rest.
During the presidential elections of 2017, the candidate Emmanuel
Macron announced that he would speed up labour law reform. Once elected,
Ordinances (government decrees)6 were issued in September 2017, follow-
ing one-by-one formal consultations with unions and employers’ organ-
isations. A two-fold overhaul emerged from texts that had been clearly
prescribed by and for companies: A transformation of industrial relations
on a scale unprecedented since the 1982 laws concerning collective bar-
gaining and workplace representation; and a step forward in labour market
deregulation including a ceiling to damages in cases of worker complaints
and the weakening of dismissal regulation. The employers’ organisations
supported the ordinances, whereas all the unions were firmly opposed. As
far as collective bargaining is concerned, the Ordonnance relative au ren-
forcement de la négociation collective (Ordinance on the strengthening of
collective bargaining) has generalised shared competencies between legal,
sectoral and company agreements. Moreover, the leading role that the gov-
ernment claimed to give to company agreements has resulted in the removal
of the “favourability principle” and the facilitation of collective bargaining
6 Formally, a Loi d’habilitation (framework law) was passed in Parliament by a majority of

the new presidential party authorising the government to execute its reform project.
in SMEs without unions. Regarding competencies in standard setting, the
division is as follows:
i Formally, the role of sectoral agreements is reinforced since there are

now 13 topics in which derogation is forbidden. However, this reinforce-
ment took place at the expense of the law and not at the expense of
company agreements
ii The sectoral “lock up” faculty was unlimited under the 2004 law. From
2017, this faculty is reduced to four areas that mainly concern issues
related to occupational safety and workers with disabilities. The weak-
ening of sectoral bargaining is evident here.
iii The primacy of company agreements concerns everything that does not
fall into the two previous blocks, which is considerable.
Thus, as regards wages, all compensation rules are governed solely by the
company agreement except for sectoral agreed minimum wages, classifica-
tions and overtime premia. This means that the legal exceptions do not con-
cern the other premia (shift work, night work and allowances for marriage
or childbirth), seniority payments and additional wage components such as
performance-related pay.
Overall, therefore, the recent reforms have utterly changed the French
collective bargaining system, in particular because coordination among
the different levels is no longer ensured by the “favourability” principle.
Nevertheless, it remains to be seen whether these reforms have changed
social partners’ collective bargaining practices. Until recently, the use of
derogations remained limited (Mériaux et al., 2008). Three reasons may
explain this lack of success of collective bargaining at company level. First,
between 2004 and 2016, almost all the sectoral agreements have blocked
derogations; otherwise union federations would have refused to sign them.
Second, the standards imposed at sector level are already the result of min-
imal compromises and leave little room for less favourable agreements. Last
but not least, derogation agreements are not relevant policies for manage-
ment. In large companies, as long as the economic survival is not at stake,
opening negotiations on derogation clauses is a very negative message both
for unions and employees. SMEs are less likely to sign their own agreements,
whether or not they include derogations, because maintaining the reference
to sector level agreements seems less time consuming and risky.
The 2008 financial crisis changed the situation. Combined with the trend
towards decentralization, the economic crisis constrained collective bar-
gaining, because employers sought to erode past union achievements by
introducing more flexibility, especially on working time, and more mobil-
ity and productivity, as well as attempting to dampen wage dynamics7.
7 For instance, the major car producers, such as PSA and Renault, negotiated so-called
competitiveness-employment or short-time working agreements.
New types of agreements facilitating restructuring or introducing more
flexibility under the 2017 Ordinances were quickly integrated into the prac-
tices of large companies. However, the other new possibilities for deroga-
tory agreements are still hardly used (Farvaque, 2019).
8.2 The dynamics of collective bargaining and

the SMIC: A quantitative outlook
As already mentioned, in France there is a strong interdependence between
sectoral collective bargaining and the annual upgrading of the SMIC. France
therefore aligns well with the institutional configuration of “Close interaction”,
described in the introduction. Indeed, the increases in the statutory min-
imum wage influence the dynamics of collective bargaining at sector level
(and to a lesser extent at the firm level), including the adjustment of the col-
lectively bargained minimum wages, or base wages, defined at sector level.
As Gautier (2017) suggests, sectoral base wages can in return become a chan-
nel for transferring increases from the SMIC to actual wages above the SMIC
(which are negotiated at firm level) (see, also, Grimshaw et al., 2014). This is
consistent with studies by Luciani (2014) and Castel et al. (2015), which show
that many companies use sectoral minimum wages as a reference for their
own wage scales.
8.2.1 A strong interdependence between collective bargaining

and the SMIC
Bargaining activity at sector level has been broadly stable over the past dec-
ade. Since 2000, between 1,100 and 1,400 collective agreements have been
signed each year at national, regional or territorial level. Between 2009
and 2012, in the years immediately after the financial crisis, the number of
agreements annually signed reached a very high level, with more than 1,300
agreements concluded each year. The dynamics of collective bargaining at
sector level is primarily driven by wage bargaining, since this is the first
issue negotiated. Table 8.1 shows the data for those sector agreements which
focused on wages. For the 2005–2018 period, wage agreements represented
Table 8.1 Evolution of wage agreements at sectoral level, 2005–2018, France
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
No. 435 549 526 563 440 465 523 605 443 408 390 427 499 467
% 44.8 46.5 47.6 47.1 34.5 36.5 40.6 45.7 41.6 38.3 34.3 40.2 42.1 35.9
Note: the first row gives the number of wage agreements and the second supplies the percentage
of wage agreements concluded that year out of the total number of sectoral agreements. For
example, in 2005, 435 wage agreements were concluded at sector level. They represent 44.8 per cent
of sectoral agreements. Source: Ministère du travail (2019)
between 34 and 47 percent of all collective agreements concluded at sector
level8. The figures suggest a strong dynamism in collective bargaining at sec-
tor level during 2011 and 2012, which is explained by the double increase in
the SMIC in 20129. Between 2013 and 2015 wage bargaining slowed down in
line with the return to a single annual increase of the SMIC. Moreover, this
period was characterised by almost zero or even negative inflation.
Since 2016 and especially in 2017, there was a slight revival in the dyna-
mism of bargaining activity, particularly in the sectors covering more than
5,000 employees. In 2017, the slight rise in inflation (1 percent) and the
improvement in economic growth (2.3 percent compared to 1.6 percent in
2016) led the employers’ federations to propose higher revaluations of the
base wage rates, which were accepted by the trade unions. In 2018, despite
a slowdown in economic growth (down to 1.5 percent), collective bargain-
ing at sector level remained dynamic due to a higher increase in the SMIC
than in the previous year (1.2 percent in January 2018 compared with 0.9
percent in 2017). All these factors thus contributed to a higher number of
sector agreements to maintain base wages at or above the level of the SMIC
(Ministère du travail, 2019).
While the SMIC acts as a driver for collective bargaining at sector level,
it is worth noting that in some sectors agreed wage scales are not always
in line with the SMIC. In particular, on 31st of December 2016, before the
SMIC uprating on 1 January 2017, close to nine tenths of all sectors (88 per-
cent), covering 95 percent of all employees, had a wage scale in line with the
SMIC in force. This means 5 percent of employees were on non-compliant
wage scales. The situation has nevertheless improved since 2006 when the
compliance rate was only 85 percent.
Several reasons can be advanced for why collectively agreed minimum
wages respond only imperfectly to SMIC increases. First, the frequency of
uprating wage scales remains low because sectoral collective bargaining
takes a long time to set up. Second, because the base wage rates are often
close to the statutory minimum wage, the day after the SMIC uprating,
40–60 percent of base rates only exceed the SMIC by 1 percent. As a result,
a significant number of wage scales are overtaken by the SMIC and the level
of compliance drops rapidly the day after the SMIC is upgraded.
8 In 2018, the share of wage agreements appears very low because the first issue of collective
bargaining was the conditions of conclusion of collective agreement at firm level. This is a
consequence of the Macron Ordinances, which aimed at promoting collective bargaining
at firm level (Ministère du travail, 2019).
9 In 2011 and 2012, negotiations took place in a context of a twofold increase in SMIC,
which encouraged some sectors to renegotiate an agreement during the year. More pre-
cisely, in 2012, a first increase in the minimum wage was decided on in January 2012, but
it was small (+0.3%) because it followed an anticipated increase in December 2011 when
the threshold for automatic revaluation of the SMIC was crossed. A second increase was
then decided in July 2012 (+ 2%) (Martinel and Vincent, 2013).
However, there have been significant improvements in terms of time and
duration of compliance during the year (Langevin, 2018). This is primarily
due to the change in 2010 in the SMIC’s annual uprating schedule, from July
to January of each year. The sectors negotiate only once a year, often in the
first quarter, with the objective of following the newly uprated SMIC. As
a result, bargaining schedules are now more closely synchronised, which
helps to reduce compliance delays. Thus, before 2010, only 52 percent of
the sectors had a compliant wage scale in the month in which the minimum
wage was upgraded; this proportion rises to 75 percent after 2010. The over-
all improvement in compliance since 2010 can be identified by examining
the details of a selection of sectoral collective agreements (Table 8.2). As a
whole, between 2006 and 2009, sectors had compliant scales with the level of
the SMIC during nine months on average per year, namely 72 percent of the
year. This proportion rose to 84 percent, on average, in the following years
and stood at 86 percent in 2016. The improvement is especially notable in
the metal and supermarkets sectors (Table 8.2).
The schedule of sectoral collective bargaining is therefore strongly
affected by the changes in the SMIC uprating schedule. The effect of the
minimum wage on the frequency of sectoral bargaining can be explained in
particular by the obligation of the sectoral social partners to define the base
wage rates above the SMIC. As mentioned above, the annual increase in the
SMIC can quickly make the base wage rates non-compliant and encourage
sectors to revaluate their scale.
Turning to the workplace level, as mentioned above, firm level collec-
tive bargaining is less affected by the uprating of the SMIC except when
actual wages are close to sectoral minimum wages and to the SMIC.
Numerous studies suggest indeed that collective bargaining at company
Table 8.2 Rate of compliance of selected sector agreements with the level of
the SMIC
2016 2006-2009 2010-2016
Number of
Number employees Compliance Compliance Compliance
Sectors of sectors (in thousand) (%) (%) (%)
Metal and steel 69 1604 90 53 83

Sectors
Supermarkets 1 677 75 25 68
Banking sector 12 584 92 94 94
and insurances
Whole sectors 304 13.235 86 72 84
Note: During the year 2016, the Metal and Steel sectors were on average in compliance with the
MW 90 percent of the time, i.e. 3.6 quarters out of 4. From 2006 to 2009, they were compliant
only just over two quarters per year on average between 2010 and 2016 (53 percent of the year).
Source: Langevin (2018), base des minima de branche (BMB)
Table 8.3 Evolution of the number and the topics of workplaces agreements,
2012–2018, France
2012 2014 2016 2018
Number of agreements 38799 36528 42231 46598

Number of agreements signed by union 31310 30965 35045 36190
delegates (DS) or mandated employees
Percentage of DS/mandated agreements on:
Wages 36 33 35 32
Working time 23 21 24 24
Employment 9 13 10 6
Profit sharing 18 16 24 20
Source: Ministry of Labour (2018; 2019).
level is associated with higher levels of actual compensation than sectoral

minimum wages as well as the SMIC (Castel et al., 2014; 2015; Luciani, 2014).
More particularly, Luciani shows the company agreements correspond to
compensation higher than that provided at sector level (around 7.4 percent
more). This may be due to the role played by individualized and variable pay,
which is less often defined at sectoral level. It is worth noting that wages are
the first subject of collective bargaining in workplace agreements (Table 8.3).
8.2.2 The impact of the SMIC on the level of wages at sector

and firm level
Turning to wage trends, collectively agreed wages, at the sector level rose
by 2 percent between 2007 and 2009 during the crisis, as a result of inflation
and increases in the minimum wage more than 2 percent (Figure 8.1). From
2010, agreed wages grew more slowly (1.5 percent on average) and slowed to
only 1 percent growth after 2014 in response to low inflation and very mod-
erate growth in the SMIC. Figure 8.1 shows that the increase in collectively
agreed minimum wages is closely related to increases in the basic monthly
wage (at firm level), while remaining systematically lower, which suggests
a widening of inequality. This is due to the fact that actual wages may
include negotiated increases (like individualisation, profit-sharing, etc.) at
company level.
In the French case, despite a high correlation between the SMIC and the
dynamics of collective bargaining at sector level, the study by Fougère et al.
(2016) tends to moderate the effect of the SMIC on the level of sectoral base
rates. On the basis of statistical analysis and the assumption of ceteris par-
ibus, these authors claim that inflation is the main determinant of changes
in sectoral base rates. Thus, a 1 percent increase in past inflation increases
them by 0.6 percent. The past evolution of actual wages in the sector also
has a positive impact on sectoral minima. Finally, the effect of inflation and
the SMIC decreases with the level of the sector base wage rate: A 1 percent
Figure 8.1 Trends in collectively agreed wages at sector level, monthly base wage,
SMIC and inflation, 2007–2016.
Source: Gautier (2017)
increase in the SMIC (in real terms) increases the base rate by 0.45 percent-
age points for those close to the SMIC but only by 0.15 points for workers
paid more than twice the SMIC. This agrees with other research on the “rip-
ple effects” of minimum wages, which tend to become less impactful higher
up the wage scale (see Garnero et al., 2015; Grimshaw et al., 2014).
With regard to actual wages paid at company level, several studies show a
positive impact of sectoral minima on actual wages (Combault and Naouas,
2015; André, 2012; Gautier, 2017). Variations in the SMIC also have an effect,
but this is lower than that of the sectoral base rates. Thus, Gautier (2017)
shows that a 1 percent increase in the SMIC increases effective wages by
0.09 percentage points. This result can be explained by the fact that sectoral
agreed wages can have an a priori positive effect on all basic wages, while the
effect of the SMIC will be limited to low wages (Goarant and Müller, 2011).
To sum up, there exists a strong “Close interaction” between the uprat-
ing of the SMIC and the dynamics of collective bargaining at sector level.
Recent trends show a drop in the growth rates of collectively agreed and
actual wages, as well as uprating of the SMIC, particularly since the 2008
crisis and especially 2014. As in other European countries, wage moderation
has been reinforced in a context where trade unions and employees have
been pushed to accept wage concessions to save jobs (Perez et al., 2015;
Delahaie and Perez, 2018). This raises the question of how social partners
elaborate their wage bargaining strategies.
8.3 The interplay between the statutory minimum wage
and collective bargaining: An analysis of
social partners’ strategies
This section addresses two important elements for the analysis of wage
dynamics. The first is the way wage bargaining strategies are designed by
the social partners. Regarding unions, these strategies are very different
depending on the level within the union organisation, namely whether the
peak-level organisation (intersectoral union, confédération in French) or the
national sectoral level.10 Although there are few differences in the strategies
at sectoral level from one union to another, the discourse and practices are
more differentiated at inter-sectoral level, particularly between the CFDT
on the one hand and the CGT and FO on the other. Second, given the lim-
ited leeway available to unions to influence the evolution of agreed wages,
this section examines the levers used to combat the low growth of wages and
to maintain purchasing power. Following a discussion of these two elements
of wage dynamics, the section then focuses on the interplay between the
SMIC and collectively agreed wages in three sectors: Supermarkets, metal
industry and banking.
8.3.1 Which wage bargaining strategies for trade unions

and employers’ organisations?
In order to understand the way that social partners elaborate their wage bar-
gaining strategies, interviews were conducted with various actors involved
in collective bargaining at the confederation and/or at the federation levels.
Given the high diversity of French trade unions, three main organisations
were selected for their representativeness, namely the CFDT, the CGT and
FO. At the national inter-professional level, the CFDT has become since 2017
the most representative union, surpassing the CGT; FO is the third largest
trade union (Table 8.4). By contrast with trade unions, the participation rate
of management representatives in employer-led organisations is quite high:
75 percent in 2012. There are three representative employers’ organisations:
The Mouvement des entreprises de France (MEDEF, Movement of French
Enterprises), the Confédération des Petites et Moyennes Entreprises (CPME,
Confederation of Small and Medium-Sized Enterprises) and the Union des
Entreprises de Proximité (U2P, Union of Local Businesses)11. Despite some
10 In all French union confederations, the national sectoral level organisation is called a
federation ( fédération).
11 Regarding the employer’s organisations, all persons contacted unfortunately refused
to participate in this study. This refusal was partly due to a very busy social agenda.
Moreover, in the metal sector, the employer federation was in the process of overhauling
the sector bargaining system. They therefore did not wish to take a position at the time of
fieldwork, as negotiations were ongoing. The following analysis instead draws on second-
ary data, especially policy documents published by the employers’ organisations.
Table 8.4 Union representativeness in 2017 according to the 2013–2016 workplace
elections, France
Voting CFE-
population Participation CFDT CGT FO CGC CFTC
Total private 13.244.736 42.76% 26.37% 24.85% 15.59% 10.67% 9.49%

sector
Metal sector 1.178.053 67.85% 25.35% 26.39% 16.17% 19.09% 7.42%
Supermarkets 374.085 63.65% 21.98% 20.98% 25.31% 8.08% 16.35%
sector
Banking 217.447 63.88% 26.41% 12.98% 12.93% 32.08% 10.01%
sector
Source: Ministry of labour (2018), « Mesure d’audience de la représentativité syndicale »: https://

travail-emploi.gouv.fr/dialogue-social/la-representativite-syndicale-et-patronale/article/
mesure-d-audience-de-la-representativite-syndicale-2017
contestation from the last two, MEDEF is the central employers’ organisa-
tion and sets the pace in social negotiations, particularly regarding wages.
As regards employers’ organisations, we can summarise their positions
with respect to wages as follows: Employers’ concerns are not about wages
but total labour costs (including social security especially) and they seek
above all to keep labour costs as low as possible. They tend to advise against
special uprating of the SMIC and instead recommend separate government
measures to support the real incomes of poor households. They bear the
minimum wage only insofar as its supposed effects on the cost of labour have
been offset by exemptions of employer social contributions for low wages.
However, employers’ organisations continue not to support increases in
the minimum wage; for them “the high level of the SMIC is a stepladder to
climb in France to find work”12,13. On the contrary, they are calling for the
creation of a “transitional SMIC” lower than the SMIC for target popu-
lations (such as young people in job placements and the long-term unem-
ployed). In line with this analysis, in many sectoral wages bargaining, the
employers’ proposals are aligned with the SMIC uprating. At company level,
the preferred compensation policies are based on the instruments perceived
as best able to directly involve employees in the growth of the company
while preserving its competitiveness (such as employee savings, profit-sharing
and employee share ownership,).
It is indeed in the area of pay equity and the fight against inequalities
that employers’ organisations and unions’ conceptions diverge the most. As
far as employers’ organisations are concerned, the existence of inequality
is consciously assumed. For employers, wages are the result of economic
performance; they are neither a driver for economic growth nor a tool for
12 Medef Monthly Press Point, March 2014 (www.medef.fr).

13 Medef Monthly Press Point, March 2014 (www.medef.fr).
fighting inequalities. Therefore, it is assumed to be logical to have differen-
tiated wage increases according to the specific productive capacity of each
sector or company. Social justice therefore can only derive from economic
results; a strategy to reduce inequality cannot be a sole objective:
“Every CEO and field manager knows how complex the roots of ine-
qualities are from one company to another. It is reductive and illusory
to hope that a universal tool could resolve the disparity of individual
situations. Every entrepreneur has the duty to act but must keep the
choice of the appropriate method14.”
The confederation CFDT does not have an established strategy for gen-
eral wage increases. In a context where wage bargaining power is weak, the
CFDT emphasises the need to negotiate as “close as possible to the employees”,
i.e. at the firm level. At confederal level, a framework is provided for defining
the core values of the CFDT and the way in which the collective bargaining
round could be applied, particularly in recent years, in the light of the vari-
ous laws that have reformed social dialogue within companies. A substantial
degree of autonomy is given to sector and workplace unions’ teams. The con-
federation only helps them to define a strategy that reflects these values and
the devices to be used within the framework of these new legislative rules.
Regarding the indicators to be considered by the CFDT, inflation is now
playing a less central role during the wage bargaining process. The trend in
prices remains a structuring factor in maintaining purchasing power, but
in a context of low inflation, this variable does not drive wage bargaining
upwards: Therefore, the confederation has shifted from an approach of
maintaining purchasing power around the inflation rate to a need to share
the value added of the firm. Thus, the wage bargaining process must focus
more on the search for equity between shareholders and employees in order
to increase the total compensation, while taking into account the compa-
ny’s strategy and its economic and financial situation. Thus, unlike FO and
CGT (see below), wage bargaining at firm level is not really designed as a
tool for increasing purchasing power, it must enable a “ fair sharing of value
added between employees and shareholders” and equity between the various
categories of workers in the enterprise. To this purpose, the CFDT empha-
sises the need to give union representatives the resources to better assess the
economic situation of their own firm. Training union representatives is one
of the confederation challenges in the coming years.
At sector level, the main issue is bargaining the wage scale. Negotiators
have to avoid a constriction of the wage scale and to maintain a “reasonable”
difference between qualification levels (to recognise the “value”, namely the
14 Armelle Carminati, President of the Social and Managerial Innovation Commission of

the Medef, March 2018 (www.medef.fr).
skills, of each worker). As at company level, sectoral wage claims must also,
and first of all, take into account the economic context of the sector, in order
to protect employment in sectors with economic difficulties.
According to the trade union FO, wages are the key issue of collective
bargaining. That is why this organisation is often called “the payroll union”.
In its wage bargaining strategy, the confederation insists on the fact that
collective wage increases, which apply to all employees, must be preferred
to individual pay increases that can be discriminatory or arbitrary. The eco-
nomic rationale is that labour costs should not be pitted against employ-
ment15, and economic recovery requires an increase in purchasing power
to boost household consumption. The claims at sectoral and company level
are essentially based on INSEE Indicators (inflation, growth rates of com-
panies) and changes in the SMIC and average wages in the sectors and firms.
In many cases, if the increases obtained are minimal and if FO does not
sign the agreements, there is little or no opposition to the wage agreement:
“an increase, however minimal, is always good to take”). With the change in
the terms of validity of the agreements16, the strategy will be different since
there will no longer be any minority wage agreements. Hence perhaps fewer
agreements will be signed in the future.
The stance of the CGT confederation is quite similar to the FO. Wage
bargaining at sector and firm levels aims at maintaining and increasing the
purchasing power. The CGT does not promote individualisation and varia-
ble pay (profit-sharing, bonuses, that substitute for the base wage17) within
firms because these components are not collectively bargained and there-
fore, tend to weaken union’s power. When bargaining at firm and sector
levels, as FO does, the CGT takes into account inflation, even if it considers
that the INSEE consumer price index is not perfect since it does not reflect
the total increase in the cost of living (housing, health, transport, etc.).
The guiding principles for the CGT negotiators are given by the “claim-
ing guidelines” adopted at each confederal congress and which serve as the
basis for the rate of wage growth in the annual bargaining round. The basis
of the claims is a minimum wage for a decent life, namely a kind of living
wage, which should correspond to the hiring wage of an employee without a
diploma or qualification. The CGT thus recommends that the SMIC should
be set at €1,800 gross per month18. The “claiming guidelines” also propose
15 By the way, numerous studies show a very weak, if any, link between a reduction in labour
costs and an increase in employment in France (Husson, 2020).
16 Since May 2018, company agreements are only valid if they have been signed by trade
unions representing at least 50 percent of employees.
17 In the French case, Delahaie and Duhautois (2019) suggest that profit-sharing substitutes
for the base wage. Moreover, this pay policy is not only a flexibility wage tool but also a
tax optimization device because it lowers the base wage that is currently subject to social
security contributions.
18 The gross monthly SMIC in 2020 for 35 hours a week is €1,539.42.
the CGT’s own wage scale, which ranges from employees without a diploma
or qualification to engineers with 8 years of higher education.
As with FO, the minimum objective of the confederation CGT is to main-
tain purchasing power. The percentage claimed is then determined by each
federation according to “felt” inflation (CGT index measuring the real cost of
living), sectoral productivity, wage catch-up mechanisms, mainly for women.
Then, at firm level, CGT representatives adapt the claims by discussing
them with the employees. During the bargaining round, indicators of firm
economic performance and shareholder returns are considered also.
Despite their discrepancies, for all trade unions, the SMIC is viewed as
the only way to fight against wage inequalities, but is also seen as an inade-
quate tool to fight poverty. At the same time, they are all aware of the neg-
ative effects of the dominance of the SMIC in compressing the lower end of
the wage scale and in generating a large share of workers at the SMIC level.
As described above, the level of the SMIC is the point of reference for collec-
tive bargaining at both sector and firm levels, even if rises in the collectively
agreed minimum wages have tended to be reducing more and more.
8.3.2 How do unions fight against wage inequalities in a context

of wage moderation
For unions, the SMIC remains an entry wage for positions that do not require
qualifications or specific experience. This level of compensation is intended to
enable people to enter the labour market. Unions are also firmly committed
to the principle that the minimum wage should represent at least 60 percent
of the median net salary19. However, in recent years in France, the median
wage has risen faster than the minimum wage, so that the ratio has been dete-
riorating. Because of its revaluation method, the SMIC is the first means for
combating the widening wage gap. Unions’ objective is therefore to stop the
stagnation spiral of the SMIC and stop the widening of inequalities, which is
a source of frustration for employees at the bottom of the wage scale.
In order to fight against the risks of poverty, the CGT and FO are demand-
ing a revaluation of the SMIC. This is not the position of the CFDT, which
is more aware of its effects on jobs. On the other hand, the trade unions are
unanimous on the need to re-launch the dynamic of wage bargaining to ena-
ble more equitable and inclusive economic development. For unions, collec-
tive bargaining is an essential means of reducing wage inequalities and must
regain a role in defining the progression levels of low skilled employees. In
sectoral and enterprise wage bargaining, union negotiators often propose
non-uniform annual rates increases along the classification scale with a pos-
itive bias towards the lowest paid grades. In many companies, trade union
presence therefore enables equality to be restored among employees and
19 In 2018, the median net salary is around 1,800 Euros.

particularly for those at the bottom of the scale. However, union represent-
atives have difficulties in managing the pay equity effects of increasing indi-
vidualisation of pay, particularly the expansion of variable compensation.
Although the employers’ organisations admit the existence of inequali-
ties, for them, they are the result of discriminatory societal processes. This
is especially true of gender pay inequalities that MEDEF intends to tackle:
“With regard to gender equal pay, MEDEF is fully aware of the inexplica-
ble pay gaps that exist despite the mobilisation of enterprises, and against
which action must continue. An effort that must also be made within the
public service”.20 As for the means implemented to achieve this objective,
MEDEF believes that employers must be granted autonomy to decide on
the best course of action:
“However, there is no magic wand and it is not a simple matter of pub-

lishing the unexplained wage gap on the Internet, coupled with an
obligation of results with sanction, which will solve a problem with
such complex roots. We must be careful not to put companies, espe-
cially SMEs, in a situation of great legal uncertainty. It would be more
encouraging to strengthen the obligation of means and transparency, by
leaving companies the choice of tools enabling them to meet their legal
obligations, to foster social dialogue in enterprises, and to enhance the
action of committed firms, in particular by giving more importance to
the Gender Equality label which already brings together the State and
the social partners21.”
The tool is therefore not negotiation and even less mandatory negotiation as
is the case in the current legislation. To compensate for their weak bargain-
ing power, trade unions seek to use other ways to move towards a fair distri-
bution throughout the wage scale. Reducing inequalities depends not only
on wage bargaining but can also be achieved through a more comprehensive
social dialogue. Thus, in a period with limited leeway for manoeuvre for
wage increases, the unions try to find other levers than compensation, for
example renegotiation of job classifications in order to maintain wage hier-
archy or to fight against wage discrimination. In the banking sector, where
wage moderation is on the agenda and where the wage gap between women
and men is very wide, negotiations on gender equality in the workplace are
in fact becoming the main tool for reducing wage inequalities.
Finally, the CFDT is the only union for which the main drivers of the
increase in purchasing power and the struggle against inequalities are also
perceived as falling “outside” collective bargaining. CFDT is working on a
range of expenses beyond the traditional remit of collective bargaining that
20 Fact sheet on gender inequality, 8/03/2018 (www.medef.fr)

21 Idem.
are difficult to reduce, especially housing, energy and transport costs. On
housing, for example, the CFDT participates in the governance of “Action
Logement”, an organisation whose objective is to facilitate access to hous-
ing by supporting employees in their residential and professional mobility
and by building housing. On the issue of transport, union delegates nego-
tiate travel plans with their employers that reduce employees’ fuel bills, for
example at the telecommunications firm, Orange.
Although the confederal positions are significantly different, notably
between the CFDT on the one hand and the CGT and FO on the other, the
three confederations have in common that they leave a great deal of autonomy
to their federations in their wage bargaining strategies. Indeed, it is at this level
that information on wage dynamics is most effective in determining claims.
8.3.3 Union strategies are determined by the structural

and economic characteristics of the sector
To understand the issues of collective bargaining at sector level, the fol-
lowing analysis draws on data for three sectors. More precisely, it exam-
ines three “collective agreements” (convention collective) from the point of
view of collective bargaining, which do not exactly correspond to the sector
defined in the national economic statistics: The metal sector, supermarkets
and the banking sector. Two criteria guided the selection: a) The collec-
tive bargaining practices and the unionisation rate (Figure 8.2); and b) The
structural characteristics of the sectors (see appendix Table 8.5).
Figure 8.2 Union density by industry in 2013, France (%).

Source: Dares-DGAFP-Drees-Insee, enquête Conditions de travail (2013); Pignoni (2016)
The metal sector is an older industrial sector where the unionisation
rate is one of the highest in France. According to Pignoni (2016), the rate
of unionisation in industry (whose scope is wider than the metal sector) is
higher than the national average (12 percent in industry against 9 percent
in the private sector as a whole) although it is declining due to the restruc-
turing of firms and the dismantling of former “union bastions”. The metal
sector is also characterised by a longstanding tradition of collective bar-
gaining with strong trade unions. In this sector, the CGT weighs 26 percent
in terms of union representativeness, closely followed by the CFDT (25 per-
cent) (Table 8.4).
The banking sector is one of the main and oldest sectors of the tertiary
industry. It is characterised by longstanding trade union tradition and one
of the highest unionisation rates in France (12.9 percent for financial and
insurance activities). One of the peculiarities of banking unionism is the
old existence of an autonomous union: The SNB (“Syndicat national des
banques”). This is linked to the traditionally complicated relations between
French trade unions and managers. The SNB is now affiliated to the CFE-
CGC that represents professional and managerial staff and is the leading
union in the banking sector, followed by the CFDT (26.4 percent of votes).
Finally, the supermarkets sector differs from the previous sectors in that
their industrial relations are not really institutionalised, and the unionisa-
tion rate is among the lowest in France (5.5 percent in the retail trade and
car repairing activities). A major characteristic of this sector is the weakness
of their agreements’ content: they provide very few benefits to employees in
addition to those provided for by the Labour Code. The sectoral agreements
are signed on legally binding topics: Vocational training, senior employ-
ment and so on. In an area as important as wages, for example, unions’
federations achieve only modest annual increases for employees. The agree-
ments signed merely upgrade the classification levels below the SMIC. The
following levels are generally very low. The result is a narrowing of the wage
range. Actors tend to describe sectoral bargaining as a “minimum service”
for employers (Rehfeldt and Vincent 2018).
In the supermarkets sector, whatever the organisation the challenge is to
increase low wages while maintaining pay differentials between the differ-
ent levels of the scale in order to take account of different qualifications.
At the sector level, the bargaining focuses on classification scales and not
on actual wages, which are negotiated in firms. Only the end-of-year bonus
(13th month) is negotiated at sector level and this is an advantage that is
not provided elsewhere in the services sector. The FO interviewee stressed
the need not to confine oneself to the trend in inflation, especially when it
is low or even zero. In this sector, where wages are lower than elsewhere
(see appendix Table 8.5), the aim is to increase the collectively agreed min-
imum wages on a regular basis and at least in line with the SMIC uprating
as well as to have a small “bonus”, considering that the supermarkets sec-
tor employs a large number of employees in independent and small stores
with no employee representatives. The “bonus” is determined in relation
to the results of wage bargaining at company level, in particular for large
firms in the sector (such as Carrefour, Auchan, Casino). Indeed, the actors
at sector level determine the bargaining agenda according to that adopted
by the major supermarkets. The latter include major retail chains, within
which employee representatives have some capacity to negotiate with man-
agement. Finally, collective bargaining at sector-level aims to distribute “a
bonus” to those who are not strong enough to negotiate within firms and
those not covered by collective bargaining.
Regarding collective bargaining at firm level, the federations do not give
specific instructions to the trade union staff established in the firms except
to inform them of the percentage increase below which it is recommended
not to sign the collective agreements. In most cases, the federation guides
the union representatives who are requesting it: the federation provides
the general trend at sector level, in particular the minimum percentage of
wage increase to be claimed. Secondly, employee representatives have full
latitude to bargain on other pay components depending on the firm’s eco-
nomic situation, in particular the additional compensation days, a bonus
or a revaluation of the profit-sharing calculation that would be beneficial
to a greater number of employees. One of the priorities of firm collective
bargaining is to ensure that the gaps between skill levels are large enough to
preserve social equity.
In the banking sector, the interview data suggest that wage bargaining has
a very limited role since wages are high and variable pay widely used. As in
the supermarkets sector, the challenge for negotiators at sector level is “not
to forget the forgotten” (CFDT-bank), namely the lowest paid employees.
The indicators taken into account are inflation and the SMIC increase. The
issue of professional equality between men and women is also highlighted
in this sector since the proportion of women and the gender pay inequalities
are very high (37 percent in 2015, see appendix Table 8.5).
In the metal industry, which is experiencing a decline in production
capacity and the offshoring of low-skilled trades, the challenge is to have
a better coordination of trade union strategies in the different countries
where multinational firms are based. The aim is also to have a common
position to fight social dumping and thus inequalities. The interlocutor of
the CGT metal federation thus stressed the need to promote a real coordi-
nation of the affiliated trade unions to IndustryAll because the leitmotiv
of employers is to say, “competition prevents us from raise wages”. For the
CGT metal federation, putting workers in competition with each other is
not the solution. This this union, in network with other close trade union
organizations, tries to push in IndustryAll for firmer campaigns in favor of
wage increases.
At sector level, interviews showed less varied approaches of collective bar-
gaining among trade unions. Indeed, the issues of collective bargaining are
strongly related to the features of the sector in terms of workforce structure,
traditions of wage policies and of collective bargaining (see appendix).
Nevertheless, the common point in the employers’ federations in each of the
three sectors is to limit sectoral constraints as much as possible and leave
room for manoeuvre to large companies to negotiate their own agreements.
8.4 Conclusion
50 years after its establishment, the minimum wage is an integral part of
wage dynamics in France. Indeed, France is a strong exemplar of the institu-
tional type described as “Close interaction” (see introduction). This explains
why for decades, the minimum wage and collectively bargained wages have
evolved in parallel, especially as the re-evaluation of the statutory minimum
wage is automatic and its amount predictable – more so in recent years as
the use of the coup de pouce has diminished.
However, in the last years of intensive wage moderation, the narrowing of
the wage range has become more pronounced, in particular for lower wages.
At the same time, and particularly in a period of less trade union power, the
SMIC remains the main means of keeping the bottom of the sectoral grids
above the poverty line.
A number of experts in France are calling for the removing of the SMIC
and, since 2012, seem to have the attention of those with political power.
They are the same experts who defend the decentralisation of collective
bargaining and the restriction of the extension procedure of sectoral
agreements in order to index wages to the productivity of each company.
If employers’ organisations perceive a shared interest with this viewpoint,
they nevertheless do not, at the time of writing, call for the abolition of
the SMIC. Instead, employers’ organisations argue for limited uprating
of the SMIC and to offset by reductions in other components of total
wage costs.
Surveys with union officials in France suggest that the SMIC is designed
as a tool to fight wage inequality. Nevertheless, differences can be high-
lighted among union confederations regarding their wage bargaining
strategies: while the SMIC is one of the main indicators used as a basis
for sectoral bargaining for the CGT and FO, it remains secondary for
the CFDT, for which the priority is above all the sharing of added value
between shareholders and employees. Trade unions, on the other hand,
have in common that they give autonomy to their sectoral unions and to
company negotiators. Finally, a comparison of wage bargaining among
current practices in banking, supermarkets and the metal industry sug-
gests that the SMIC has a variable weight depending on the sector and
that its importance mainly correlates with their structural and economic
characteristics.
Appendix. Characteristics of the three sectors selected
for analysis
Regarding their economic and employment features, the three sectors are
quite different. In the metal sector22, collective agreements covered 1,622,100
employees by the end of 2015; 28 percent of them belonged to the category
of professional and managerial staff (“cadres”), 25.6 percent were “interme-
diate professions” (technicians and so on), 8 percent white-collar workers
and 39 percent manual workers. Furthermore, 22 percent of the employees
were women, 14.4 percent under 30 years old, 2.7 percent had fixed-term
contracts and 10.4 percent were part-time employees. At the end of the year
2015, the average net monthly wage amounts to 2,830 euros (compared to
the national average of 2,270 euros) and the gender pay gap is lower than in
other sectors: women receive on average 13.5 per cent less than men (com-
pared to 19.5 percent on average). The percentage of employees earning less
than 1.05 MW is also very low (1.4 percent of employees against 6.2 percent
at the national level).
The supermarkets sector belongs to the retail trade sector as defined
by the INSEE (French national institute of Statistics) classification. While
the trade sector as a whole employs 2.2 million people (in about 500,000
enterprises), the supermarkets sector alone accounts for 690,300 employees
(more than 30 percent of employment in the retail trade sector), or 601,700
full-time equivalent employees. At the end of 2015, the supermarkets sector
employed a majority of white-collar workers (72.2 percent, i.e. more than
twice the average in France), 7.2 percent of managers, 9 percent of inter-
mediate professionals and 11.9 percent of blue-collar workers. The sector
is also highly feminised, with a proportion of women of over 58 percent.
The population is relatively young: more than 30 per cent of employees are
under 29 years of age (compared to 22.7 percent in all sectors). The share
of atypical contracts is also very high: 34 percent of employees are on part-
time contracts and 10 per cent of them are on fixed-term contracts. Given
this structure of the workforce, it is not surprising to find a lower wage
level than elsewhere (1.760 euros against 2.270 euros) and the gender gap
b is significant (−20, 3 percent less for women). Although still below the
national average, the proportion of workers close the NMW is high com-
pared to the metallurgy and banking sector (5.1 percent against 6.2 percent
at national level).
22 The metal collective agreement (“métallurgie”) comprises the following subsectors: met-
allurgy and manufacturing of metal products; manufacturing of data processing and
electronic products; manufacturing of electrical equipment; manufacturing of machinery
and equipment; automobile industry; manufacturing of other transport equipment, ship-
building, railway equipment, aeronautical and space construction, repair and installation
of machinery and equipment.
Table 8.5 Main characteristics of selected sectors: banking, supermarkets and
metal sectors, 2015
Source: Portrait statistique des branches professionnelles, DARES, Ministry of Labour (2019).
Data extracted from public databases: <https://dares.travail-emploi.gouv.fr/dares-etudes-et-
statistiques/tableaux-de-bord/les-portraits-statistiques-de-branches-professionnelles/>
Finally, the banking sector stands out from the previous two sectors in that
it covers a more restricted number of employees and companies. This sector
concerns 218,300 employees and 205,600 full-time equivalents. Compared
to the overall average, the share of women is particularly high (55.6 com-
pared percent to 44.3 percent) and the gender pay gap is very large: while the
wage level is significantly higher than the average wage (3950 euros), women
earn 37 percent less than their male colleagues. Within this sector, the pop-
ulation is mainly managers (54 per cent against 18 per cent). 26.1 percent of
workers are intermediate professionals, 19.6 percent are white-collar work-
ers and only 0.4 percent are blue-collar workers. Compared with the aver-
age for all sectors, the percentage of atypical contracts is lower in banking:
15.5 percent of employees have a fixed-term contract and less than 2 percent
are working part-time.
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Part III
The minimum wage

beyond Europe
An accomplishment or an
alternative to collective bargaining?
9 Minimum wages in Indonesia
Informality, politics and weak trade
unions in a large middle-income
country
Maarten van Klaveren
Research on the coverage of statutory minimum wages in developing coun-

tries, shows for Asian countries such as Indonesia a strong clustering of paid
wages around the minimum wage – usually referred to as the “spike:. For
large shares of workers this implies that their wages may stick at the mini-
mum wage level or even remain below it. Under conditions of a large labour
supply, a large informal sector, the dominance of political decision-making
in labour relations and a generally weak trade union movement, minimum
wage policies tend to play a major role in wage setting. Under such con-
ditions trade unions are increasingly experiencing challenges to engage in
meaningful collective bargaining. This chapter discusses these tensions for
Indonesia. The chapter starts with an introduction of Indonesia’s post-1945
economic development and labour relations, before examining the coun-
try´s main labour market features: Formality, informality, and inequality.
It then addresses the early years of the country’s minimum wage-setting;
recent developments in the formal setting, in particular the 2015 reform of
the uprating system; the relation of minimum wages to wages and the cost of
living; the effects of minimum wage levels and rises on the informal sector;
and minimum wage compliance. The chapter concludes by considering the
prospects for Indonesia’s system of “Isolated (multiple) minimum wages”
(see Chapter 1), in particular regarding steps towards more free and effective
collective bargaining.
9.1 Economic development and labour relations

Initially, starting with the 1945 proclamation of independence, Indonesia´s
labour legislation developed as protective for labour, due to the involvement
of trade unions in the independence struggle. This changed in the mid-1960s
with the fall of President Sukarno and the emergence of the New Order. A
new labour law regime evolved subordinated to the economic interests of
president Suharto´s family and their cronies. Just one official trade union
federation was allowed, operating as a transmission belt for government
policies. Police and security forces suppressed grass-root trade unionism
(Tjandra, 2016: 77).
192 Maarten van Klaveren
The interests of the Suharto-related elite came at risk when in August
1997 the Asian financial crisis reached Indonesia and the Rupiah began
a free fall. The economic crisis rapidly turned into a political one. Steep
increases in the cost of living and government budget cuts triggered the
rise of a broad reform movement (Reformasi) that in 1998 brought the
Suharto regime down. With the first three Reformasi administrations,
led by respectively B.J. Habibie (1998–1999), Abdurrahman Wahid (1999;
Habibie 2001) and Megawati Sukarnoputri (2001 Habibie 2004), politi-
cal, economic and legal arrangements changed dramatically. Under pres-
sure of (potential) foreign investors and international sponsors such as
the IMF, the Indonesian economy got rid of most of its state-led threats
and respective administrations gave room to market-oriented reforms.
Labour legislation reforms got caught between a bottom-up strive for
democracy and an increasingly neo-liberal context (cf. Tjandra, 2016:
20–22, 76).
One month after the fall of Suharto in May 1998, the Habibie admin-
istration had released a Ministerial Regulation concerning Trade Union
Registration, allowing more freedom to workers to establish unions. This
administration also ratified ILO Convention No. 87 concerning Freedom of
Association and Protection of the Right to Organise, and released opposi-
tional union activists from prison. A package of three new labour laws was
put in place. Concerning worker protection, this package built on efforts
that the New Order government had already started in 1996 to reduce
worker protections and make labour markets more flexible. In 2000–2001, a
massive decentralisation of political power to the regions was implemented,
and minimum wage-setting was transferred to the provincial governors. For
the next 15 years the governors’ decisions would be crucial in this respect
(Tjandra, 2016: 77–78, 167).
Indonesia’s economy recovered rather quickly from the Asian crisis
and from 2003 posted relatively strong GDP per capita growth, averaging
4.3 percent per year over 2003–2017. Remarkably, terrorist attacks (2002,
2009) and natural disasters (2004 tsunami; 2006 and 2009 earthquakes)
had minimal effects on national economic performance. The negative
effects of the worldwide financial crisis were quite limited as well, though
both GDP and export growth slowed down after 2010 (ILO, 2017: 4–5).
The development of employment has been less successful. Already from
2005 on employment growth diminished and the number of Indonesians
not economically active grew considerably. In 2005 – 2009 and 2010–2016,
total employment grew by only 1.8 and 1.4 percent, respectively. Between
2005 and 2016 employment in manufacturing, the main driver of eco-
nomic growth for lower middle-income countries such as Indonesia, grew
by just 1.7 percent per year. By contrast, services employment increased
by 6.5 percent yearly (ILO, 2017; author’s calculations based on Statistics
Indonesia (BPS) data).
Minimum wages in Indonesia 193
9.2 The labour market: Formality, informality and inequality
Two decades ago, slightly less than 29 percent of all employed Indonesians
worked in formal employment: Nearly 3 percent as an employer with per-
manent workers and 26 percent regularly as an employee in wage employ-
ment.1 During 2004-2013, Indonesia experienced rapid growth of wage
employment, resulting in formal workers by 2013 making up nearly 40 per-
cent of the labour force. Between 2013 and 2016, the formal share stabilised
at 40 percent. A large amount of all workers continued to be engaged in
low-productivity employment as shown by the relatively high proportion
of own-account workers and contributing family workers (in 2016, around
one in three workers, 31 percent). Moreover, even working in the Indonesian
formal sector is far from a guarantee for job security and good working
conditions. For example, in its 2016 “Indonesia’s Rising Divide” report the
World Bank noted that around one-third of Indonesian employees, or some
13 million, lacked any formal written contract (World Bank, 2016: 18).
In the 21st century the earnings gap between the formal sector, with a
large minority of skilled employees, and the majority of unskilled work-
ers in the informal sector has widened. In particular the relative incomes
of the self-employed have fallen. In August 2012, the average earnings of
casual workers and self-employed amounted to 48 percent and 65 percent of
employees’ average wage, respectively. The World Bank (2016: 79) regarded
this widening gap one of the main drivers of the Indonesia’s increasing
inequality. Clearly, the robust growth of the Indonesian per capita GDP
between 2000 and 2015 did not translate in a parallel increase of decent
employment opportunities (Tadjoeddin, 2016).
The development of the Gini coefficient, the most commonly used meas-
ure of income inequality, also indicates Indonesia’s stagnation on the road
to more equality. In the 1980s and 1990s, the Indonesian “Gini” (calculated
for disposable household income) fluctuated between 0.32 and 0.36 respec-
tively. During the 1997–1998 Asian crisis, poverty increased sharply but
the Gini ratio fell: The richest segments of society were hit hardest. Since
then, however, the Gini value has increased sharply, from 0.30 in 2000 to
0.39 in 2017. In these years with rising inequality in Indonesia, the coeffi-
cient was stable or falling in Asian countries such as India, Malaysia, and
Vietnam – except for China, where the “Gini” increased even more rapidly
than for Indonesia (World Bank, 2016: 38–39; ILO, 2017: 4). At first sight
this seems to contrast with the finding in the World Bank’s “Rising Divide”
report that the strong GDP growth between 2000 and 2014 helped to pull
many out of poverty and create a substantial middle class. Indeed, by
2014, 45 million people (the richest 18 percent) were economically secure,
1 According to the 2000–2001 National Labour Force Survey (Sakernas).

a segment growing at 10 percent per year. However, “Rising Divide” also
emphasised that “the economically secure are leaving the other 205 million
behind “(World Bank, 2016: 39).
9.3 The trade union movement

Following the Reformasi the existence of independent trade unions was offi-
cially recognised, particularly through the enactment of Law No. 21/2000.
The numbers of unions mushroomed from the single union federation to
more than one hundred federations registered at the national level in 2015.
Moreover, thousands of plant-level trade unions have registered at district
level (Tjandra, 2016: 260). Nevertheless, trade union density is low in Indonesia
and even seems to have decreased, from 10 percent in 2006 to 8.5 percent in
2016 (BPS 2016). Various factors may explain the weakness of the Indonesian
trade union movement (cf. Tjandra, 2016: 78–85, 98). First, Indonesia’s democ-
ratisation process was initiated during a major economic crisis. In spite of
rising expectations in the labour force, this left little room for trade unions to
achieve wage rises. Second, the unions met immense problems in overcoming
the legacy of state-control and learning the tricks of the trade of collective
bargaining. Internal union problems were persistent: Fragmentation, lack of
coordinated action and strong personal rivalry among leaders. Third, from
1998 to 2006 the reform program dismantled various protective aspects of the
previous legislation (Tjandra and Van Klaveren, 2015: 145).
Fourth, the widespread violations of trade union rights by employers
have most likely contributed to decreasing union coverage. Until the current
day employers continue to throw up manifold obstacles for union activities,
including violence in the workplace and dismissal of unionists. Mistrust
between unions and employers remains often deep. Such lack of trust pro-
vides a major explanation for the limited number of collective agreements as
compiled in the WageIndicator Collective Bargaining Agreements Database.
Also, the large majority of collective agreements is factory-based; only a
small minority has sectoral coverage. Their contents are mostly limited as
well: Specifications in agreements often reiterate provisions existing in offi-
cial labour regulations. Examples of meaningful bargaining can mainly be
found in subsidiaries and suppliers of those multinational enterprises. Some
have become aware of the risks of reputation damage when international
labour standards are violated (Tijdens et al., 2018).
9.4 The development of Indonesia’s minimum wage
9.4.1 The early years

In the mid-1950s the Sukarno administration, under pressure of grow-
ing labour unrest, requested the ILO for technical assistance on wage pol-
icy and industrial relations. In 1958, an ILO advisor submitted his report
recommending that “the ultimate goal of wages policy should be to ensure that
all wage earners earn at least a living wage from their principal employment”
(Tjandra and Van Klaveren, 2015: 146). This can be seen as an early reference
to the ‘living wage’ concept. It lasted until 1969–1971 when under the Suharto
regime the first minimum wage legislation was passed. National and regional
Wage Councils were installed. Until the late 1980s this regulation was merely
cosmetic. By then the Suharto administration lifted the statutory minimum
wage, in the early 1990s even doubling its real value. Growing internal and
external pressure coincided here: internally, from domestic labour rights activ-
ists and NGOs, externally, from US activists pointing to the systematic viola-
tion of labour standards in Indonesia and recommending the withdrawal of
the country’s preferential trade status under the GSP (Generalised System of
Preferences) for its exports to the US (Tjandra, 2016: 165–166). A World Bank
evaluation of this minimum-wage doubling found limited effects, noting only
a 2 percent decrease in wage employment in mainly small firms (Rama, 1996).
However, a few months later another World Bank policy report (World
Bank, 1996) exaggerated the negative outcomes of the minimum wage dou-
bling. Amidst the Reformasi turbulence, it led to heated debate in govern-
ment circles (Tjandra, 2016: 68). Although the second World Bank report’s
claim that minimum wages would erode the country’s business profitability
could not be substantiated, the idea that minimum wages by default would
hardly or not affect the wage distribution could no longer be maintained
either. Somewhat later a study argued that already by 1992 the effect of min-
imum wages on the wage distribution had become apparent and that spikes
around the minimum wage were visible (SMERU, 2001). Based on 2005 and
2009 data for Indonesia, an ILO research team confirmed the existence of
a significant spike at or around the minimum wage level, while sharing this
phenomenon notably with India (Rani et al., 2013: 388).
9.4.2 The formal setting

The Indonesian statutory minimum wages formally cover all employees
except domestic workers. This results in an overall coverage of approxi-
mately 95 percent with a smaller proportion of female workers and low-
skilled workers being covered (cf. Rani et al., 2013: 408). Moreover, only
workers with less than 12 months of employment at the company are sup-
posed to be compensated at the minimum wage, with compensation rising
after one year based on experience and the company’s wage structure.
Indonesia has a system of multiple minimum wages. Currently, the levels
of minimum wages vary by province, district and sector. Over time, “needs”
became an essential component in determining the value of each minimum
wage. In 1989, the Suharto administration released a regulation defining
the rate of Kebutuhan Fisik Minimum (KFM, Minimum Physical Needs),
replaced in 1995–1997 by a broader consumption bundle. In the Reformasi era,
following regulations in 2003 and 2005, the minimum wage policy goal
became to increase its value until it reached the Kebutuhan Hidup Layak
(KHL), or “Decent Living Needs”. This described a list of items covering the
expenses of a single adult worker, including food and beverage, household,
clothes, education, health, transportation, recreation and savings, with the
food basket targeted at 3,000 calories per person per day. Moreover, accord-
ing to the 2003–2005 legal frameworks, the consequences for productivity at
national and local levels, economic growth and the position of marginalised
industries also had to be considered in minimum wage fixing.
In the course of the 2000s, Wage Councils, consisting of representatives
of government, employers and trade unions, lead the process of setting
regional minimum wages. This development seems to have happened rather
autonomously, without apparent reference to foreign examples although
similar tripartite bodies known as Wage Boards already existed in India
and Pakistan. As such, in Indonesia the creation of the Wage Councils did
not arouse much debate. Initially, in its 2010 “Indonesia Jobs Report” the
World Bank welcomed the growing role of the Wage Councils arguing that
“parties engaged in more constructive minimum wage negotiations […] took
economy-wide considerations into account”(World Bank, 2010: 93).
Public discussion mainly focused on the material basis for minimum wage
setting, that is, on the basket of basic food and other commodities. According
to the revised Ministerial Regulation No. 17/2005, surveys of prices of such a
basket in local markets should provide the basis for estimating the district’s
KHL. Wage Council discussions on the survey outcomes were supposed to
result in joint recommendations to the provincial governors on next year’s
minimum wage rates. However, the parties involved mostly approached the
survey and subsequent decision-making from different angles. Regional
union alliances targeted the level of the KHL whereas employers’ and gov-
ernment’s representatives tended to regard setting the KHL as a mere for-
mality; they focused on the uprating percentage as such. In practice, the
exchange of arguments concentrated on the number of items in the “bas-
ket”, the quality of the goods and services to be measured and the inflation
rate. Union alliances and employers often undertook their own surveys and
arrived at different estimates of the KHL, and consequently of the mini-
mum wage level. The lack of legal rules of conduct for the Wage Councils
was not helpful in guiding this process. As a result, the provincial governors
were often confronted with competing estimates and these elected politicians
had to arbitrate between these (Cornwell and Anas, 2013: 23; Tjandra, 2016:
173–176, 182-186). Political expediency had taken on a central role.
9.4.3 The 2015 reform

Under the presidency of Susilo Bambang Yudhoyono (two terms, 2004–
2014), various proposals were brought forward for revising the minimum
wage fixing system. However, the “SBY” administration demonstrated no
commitment to push through any reforms. This changed in 2014, when
Joko Widodo was elected as a President. Straight after his inauguration,
the Widodo administration took up preparations for revising the system.
In workshops for union representatives, ILO officials gave presentations
including significant criticism of the existing framework. Yet, they failed to
persuade the representatives of the main trade unions of the need for radical
change. What followed does not stand out as a textbook example of tripar-
tism. A technical team was formed including senior officials from various
ministries and government agencies. None of the experts had strong links to
the union movement while it has been recognised that APINDO, the main
employers’ association, played a significant role in the team’s discussions.
The unions, for their part, denied being invited to any consultations. They
jointly submitted a proposal in writing that advised to maintain the current
system while expanding the range of items used to calculate the KHL.
By contrast, government and APINDO employer representatives drafted
rules for a new minimum wage system with automatic annual adjustment
as its core. This was expected to depoliticise the “KHL process”, eliminate
the influence of strikes and other workers’ protests on the minimum-wage
setting process, and reduce uncertainty facing business about future labour
cost developments. In brief, the reform was said to produce a more “fair,
simple and reliable” system (Allen and Kyloh, 2016: 20, 44–45, 53).
The new Government Regulation (No. 78) on Wages was enacted in late
2015. Under this regulation, all provincial, district and municipal minimum
wage levels should be adjusted annually to reflect the percentage increase
in the national CPI (Consumer Price Index) and the annual percentage
increase in the GDP as the national rate of economic growth in the previ-
ous year. Thus, the uprating mechanism changed, but the KHL index as
such remained the basis for regional-differentiated minimum wage-setting.
Under the new law, the index can be adjusted every five years, to be deter-
mined by the Regional Wage Councils.2
At the time of writing (2020), Indonesia has four kinds of minimum wages
defined by sector, province, district and city. Moreover, all four types inter-
sect, generating hundreds of minimum wage rates. At the provincial level,
for example, the Minimum Wage Province (MWP) and the Minimum Wage
Sectoral Province (MWSP) may co-exist, while the same applies at the dis-
trict or city levels for the Minimum Wage District or City (MWD/City) and
the Minimum Wage Sectoral District/City (MWSD/City). In May 2019,
Indonesia had no less than 287 minimum wages with a regional dimension
(MWP and MWD/city), according to the WageIndicator Minimum Wages
Database (Tijdens and Van Klaveren, 2019). Besides these minimum wages,
sectoral minimum wages exist in many, but not all, provinces; their num-
ber is as yet unknown as documenting them meets considerable problems.
The 2015 Regulation prescribes that, though finally to be established by the
2 For full details, see <https://wageindicator.org/salary/minimum-wage/indonesia>

provincial governor, the sectoral minimum wage should be based on agree-
ment between an employers’ association and a trade union. Also, uprating
this minimum wage depends on collective bargaining; at this level the CPI/
GDP formula does not apply.
Obviously, this part of the Regulation has codified a practice in which
the sub-system of sectoral minimum wages has emerged bottom-up, that is,
where workers have organized at sectoral level in union alliances and have
bargained for wages higher than the district or province minimum wages
(Allen and Kyloh, 2016: 58; Tjandra and Van Klaveren, 2015: 142–143). The
framework for setting the sectoral minimum wage takes the regional KHL
as a base, and can add bargained ‘extras’ based on factors such as produc-
tivity and skills. Examples from the Purwakarta District show that in prac-
tice sectoral minimum wages may rise to over 30 percent above the district
minimum wage (in the automobile manufacturing and large-scale food and
beverage industries) but may also remain up to 15 percent lower than the
district minimum wage (such as in the clothing and footwear industries).
The latter implies a violation of the 2015 Regulation, which states that ‘The
provincial sectoral minimum wage [...] must be higher than the provincial
minimum wage in the concerned province’ (Article 49, ad 3).
9.5 The value of minimum wages relative to wage levels

and the cost of living
9.5.1 Minimum wages and general wage level

As noted, for the 2000s ILO research found a spike in Indonesia’s earning
distribution around the minimum wage level. Towards the end of that period
this concentration shifted somewhat upward but became even stronger (that
is, showing a smaller bandwidth: Rani et al., 2013: 389). The Kaitz index
is important here. That index as applied in the average wage levels, after
being on or slightly above 50 per cent in 1998–2002, increased to 70 percent
in 2006, decreased to 62 percent in 2009 and by 2011 stood at 65 percent.
This showed that between 1998–2002 and 2011 the increases in the level of
the minimum wages were larger than the increases of the average or median
wage levels (Tjandra and Van Klaveren, 2015: 150).
The Asian Development Bank (ADB) reported the Kaitz index for 2015
to have reached 83 percent. The ADB noted that in August 2015 the average
wage was 1.4 times higher than the median wage for regular employees, con-
firming that also for a group of relatively privileged workers the earnings
distribution had developed highly skewed, with many in this group left with
earnings below the average wage (Allen, 2016: 23–25). A skewed income dis-
tribution means that Kaitz values based on the median wage would end up
considerably higher, for Indonesia by 2019 most likely between 130 and 140
percent. Compared with other countries, this difference is rather extreme
(Van Klaveren, 2015: 351). All evidence shows that the minimum wages in
Indonesia, instead of being a wage floor, have become the effective wage
for most of the workers –most likely 60–80 percent– in the formal sector.
Recently, Dewi (2018) concluded that the effectiveness of Indonesian min-
imum wage policies have decreased in lifting the wages of the low-paid
(mainly observed in the formal sector): in 2007 these policies were more
effective than in 2014. In that last year, minimum wage hikes turned out to
have only a small positive impact on the incomes of the poor; the best results
affected those employed earning around the median wage.
9.5.2 Minimum wages and the cost of living

Of course, the wage levels indicated above have to be confronted with the cost
of living. By the end of the 2000s, evidence piled up that the minimum wages
did not provide a decent standard of living for large parts of the Indonesian
population, if departing from the purchasing power of a single-income house-
hold of three consumption units (three adults or two adults and two children).
In 2007, the KHL-linked food and non-food costs for three consumption
units were calculated at over 2.5 times the prevailing average minimum wage
(Alatas and Cameron, 2008). There is evidence that since then in many regions
the gap between the minimum wages and the cost of living has remained at
about the same level. In 2013 the minimum wages in Jakarta, the country’s
highest in nominal terms, were equivalent to an income of less than USD
1 per day for a single-income household of four persons. The researchers trac-
ing this added that increases in household income from this low level could
“have a nontrivial positive impact on worker productivity by improving nutri-
tion and allowing better access to health care”(Cornwell and Anas, 2013: 22).
For 2016, WageIndicator research focusing on garment manufacturing
calculated living wages compared to which virtually all average wage levels
were low. For instance, the lower-bound living wage calculated for a stand-
ard family of four was 20 percent above the average upper-bound wage of a
high-skilled worker (Van Klaveren, 2016). It has to be added that both paid
and minimum wage levels and cost-of-living levels show large differences
across Indonesia. In 2018 minimum wages in the three Javanese provinces
where most garment factories are located were somewhat higher than the liv-
ing wage for a single adult without children calculated by the WageIndicator;
yet, they remained about one-fifth below the living wage for a standard
family of two parents (1.8 persons on average working) and two children
(WageIndicator websites Indonesia, Minimum Wages and Living Wages).
9.6 Employer compliance with minimum wages

Recent messages from the informal sector suggest a low rate of compliance
with the current minimum wage legislation in at least that sector – as indi-
cated, still covering about 60 percent of the Indonesian labour force. ILO
research using household and labour force survey data from 11 developing
countries in the late 2000s confirmed this suggestion, for Indonesia present-
ing disquieting outcomes for wage-earners in informal employment – but
also for the formally employed. For 2005 this research estimated an overall
compliance rate among Indonesian wage-earners of 65 percent. For 2009
that rate had decreased to 49 percent: The lowest of all countries covered. A
strong fall of compliance in the informal sector (from 60 to 35 percent) com-
bined with a lower but still substantial decrease in the formal sector (from 67
to 55 percent). The trend in compliance for Indonesian female wage-earners
was particularly disquieting: A decrease from 50 to 39 percent in four years’
time, the latter percentage again being the lowest of 11 countries (Rani et al.,
2013: 409). An ILO report showed that for Indonesia full compliance for
regular wage employment could bring down inequality substantially: Based
on 2014 data, the wage inequality Gini would have been brought down by
0.11 percentage-points – thus about one quarter lower (Allen and Kyloh,
2016: 79). The ADB 2016 report produced similar outcomes. It concluded for
Indonesia “that the high level of non-compliance among regular employees
and the low level of earnings among informal workers means that minimum
wages do not provide an effective floor for wages” (Allen, 2016: 24).
Recently compliance in a specific sector of Indonesian manufacturing,
the garment industry, has been measured through the Gajimu Decent Work
Check Survey: A WageIndicator survey allowing workers to test whether
their jobs comply with the national labour legislation including the appli-
cable minimum wage rates (The reference for the minimum wage rates was
based on the rates applicable to the location of the factory, either a city or a
region within a province). This survey started July 16, 2017. A first analysis
based on data collected until 6 August 2018 covered nearly 3,200 interviews
with employees working for 125 garment factories. It revealed that 86 percent
of the workers surveyed had been paid at least the relevant minimum wage,
and that payments were almost always on time. Compliance rates for male
workers were significantly higher than for their female colleagues (90 versus
84 percent). The compliance rates found in this survey may seem remarkably
high, even keeping in mind that only the formal sector was covered. It may
be assumed that these outcomes were positively influenced by the selection of
factories where trade unions had access to (Tijdens et al., 2018).
9.7 The politics of minimum wage-setting in Indonesia

The Widodo administration aimed to “depoliticise” wage-setting through
the 2015 minimum wage fixing reform. However, the opposite happened.
Both in anticipation of, and in reaction to, the reforms, the trade union
movement organised mass demonstrations: Late 2015 and early 2016 saw a
wave of protest strikes. The other social partners did not undertake much
to de-escalate matters, to say the least. Within the government apparatus,
monitoring of workers who were assumed to be strike leaders was coordi-
nated with the national police and the state intelligence agency; according
to the Workers’ Group of the ILO, “anti-union violence by police (….) is
again on the rise”.(Allen and Kyloh, 2016: 16). The national employers’ asso-
ciation, APINDO, claimed that a national strike held in late November 2015
was illegal. In February 2016, international trade union leaders participated
in large demonstrations in Jakarta against the new Regulation. This could
have been anticipated. In late 2015, in response to the new reform, the ITUC,
the international trade union umbrella, had already “strongly criticised the
decision of the Indonesian Government to change the minimum wage fixing
system, eliminating any role for unions in the process”.3
At this point in the chapter, sufficient building blocks are available to
assess in detail the various political positions concerning Indonesia’s new
minimum wage fixing system. This section begins by focusing on its effects
on employment and wage growth and then addresses the tensions between
minimum wage setting and collective bargaining.
9.7.1 The 2015 reform: The effects on employment and wage growth
Not only from the employers’ side but also from the academic side (Dong
and Manning, 2017: 21; Hamilton-Hart and Schulze, 2016: 282) uncertainty
and unpredictability have been denounced as disadvantages of Indonesia’s
old minimum wage system. The new system may indeed have diminished
disadvantages. However, it can be questioned whether this positive outcome
outweighs new disadvantages that have emerged. A first issue is the devel-
opment of employment. In 2016 an ILO evaluation concluded that between
2009 and 2014 the system was sufficient to encourage up-skilling and labour
mobility from low-skilled labour-intensive activities to higher skilled capi-
tal-intensive industries (Allen and Kyloh, 2016: 42). The ILO researchers also
referred to the modest wage increases that the old system had brought for-
ward in most provinces between 2003 and 2012, a period in which real yearly
GDP growth was in the 5–7 percent range and the annual increase in the
CPI averaged 7.3 percent. The ILO researchers applied the new formula on
detailed 2004–2015 data and concluded that in those 12 years this formula
would have generated quite high nominal minimum wage increases, between
12 and 15 percent annually. Even in a province like Jakarta, with relatively
high minimum wages, applying the new formula would have led to signifi-
cantly higher minimum wage levels between 2004 to 2012; only in 2013–2015
did the actual minimum wages in Jakarta very marginally exceed what the
new formula would have generated. Projected against these figures the new
uprating mechanism might be questioned from an economic perspective.
For a province with relatively low minimum wages, like DI Yogyakarta,
application of the new formula would have produced a substantially higher
minimum wage in each of 12 years. Nevertheless, the gap between “high”
3 <https://www.ituc-csi.org/indonesia-minimum-wage-changes> (16 October 2015).

and “low” minimum wage provinces would have widened. In conclusion,
the application of the new formula would have led to higher nominal wage
levels in most regions and most years between 2004 and 2015 compared to
what actually occurred (Allen and Kyloh, 2016: 46–49). In view of this anal-
ysis, the fear for wider income gaps as a consequence of the new fixing sys-
tem articulated by the ITUC and other trade union bodies seems justified.
The outcomes of the ILO evaluation show two more disadvantages of the
new uprating system. First, the fact that the development of local produc-
tivity cannot be taken into account can be regarded as disadvantageous.
As noted by, among others, Hamilton-Hart and Schulze (2016: 282), the
new system lacks a procedure for investigating local productivity growth.
Second, the current formula leaves aside specific local developments in
the cost of living and changes in the composition of the “basket” of basic
food and other commodities within five-year intervals (Allen and Kyloh,
2016: 54). Thus, it also makes sense to reconsider arguments regarding the
competitiveness of Indonesia’s labour-intensive manufacturing industry
that were alleged against the old system. For example, Dong and Manning
(2017: 22–24) argued that minimum wages during the Yudhoyono II years
(2010–2014) rose much faster in the industrial centres in Greater Jakarta and
Surabaya than in most other industrial regions. They linked these differ-
ences to the relocation of capital in labour-intensive industries – garments
and to a lesser extent footwear – away from the main industrial centres to
smaller urban regions in West, Central and East Java. It is rather ironic to
conclude that under the new system the regional wage differences in ques-
tion would have increased even more whereas the old system would have put
the brakes on such relocation. Moreover, while wage levels in the garment
industry – especially in Central Java – are already higher than those of nota-
bly Bangladesh, this unfavourable margin will most likely increase with the
application of the new formula (Allen and Kyloh, 2016: 50; confirmed also
by data from Van Klaveren, 2016).
9.7.2 Minimum wage setting and collective bargaining

The relationship between minimum wage setting and collective bargaining
is of major importance. Tjandra (2016: 287) has observed that since 1998
the Indonesian state has become more ambiguous with respect to the role
of minimum wages. Successive Indonesian administrations would have
liked to turn minimum wages into a genuine wage floor, while dominant
forces in these administrations have been reluctant to leave wage-setting
to free collective bargaining. In conjunction with “hardliners” dominating
the APINDO employers’ association, government officials have repeatedly
depicted processes related to the old minimum wage system as ineffective
and subject to undemocratic influences. We assessed in the above the “inef-
fectiveness” argument as weak. Concerning the “undemocratic” argument,
it should be emphasised that Indonesia’s collective bargaining system is
weakly developed and that trade unions willing to engage in meaningful bar-
gaining for the most part face a number of serious constraints. Under these
conditions, minimum wage setting has remained virtually the only forum for
unions to show what they are doing to act on behalf of their members and
the workers in general. Moreover, until 2015 minimum wage fixing has acted
as a unifying issue in the union movement at regional, sectoral and company
level. Debates related to decision-making in the Regional Wage Councils
have been crucial in developing union alliances (Tjandra, 2016: 171–175).
9.8 Conclusions
In Indonesia under the Widodo I administration “free collective bargain-
ing” has for the most part been equivalent to the setting of sectoral min-
imum wages. Thus, in a context of weak or absent collective bargaining,
Indonesia is illustrative of a specific type of “Isolated multiple minimum
wages”, as is further elaborated in Chapter 11. However, like other countries,
the institutional scenario is not static. Indeed, there are important questions
about whether the proactive roles of unions and employers in fixing mini-
mum wages might be a spur to collective bargaining. Researchers reporting
on behalf of the ILO have suggested that the setting of sectoral minimum
wages in Indonesia may be regarded as a substitute for limited collective
bargaining, and might also be used to provide a base for moving towards
mature collective bargaining (Allen and Kyloh, 2016: 58–59, 68–69).
However, the evidence presented in this chapter suggests that this view-
point may be overly optimistic: Both options seem rather illusory in view of
the country’s current labour relations. It is rather unlikely that Indonesia’s
overall more restrictive decision-making on minimum wages along the lines
of the 2015 reform would spark free collective bargaining. Clearly, Indonesia
is one of those countries where relatively high minimum wages can be attrib-
uted at least to some extent to underdeveloped collective bargaining sys-
tems. Nevertheless, it must be equally clear that in the Indonesian case the
strengthening of collective bargaining is needed to address wage and income
inequality more effectively; the more effective use of statutory minimum
wage mechanisms alone would not be sufficient (cf. Lee and McCann, 2014).
Steps towards free and more effective collective bargaining, to be taken by
the national administration, have the potential to alleviate the pressure on
the minimum wage fixing system and may well depoliticise that system.
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10 Are minimum wages for textile and
garment industry workers effective?
A sector-in-country institutionalist
approach for five developing countries
Damian Grimshaw and Rafael Muñoz de Bustillo
In developing countries, with high shares of workers in the informal economy,

policy decisions are as much about setting the minimum wage at a suitable
level, as maximising workforce coverage – both in terms of legal provisions
to extend formal eligibility and policy instruments to strengthen enforce-
ment. Ensuring that formally registered businesses comply with statutory
rules is also difficult. These are major challenges for the goal of establishing
and sustaining an effective minimum wage in a developing country context
in which the bulk of work is informal, of poor quality and remunerated at a
low level (Belser and Rani, 2015; Rodgers et al., 2009; Dieu and Dong, 2015).
This chapter addresses these issues through the lens of workers in the
textile and garment industries in five developing countries – Bangladesh,
Cambodia, Pakistan, South Africa and Vietnam.1 The textile and garment
industry is a valuable sector for study given its large contribution to man-
ufacturing employment, household income and trade in many developing
countries. The five selected countries share this characteristic, albeit to a
varying extent. The countries were also selected to illuminate diverse sys-
tems of minimum wages and industrial relations.
Building on other empirical studies of low-wage employment (Appelbaum
et al., 2003; Gautié and Schmitt, 2010; Grimshaw, 2013), the chapter applies
a ‘sector-in-country’, institutionalist analysis to interrogate the central
question – are minimum wage rules for textile and garment industry work-
ers effective? This style of analysis means: a) Appreciating the way national
level and sector level institutional arrangements shape the functioning of
a minimum wage for garment industry workers; and b) Accounting for
the interplay between institutions of minimum wages and of industrial
1 This chapter draws on a major comparative report by the authors, commissioned by the
International Labour Organisation (Grimshaw and Muñoz de Bustillo, 2016). The com-
parison brought together findings from national reports: Bangladesh (Moazzem et al.,
2015); Cambodia (Reeve and Hwang, 2015); Pakistan (Praxis Labs-ILO, 2015); South
Africa (Godfrey et al., 2015); and Vietnam (Chi and Torm, 2015).
Minimum wages for textile and garment industry workers 207
relations, especially collective bargaining and employer payment practices,
but also strikes and government resistance to unions.
The key contribution of the chapter is to set out seven factors that char-
acterise the effectiveness of a minimum wage: i) high workforce coverage;
ii) a suitable level; iii) regular uprating; iv) complementarity with employer
payment practices; v) employer compliance; vi) responsible supply chain
governance; and vii) complementarity with trade union actions on wages.
The chapter is structured as follows. Section 1 describes the economic sig-
nificance of the textile and garment industry in the five countries and section 2
compares the diverse institutional context of each country, focusing on its
national minimum wage system and its intersection with arrangements for
collective bargaining. Against this background, section 3 investigates six of
the seven factors that explain the effectiveness of minimum wages for gar-
ment industry workers, drawing on original case-study and secondary data.
Section 4 considers the seventh factor in detail, namely the impact of unions
and collective bargaining on wages in the garment industry.
10.1 The significance of the textile and garment industries

in the five countries
An empirical focus on the textile and garment industries in developing coun-
tries is valuable for understanding the effectiveness of minimum wage sys-
tems. These industries account for more than half total manufacturing in
Bangladesh, Cambodia and Pakistan, one quarter in Vietnam and around
5 percent in South Africa (Figure 10.1).2 Also, women’s employment share
tends to be high – over two thirds in Bangladesh and around four fifths in
Cambodia, for example. Pakistan is an exception, although the low 20 per-
cent share mirrors women’s low labour market participation. However,
women make up three in four home workers in Pakistan, a reflection of the
extreme sex segregation associated with socio-cultural norms (Haque, 2009).
The textile and garment industries also tend to pay wages below the aver-
age. With the partial exception of Bangladesh, where manufacturing is domi-
nated by the textile and garment industries, wages in the garment industry are
lower than the average for manufacturing, although with significant differ-
ences (Table 10.1). Lower average earnings in the sector are in part explained
by the low capital intensity; it has the highest level of labour intensity among
18 manufacturing sectors (according to UNIDO data) and a relatively low
level of labour productivity, which is in part the result of low capital intensity.
A further good reason for the focus on this industry is the poor state
of working conditions. The Rana Plaza tragedy in 2013 exemplifies the
2 South Africa is an outlier in terms of significance but was nevertheless selected for inves-
tigation because of the interesting institutional dynamics of its minimum wage and indus-
trial relations systems.
208 Damian Grimshaw and Rafael Muñoz de Bustillo
Figure 10.1 Employment in textiles and garment industries as a share of total man-
ufacturing employment, 2005, 2012 and 2017.
Note: *2008 for Cambodia.
Source: Authors’ analysis from UNIDO Employment, Wages and Related Indicators by Industry,
at current prices, for selected years and Dasgupta et al. (2011, p. 26) and National Institute
Statistics (2010, p. 23) for Cambodia.
hazardous conditions. Rana Plaza was an eight-story complex of clothing

factories, which collapsed and killed 1,134 people, mostly young female
workers. The factory supplied many global brand-name clothing compa-
nies, such as Primark, Carrefour and Benetton amongst others. It was the
largest single tragedy of a string of accidents related to the textile industry
across the region. In the previous decade more than 800 people had died in
Table 10.1 Wages in the textile and garment industries relative to average
manufacturing wages in five countries, 2005–6, 2011–12 and 2017
2005–6 2011–12 2017
Bangladesh Textiles 83.0% 93.3% –

Garment – 101.0% –
Cambodia Textiles
Garment
Pakistan Textiles 79.7% – –
Garment 81.4% – –
South Africa Textiles 49.0% – 58,0%
Garment 65.1% – 48,0%
Vietnam Textiles – 109.3% 96,0%
Garment – 86.2% 71,0%
Source: Authors’ compilation of data from UNIDO, Employment, Wages and related Indicators
by Industry, at current prices, selected years.
factories in Bangladesh (mostly as the result of fires). In 2012, 259 people
died in Pakistan in a single fire in a textile factory in Karachi (Stoltz, 2014).
As well as poor workplace safety, long working hours are endemic. Huynh
(2015: Figure 6) finds that two in five waged employees in the garment indus-
try work more than 48 hours per week in Pakistan and Vietnam, and in
Cambodia almost three in five. For Bangladesh, Moazzem et al. (2015) find
total weekly working time, including overtime, reached an average 61 hours,
higher than the legal maximum of 48 hours plus 12 hours overtime.
The combination of low wages and poor working conditions has been an
important catalyst for major strike activity in the sector in three of the five
countries. In Vietnam, the garment industry is the most strike prone sector,
accounting for one in three (34%) of all strikes reported in the period 1995–
2014 in what Chi and Torm (2015) call a strategy of ‘collective bargaining
by riots’ (see section 10.2). In Cambodia, strikes involved almost 1 million
workers in 2013 and in Bangladesh there was widespread violence and tem-
porary production halts in 2006 and 2010 and throughout much of 2013.3
The question of how to improve working conditions is complicated by the
integration of the textiles and garment industries in the global economy. For
two countries, Bangladesh and Cambodia, clothing accounts for more than
half total exports. The other countries show a more diversified export struc-
ture, although clothing still plays an important role in Pakistan and Vietnam.
The international integration of countries’ textile and garment produc-
tion is largely described by global value chains, which has been a major
focus of enquiry (e.g. Appelbaum and Gereffi, 1994; Staritz, 2011; World
Bank, 2020). Framed by a high-income, global north arena for consumption
and a low-income, global south arena for production, the stylised character
of global value chains for textile and garment manufacture can be described
by the following:
• A rapid process of delocalisation largely driven by labour cost differ-

ences between high- and low-income countries;
• Location of powerful buyer firms in high-income countries that control
the design, branding and R&D (including major brands, retailers and
branded manufacturers);
• Location of manufacturing suppliers in low-cost, developing countries
(including cut-make-trim firms, original equipment manufacturers and
original design manufacturers);
• Powerful brokers that mediate between buyer and supplier firms, organ-
ise the logistics and even design garment products (e.g. Li & Fung);
• Intensive production pressures on manufacturing supplier firms to meet
the demands of fast fashion and buyer firms; and
3 “Bangladesh’s Labor Strikes Foreshadow Political Violence”, Stratford Global Intelligence,

25-09-2013.
• Extensive use of subcontractors along multiple tiers of the global value
chain, diffused across formal and informal parts of the economy,
including homeworkers.
There are also countervailing trends. Branded retail companies in high-

income countries have developed Corporate Social Responsibility practices
in their purchasing contracts with suppliers in developing countries, although
there is mixed evidence of these practices softening buyer pressures on sup-
pliers (Barrientos, 2012). Also, several developing countries have witnessed
the overtaking (by volume) of their export market by domestic retailers.
The research presented in this chapter complements the global value
chains research by focusing on the wage protections in place in the country
hosting the manufacturing suppliers. While pressures from powerful global
buyers are undoubtedly a significant force in shaping wages and working
conditions, the effectiveness of each country’s minimum wage in these
industries is also important. Moreover, we know relatively little about the
character of minimum wage rules in these five countries or about the reali-
ties of minimum wage practices for workers in these industries.
10.2 Country systems of minimum wages

and industrial relations
As argued in Chapter 1, the effective functioning of a particular labour mar-
ket institution, such as a minimum wage, may be complementary or con-
flictual with the functioning of other related institutions. This book focuses
on the institutional intersection between minimum wage rules and collective
bargaining since it has a significant influence on wage-setting and the result-
ing wage structures. Each of the five countries analysed in this chapter hosts
a specific form of institutional intersection, reflecting societal specific condi-
tions developed over time through actions by the main social actors – govern-
ment, employers and trade unions, as well as international actors such as the
ILO (Belser and Rani, 2015) – in response to changing economic conditions
and political goals. This section describes the core features of each country’s
minimum wage system and its interactions with industrial relations.
10.2.1 Minimum wage rules

Table 10.2 classifies the five countries according to two dimensions of min-
imum wage fixing rules. First, does the country apply a single national rate
or multiple rates, or a combination of single and multiple?4 Second, where
multiple rates are applied, do these distinguish by region or industry, or both?
4 We ignore here the use of different rates for young workers, as well as separate rules for
foreign and domestic companies.
Table 10.2 Classification of minimum wage fixing rules in five countries
Number of MW
rates: Multiple rates vary by:
Single Region/
national Multiple Industry province Further details:
Bangladesh ✓ ✓ 42 Industry MW
Boards (plus further
differentiation by
urban/rural and for
export-processing
zones)
Cambodia (✓) ✓ (✓) In principle multiple
but to date only fixed
for one industry
(garment & footwear);
rules allow for regional
variation but none
fixed
Pakistan ✓ (✓) ✓ 5 MW Boards
(4 provinces plus
capital) with power to
fix different industry
rates
South Africa ✓ ✓ (✓) 9 industry MW rates
(adultsa) -most also set
minimum rates for
main job types, some
vary by region also;
plus some industries
covered by extended
collectively agreed
MWs
Vietnam ✓ ✓ ✓ All 4 regions set higher
MWs than the national
rate (as well as higher
rates for foreign firms
until 2012)
Notes: a. Prior to the new minimum wage, introduced after the time of empirical research, there
were 11 sectoral determinations in total, including 9 for adults (contract cleaning, civil engineer-
ing, private security, domestic workers, wholesale and retail, taxi workers, forestry, farm workers
and hospitality), one for children in advertising, artistic and cultural activities and one for ‘learn-
er-ships’ (skill development programmes).
Source: authors’ compilation.
Across both dimensions, minimum wages in these countries are fixed by stat-
utory rules at central or provincial government level, with varying degrees
of consultation with employers and trade unions (see below).
At the time of research, all five countries applied a system of multiple
minimum wage rates. South Africa subsequently introduced a statutory
national minimum wage in 2019. The rationale for a single rate, which is
the most common approach among European countries, is that it facilitates
a shared awareness of the minimum wage among citizens, it underpins a
national approach to minimum standard-setting and it ensures an institu-
tional fit with national policy on welfare benefit payments (Grimshaw, 2013).
On the other hand, a country’s size (population and geography), alongside a
high level of economic and employment inequality among industries and/or
regions (as in the United States for example), are significant factors shaping
an alternative policy of multiple rates differentiated by industry or region.
Vietnam is the only country among the sample to layer regional rates on top
of a single national rate.
The multiple minimum wages differentiate primarily either by industry,
as in Bangladesh, Cambodia and South Africa, or by region/province/city,
as in Pakistan and Vietnam. For each industry or regional rate there may be
further distinctions by occupation, skill, firm size or job type. Governments
(at either national or provincial/regional level) fix the rate either unilaterally
or, as is most often the case, following recommendations from a tripartite
or bipartite committee (described below). Examples include the 42 Industry
Minimum Wage Boards in Bangladesh, the five province Minimum Wage
Boards in Pakistan (which also set industry rates) and the nine industry
minimum wage rates (“sectoral determinations”) for adult workers in South
Africa pre-2019. Cambodia’s relatively recent statutory minimum wage has
to date only been applied in one industry, that of garment and footwear.
The different country approaches are highly significant for workforce
coverage. Those countries that differentiate by province or region extend
full coverage to all parts of the country. However, where only industry
rates are fixed, coverage is highly selective leaving many industries out-
side statutory protection. The selection of industries is therefore impor-
tant. In Bangladesh, the selection is said to reflect competing political
and industrial relations pressures rather than a consistent labour market
strategy; pressures arise from trade unions, from a political recognition
of the job growth potential of certain industries, from foreign buyers who
seek minimum labour standards in supply chains and from NGO lobbying
(Moazzem et al., 2015: 10).5 In South Africa, prior to the new national min-
imum wage, industries were selected based on evidence of labour vulner-
ability; coverage was around one in three employees (Godfrey et al., 2006,
cited in ILO, 2011). Excluded workers split into two categories – either cov-
ered by a bargaining council agreement (each with a collectively agreed
minimum wage) or excluded altogether from wage protection. Garment
industry workers were covered by an industry agreement with regional var-
iation (see below).
5 Moreover, Bangladesh sets separate rates for enterprises in export-processing zones, rep-
resenting around 7% of manufacturing employment (2011–2012 data, op. cit.).
The circumstances for minimum wage fixing in Pakistan are relatively
complex. While provincial government appears to retain ultimate power
over minimum wage fixing, there is ambiguity in the procedures and author-
ity relationships. Indeed, the empirical evidence suggests a strong role of
central government in influencing the minimum wage for workers in jobs
requiring few skills. Province boards may also set rates for different indus-
tries. For example, the Punjab province board sets 104 industry rates, each
with several job grades.6
10.2.2 Institutional intersection with industrial relations

While all five countries have a statutory minimum wage, its effective opera-
tionalisation requires sustained commitment from government, employers
and trade unions. In the absence of tripartite agreement, government rul-
ings on minimum wages risk failure. There are two institutional points of
intersection:
i The involvement of social partners in the process of minimum wage

fixing; and
ii The wider intersection between minimum wages and collectively bar-
gained wages in firms and industries.
While the state has primary authority in fixing the minimum wage in all
five countries, social partners also play a role, albeit of varied significance.
Tripartite consultation prevails in each country on the relevant boards or
committees, from the 42 Industry Minimum Wage Boards in Bangladesh
to the National Wage Council in Vietnam. There are specific country con-
cerns, including problems of impartiality (Bangladesh) or the politicisation
of the process (Pakistan). But there is also evidence of strong participa-
tion and improved consultative processes. In South Africa, the national
Employment Conditions Commission, which used to recommend rates for
all nine industries (eight for adults, one for children), would receive submis-
sions from the relevant employer bodies and trade unions, conduct pub-
lic hearings in different provinces and undertake workplace visits. Also, in
Vietnam, the tripartite National Wage Council was established in 2013 fol-
lowing complaints about the insubstantial, “symbolic” consultations with
social partners (Chi and Torm, 2015: 2).
A wider form of institutional interaction potentially occurs via collec-
tive bargaining arrangements. In four of the five countries, trade union
representation is weak and so the institutional arena for collective bargain-
ing over wages is limited. ILO estimates for union representation among
employees (not counting the self-employed) suggest density rates of 6%
6 There are, however, questions about the relevance of the industry rates in practice; one
study recommends abolishing them due to lack of awareness (Praxis Labs-ILO, 2015).
(Pakistan), 10% (Cambodia) and 15% (Vietnam), with a higher representa-
tion in South Africa at 28%. There are no ILO union data for Bangladesh,
but LO/FTF (2016) estimates an increase in the union density rate after the
Rana Plaza tragedy, reaching 19% in 2015 (although only 3–4% when infor-
mal work is included).7 Collective bargaining data suggest shares of workers
whose wages were influenced by a collective agreement number around 30%
in South Africa, 26% in Cambodia and 5% in Bangladesh. There are no
collective bargaining data for Pakistan or Vietnam.8
The character of industrial relations in the garment industry is explored
in section 10.4. At a country level, it is worth noting certain core features.
Both Bangladesh and Pakistan, and to some extent Cambodia, can be char-
acterised as having an “anti-collective” policy approach towards minimum
wage protection. This is a specific type of ‘isolated minimum wage policy’
approach identified in Chapter 1, characterised by a strong political aver-
sion to union participation in economic and wage policy matters. In these
three countries, it means the state supports a statutory minimum wage –
albeit at a low level, with coverage gaps and problems of employer compli-
ance – but actively curtails collective bargaining. All three countries have a
recent history of political repression of labour relations under military dic-
tatorship. Bangladesh suffered a stop-go approach towards repression and
protection of workers’ democratic rights during the 1970s–2000s, Pakistan
has longstanding restrictive legislation curtailing the number and strength
of unions and Cambodia experienced disastrous years of conflict associated
with the Khmer Rouge and subsequent civil war.
Repression of unionism inevitably leads to inactivity in the formally rec-
ognised collective regulation of employment conditions. In Bangladesh,
despite having thousands of enterprise unions and 32 national federations,
only 22 collective bargaining agreements were signed in 2015 (LO/FTF,
2016: 4).9 In this context, social dialogue is more active in minimum wage fixing
than in the relatively moribund arena of collective bargaining. In Bangladesh,
tripartite minimum wage boards for the 42 selected industries set wage rates
for varying levels of skill and/or job grade. In Pakistan, province minimum
wage boards similarly set rates for different jobs, varied by skill level, for the
selected industries. The state retains overall authority, and there are ques-
tions about the expertise of board representatives, but it is nevertheless a
7 While a low overall union density rate, thousands of unions in Bangladesh exercise a
presence in many industries. There are large unions in some, such as the tea industry, and
hundreds of small unions in others – for example, more than 1,000 unions in the transport
industry (Moazzem et al., 2015, table 16).
8 Data from ILO statistics, <https://www.ilo.org/stat/lang–en/index.htm>.
9 In a critical commentary on Bangladesh, the ILO’s committee on labour standards noted
‘with deep regret that the [2006] Labour Act did not contain any improvements and, in cer-
tain regards, contained even further restrictions which were contrary to the provisions of the
Convention [Freedom of Association, No. 87]’ (ILO, 2013: 58).
valuable deepening of social dialogue against a general background of neg-
ligible or absent collective agreements in segments of low-wage employment.
Vietnam might be described as having a “weakly positive complementa-
rity” between the two wage-fixing institutions. Amendments in 2012 to its
Labour Code strengthened collective bargaining by extending the right of
workers in non-unionised enterprises to be covered by a collective agree-
ment. The share covered is therefore likely to be higher than the 15% union
density rate. Collective bargaining is mostly at enterprise level, although
the very first industry agreement was signed in 2010 by social partners in
the garment industry. Weaknesses include questions about the substance of
agreements10 and the exclusion of many worker categories, such as workers in
foreign enterprises and casual workers (without an employment contract) –
both endemic in the garment industry.
South Africa is quite distinctive. Prior to its newly introduced national
statutory minimum wage, it had a dual system of minimum wage protec-
tion via “sectoral wage determinations” in nine sectors and collective agree-
ments in many others, including binding extensions. However, the direction
of legislative industrial relations reforms in South Africa has been mixed.
In the 1990s, employers were granted legal rights to exempt themselves from
industry-level collective agreements. Indeed, each sectoral bargaining coun-
cil is obliged by law to enable employers to apply for exemption from some
or all provisions of the bargaining council agreement (Godfrey et al., 2015:
5). This has proven to be especially significant for the garment industry as
we show below. On the other hand, statutory minimum wage protection
under “sectoral determinations” was extended to cover workers in farming
and domestic services and then of course the entire framework was replaced
by the new statutory minimum wage in January 2019.
10.3 Are minimum wages for garment industry

workers effective?
What elements must be taken into consideration to gauge the effectiveness
of a minimum wage? This section investigates six of the seven factors con-
sidered critical to the effectiveness of a minimum wage: i) High workforce
coverage; ii) A suitable level; iii) Regular uprating; iv) Complementary inter-
action with payment practices; v) Employer compliance; and vi) Responsible
governance of supply chains. The next section addresses the seventh factor,
namely the impact of unions and collective bargaining on wages in the gar-
ment industry.
10 A 2009 joint review between the ILO and trade unions found that most agreements in
Vietnam were initiated by employers to fulfil CSR requirements rather than as a conse-
quence of genuine labour-management negotiations. Also, evidence suggests only two in
five agreements offered at least one provision that was better than the minimum labour
standards (Chi and Torm, 2015).
10.3.1 High coverage?
The effectiveness of a minimum wage is determined to a large extent by the
share of the total workforce covered by its protection. The level of coverage
is affected by different elements:
• Statutory provision regarding who is subject to a minimum wage;

• The level of awareness among workers;
• The degree of compliance by employers;
• The resources of government and willingness to control compliance;
and
• The impact on areas of the economy not legally covered.
Issues of employer compliance are addressed separately below. Here, the dis-
cussion (mostly at the country level) focuses on legal coverage, government
resources for enforcement and spillover effects in the informal economy.
As with many developing countries, statutory coverage of the minimum
wage is far from universal (Table 10.3). Quite often agricultural workers and
informal work are excluded, which is especially relevant given their large
Table 10.3 Legal coverage of minimum wage legislation
Country Source Coverage
Bangladesh Moazzem et al. (2015) Many industries excluded. Only 42

industry minimum wage boards
(23% of total), mostly
manufacturing (76%); no national
statutory MW
Cambodia Reeve and Hwang (2015) Only workers in the textile, garment
and footwear industries
Pakistan Praxis Labs-ILO (2015) All workers included with the
Karamat et al. (2015) exception of:
(a) Employees of the federal or
provincial governments;
(b) Agriculture workers
(c) Workers employed by state
contractors for physical
infrastructure
South Africa Cottle et al. (2015) Before 2019 MW protection was
limited to those covered by
collective agreements and selected
sectors with low wage and union
density: domestic workers,
wholesale & retail, farm workers,
forestry, hospitality, taxi, contract
cleaning, private security, Expanded
Public Works Programme.
Universal since November 2018.
Vietnam Dieu and Dong (2015) All workers included
Table 10.4 The average number of workers per labour inspector, 2003–2006
(ranking for 27 selected low and middle-income countries)
1.Brazil 7,094 15.Peru 45,696

2.Mongolia 13,289 16.Thailand 69,996
3. South Africa 14,152 17.Jamaica 97,765
4.Laos 14,777 18.Nigeria 114,911
5.Mauritius 15,512 19.Vietnam 140,406
6.China 17,595 20.Mexico 155,675
7.Chile 20,041 21.Uganda 168,526
8.Honduras 22,850 22.Philippines 169,940
9.Kazakhstan 24,554 23.Pakistan 168,899
10.Argentina 27,266 24.Tanzania 205,704
11.Morocco 32,387 25.Cambodia 328,158
12.Turkey 35,923 26.Ethiopia 752,018
13.Egypt 36,976 27.Bangladesh 2,394,625
14.Malaysia 37,301
Source: Grimshaw and Muñoz de Bustillo (2016) and Department of Labour (2017) for South
Africa.
shares of the workforce (e.g. 54% in agriculture in Cambodia and 47% in

Bangladesh). The result is a much diminished share of workers covered by
the minimum wage. Vietnam is the only country among the five selected
where legal coverage is universal. In Cambodia only workers in the textile,
garment and footwear industries are covered. In South Africa, after a long
debate, the government signed the National Minimum Wage Act into law
in late 2018. However, the new national minimum wage is not universal as it
sets lower rates for farm workers, domestic workers and persons engaged in
expanded public works programs.11
For workers in garment industry factories and those working further down
the chain of suppliers, protected legal status depends in part on the capac-
ities of a well-staffed labour inspectorate to root out illegal practice and
impose impactful fines. In this respect, however, most developing countries
have very few resources; Table 10.4 shows that four of the five countries rank
poorly in terms of numbers of workers per labour inspector. For Bangladesh,
each of the 20 labour inspectors covers more than two million workers.
Not only are resources often inadequate, but also the capacity of inspec-
tors to fulfil their duty. In Pakistan, the province of Punjab banned labour
inspections in 2003 following demands of factory owners, allegedly in order
to avoid harassments and demands for bribes by labour inspectors. Three
years later, the adoption of “one inspector – one policy”, which allocated to
one single inspector all areas of inspection of a given company, negatively
affected the efficacy of the inspections due to the higher demands placed
on the inspectors across different areas of labour, including wages, child
11 In these cases the hourly wage is reduced from 20 to 18, 15 and 11 ZAR, respectively
(Goitom, 2018).
labour and social security, further increasing opportunities for corruption
(Praxis Labs-ILO, 2015: 50–51). Moreover, the incidence of inspection is
lower among firms in sectors with higher rates of tax evasion and larger
shares of low skill workers, precisely the sectors with higher probability of
noncompliance (Almeida and Ronconi, 2012).
The inadequacy of a country’s labour inspectorate could perhaps be com-
pensated by mechanisms that provide further countervailing powers against
opportunistic and exploitative employers. The obvious example is for trade
unions to have an effective presence on the shop-floor tasked with monitor-
ing employer compliance with minimum wage rules. In fact, according to
Almeida and Ronconi (2012), in low and middle income countries firms with
a unionized workforce are more likely to be inspected. The main problem,
however, is that many developing economies have weak unions and decreas-
ing affiliation rates (Grimshaw and Hayter, 2020). Moreover, union activity
is concentrated at the national rather than firm level (Moazzem et al., 2015;
Praxis Labs-ILO, 2015). The counterexample is Vietnam with affiliation
rates of 32% (Chi and Torm, 2015).
10.3.2 A suitable level?

The effectiveness of a minimum wage also strongly depends on whether it
enables workers to have a decent standard of living. Indeed, the raison d’être
of the minimum wage is to set a floor to wages so that no labour transac-
tions take place below such a level.
Broadly reflecting differences in relative wages among the sample of
countries, the value of the statutory minimum wage is very low in four
of the five countries (starting at just US$68 in Bangladesh). Indeed, these
four countries are among the bottom five in a recent ranking of the top 25
apparel exporting countries (Luebker, 2014; Sri Lanka ranks bottom). The
minimum wages shown in Figure 10.2 include lowest and highest minimum
wage levels in those countries where multiple rates are set for the garment
industry, as follows: for Bangladesh between Grade 7 and Grade 1 jobs in
the garment industry domestic tariff area for Pakistan between Baluchistan
province and the other three provinces; for Vietnam between Regions IV
and I; and for South Africa the collectively bargained minimum wages in
the garment industry range from the Northern region to the Kwazulu-Natal
and Western Cape regions.
At the time of research, the international poverty thresholds were US$1.90
(extreme poverty) and US$3.10 (moderate poverty) per person per day. As
such, these minimum wage rates require a major boost if they are to make
a significant contribution to eradicating poverty among garment industry
workers. Detailed analysis demonstrates that none of the countries have
minimum wages at an effective level to exceed the moderate poverty level,
while Bangladesh also fails the threshold for extreme poverty (Grimshaw
and Muñoz de Bustillo, 2016).
Figure 10.2 Statutory monthly minimum wages for the garment industry, US$, 2014.
Source: Luebker (2014: table 1); for Bangladesh only MW rates for grades 7 to 3 are included
since grades 1 and 2 cover few workers; South Africa collectively agreed minima data for 2020; all
rates equivalised using 2020 exchange rates; authors’ compilation.
A second indication of the suitability of its level is revealed by comparing

the minimum wage with average industry earnings. Due to a lack of harmo-
nised international earnings data, Table 10.5 uses national sources, which
unfortunately refer to differing definitions of wages (average or median
earnings) and sectors (garment industry or total manufacturing); the data
are thus not comparable across countries. The minimum wage relative to
median wages in Vietnam seems to be extremely low. It must be noted,
Table 10.5 The minimum wage relative to average earnings in the garment
industry, national data sources (national currencies) for three countries
Median
Average earnings earnings MW as % of earnings
Lowest All
MW Male Female workers Male Female All Notes
Bangladesh 3,000 4,488 3,329 67% 90% The lowest

Grade 7 MW
rate
Pakistan 10,000 12,716 4,953 79% 202% Manufacturing
earnings
Vietnam 1,400,000 3,725,000 38% The lowest
Region 4 MW
rate
Source: Grimshaw and Muñoz de Bustillo (2016).

however, that the 38% figure refers to the lowest regional monthly mini-
mum wage (fixed at 1.4 million VND in Region 4 in 2012); against the higher
Region 1 rate the bite would be 54%. Nevertheless, the measure for Vietnam
refers to median not average earnings (as for Bangladesh and Pakistan) so the
percentage figure would be even lower with comparable average e arnings –
and this is despite the large uprating since 2010 (see below).
Higher relative levels are recorded for Bangladesh and Pakistan, but
the data suggest a striking disparity of experience for women workers. In
Bangladesh average female earnings in the garment industry are only mar-
ginally above the lowest minimum wage rate for Grade 7 jobs (2010 aver-
age earnings of Tk3,329, which was close to the Grade 6 minimum rate of
Tk3,322), while men’s average earnings (except in the region of Chittagong)
were above the Grade 3 minimum wage for the industry (Tk4,488). Women
are more likely to be concentrated into low paid jobs in the industry and more
vulnerable than men to management manipulation of job grades (see below).
In Pakistan, the situation is even more critical. Women’s average earnings
in the manufacturing sector in 2013 and 2014 were estimated at half the level
of the statutory minimum wage (fixed at the same level of 10,000 Rs that
year by all five province boards). The data are confirmed by Huynh (2015)
who shows Pakistan has by far the largest gender pay gap in garments, tex-
tiles and footwear industries of around 65% (2012 and 2013) compared to
approximately 15% in Vietnam and less than 10% in Cambodia. Women’s
position is partly explained by their concentration in informal enterprises
and among home-workers, as well as pervasive sex discrimination in the
industry (below).
10.3.3 Regular uprating?

Given that price inflation of goods and services, as well as rental and hous-
ing costs, are core features of all economies, countries need to institution-
alise a regular, annual uprating of their minimum wage. Failure to do so
increases the risk that workers’ minimum earnings fall out of step with the
price of a basic basket of goods and services, causing great difficulties and
leading to potential conflict. Moreover, long periods of no change in the
statutory minimum wage are typically followed by short periods of rapid
catch-up, in an effort to salvage the relevance of the minimum wage in the
labour market. However, this comes at the cost of too great an exogenous
shock for employers to respond to and risks pushing many out of a habit of
compliance with minimum wage rules. Moreover, the absence of an agreed
system or timetable for minimum wage revision exposes minimum wage
policy to political opportunism regardless of the economic situation.
A review of upratings shows that Pakistan, Vietnam and Cambodia have
in recent years managed to implement regular annual upratings: in Pakistan,
the five province minimum wage boards increased rates each year since 2010
and 2011; in Vietnam the four regions set uprated minima every year since
2005; and in Cambodia every year since 2013 (albeit following a long period
of stagnation during 1997–2007 when only one uprating was implemented).
Bangladesh provides a stark contrast. All 42 industries for which minimum
wage boards assume the task of fixing minimum wages suffer from a severe
problem of infrequent uprating. The case of Bangladesh deserves detailed
analysis since it can serve as a warning regarding the dangers of incompe-
tent minimum wage governance.
Since a first industry minimum wage was introduced in Bangladesh in
1985, it was only uprated four times over a period of 30 years up to 2015.
While one may point to other countries where minimum wage upratings were
infrequent during the 1980s and 1990s (Spain for example), in Bangladesh
workers do not enjoy the protection offered by alternative wage-setting
institutions – such as collective bargaining or trade union mobilisation and
action against enterprises – to make up for their massive drop in real earn-
ings. This poor institutional arrangement was especially bad up to 2006
following two long periods of what is diplomatically referred to as “hiberna-
tion” in minimum wage fixing (Moazzem et al., 2015: 33); the longest period
was from 1994 to 2006 (the so-called “930 policy”, named after the then
monthly minimum wage rate for unskilled workers) when average annual
inflation of around 5% cut into the real level of earnings – almost halving
the real value of the minimum wage (a 42% cut) over the period (World Bank
CPI data). Minimum wage “hibernation” therefore profoundly marked the
last decade of wage developments in this and other industries in Bangladesh.
Workers in the Bangladeshi garment industry responded with waves of
wildcat strikes, protests and campaigns during 2005 and 2006. Military
interventions and arrests of striking workers (e.g. at the FS Sweater factory)
inflamed matters, with reports of clashes with police and the burning and
ransacking of factories. As well as a higher minimum wage, a coalition of
unions and workers called for payment of overtime hours, regular holidays,
better health and safety (in response to major fires at KTS and Spectrum fac-
tories in the year 2005) and the release of arrested colleagues (Khanna, 2011).
From 2006, minimum wage upratings were implemented more frequently,
once in 2010 and again in 2013. The 2013 monthly rate for the lowest skilled
Grade 7 job of Tk5,300 is still far lower than the level of Tk8,200 called for
by industry experts (Moazzem et al., 2015: 40). The reason experts continue
to call for a higher minimum wage is because the inflation measure does not
account for the significant rise in housing costs (rental and purchase price).
A report for the Just Jobs Network summarises the situation as follows:
“Prominent experts from the Center for Policy Dialogue (CPD), one
of the leading think tanks in Bangladesh, have argued that the cur-
rent minimum wage also does not correspond to the actual productivity
of workers. CPD recommends a minimum wage of at least 8,200 Taka
(US$104) for an entry-level worker. The new minimum wage falls even
further short of the 25,687 Taka (US$325) that the Asia Floor Wage
Alliance calculates to be a living wage for a Bangladeshi RMG worker
and her or his family.”
(Maihack and Kumar Das, 2015: 119)
Matters are even worse for workers employed in firms in export-process-

ing zones, where minimum wages have only been uprated twice since the
mid-1980s, in 1989 and 2010 (Moazzem et al.: 19). Overall, in the case of
Bangladesh, despite the upgrading in real value since 2006 and especially
the 2013 uplift, there remains an urgent need to institutionalise regular
and comprehensive annual upratings in this and other industries and to
revisit cost of living measures. Indeed, following the period of our research,
Bangladeshi workers had to wait another five years until 2018 for another
uprating of the minimum wage.
10.3.4 Complementary interaction with payment practices?

While employers are obliged to adapt to the statutory duties imposed by
minimum wage regulations, they are free to design the particular form of
payment practices, which may or may not be complementary. Judging by
the empirical case-study evidence, all five countries to a greater or lesser
extent make use of overtime and piece rate payment practices. Because long
working hours and low pay are endemic in the textile and garment industries
in these countries, overtime often constitutes a critical supplementary pay-
ment for workers. The rate of overtime pay may be stipulated in legislation
(as in Bangladesh or South Africa, at 1.5 times the basic rate, for example) or
in collective agreements, or simply follow customary rules of the company.
As with minimum wage rules, however, the force of a statutory overtime pay
premium does not guarantee employer compliance. In Bangladesh, despite
its statutory underpinning, employers are known to withhold overtime pay-
ments in a perverse attempt to discourage workers from switching to other
factories (Moazzem et al., 2015: 30).
Piece rates present a major challenge for workers’ wage justice in the gar-
ment industry since they can easily be redesigned by employers to coun-
teract minimum wage regulation. The problem with piece-rate pay is the
question, what to do when 40 hours of output do not generate a minimum
wage for the week? Rather than raise the rate paid per piece, the hard-nosed
employer response is to sack “under-performing” workers. In Vietnam, the
case-study evidence found the following:
“In case the workers cannot achieve the minimum wage level, the com-
pany will compensate their monthly salary to the minimum wage level.
Yet, the common practice is that such compensation will only last for at
most three months. If after three months the workers still cannot reach
the target, s/he will have to resign.”
(Chi and Torm, 2015: 30)
In Cambodia by contrast, the case studies found that employers would rou-
tinely top up a worker’s weekly wage where the level of output paid per piece
fell below the minimum wage. Moreover, one firm recognised that certain
types of garments were unsuited to piecework and had shifted the workers
onto regular time-based wages (Reeve and Hwang, 2015: 36). In South Africa,
while the collective agreement (for non-Metropolitan areas) did not prohibit
piece-rate pay, the trade union (SACTWU) did oppose its introduction on a
factory-by-factory basis and had some success in persuading employers to
revert to time-based payment practices (Godfrey et al., 2015: 36).
Other pay practices may also be used to top-up workers’ incomes,
although data on usage is lacking. In Vietnam, garment industry employ-
ers are said to routinely provide various forms of supplementary income
(Chi and Torm, 2015: 32) in response to the low minimum wage. Seniority
and attendance payments offered by some garment industry employers are
reckoned to amount to around 6% of the statutory minimum for the highest
paying Region 1 where most garment firms are found. Also, free lunches are
commonly provided, as is an annual bonus for the national Tet (New Year)
festival, which is equivalent to a 13th month wage (op. cit.).
10.3.5 Employer compliance?

The scale of the non-compliance problem varies. International evidence
suggests Vietnam has relatively high compliance with minimum wage rules
(Rani et al., 2013), although this is partly explained by its relatively low level
minimum wage (see above).
The research evidence uncovered instances of underpayment. In Pakistan,
one employer who was interviewed argued that, “the fact that some workers
are willing to accept wages below the statutory minimum was evidence that the
wage was adequate” (Praxis Labs-ILO, 2015: 42).
In South Africa, the problem of underpayment at the time of research
had developed into a quasi-institutional problem. Many foreign-owned gar-
ment employers had openly defied the collectively agreed minimum wages,
dismissed a legal challenge by trade unions and won a compromise wage
agreement that formally facilitated the payment of sub-minimum wages
(Box 10.1). It is notable that these non-compliant firms were members of
the local employers’ organisation. A subsequent revision to the collective
agreement confused norms of compliance with minimum wage rules; new
provisions for temporary, sub-minimum wage payments were not policed
and reduced public awareness, even among the main stakeholders:
“As one manufacturer noted, if you had to ask the NBCCI [wage bargain-
ing council], SACTWO [trade union] and the Apparel Manufacturers of
South Africa [the main employers’ body] what the minimum wage cur-
rently was you would get three different answers.”
(Godfrey et al., 2015: 33)
Box 10.1
Legitimising employer non-compliance? The case of South Africa pre-2019

During the 1980s and 1990s, Chinese and Taiwanese garment producers were
encouraged to locate in the KwaZulu-Natal region of South Africa. They
benefited from low wages in the region, as well as government subsidies.
However, the “decentralisation subsidies” ended in the late 1990s and from
2003 a high-level binding minimum wage was fixed by the bargaining coun-
cil for non-Metropolitan areas. Evidence of growing non-compliance among
these firms led to the bargaining council taking legal action in 2010 against
385 alleged non-compliant firms, employing 20–25,000 workers.
But the employers responded en masse to this attempt at legal enforcement. In
Newcastle, over 100 non-compliant firms, organised by the Chinese Chamber
of Commerce in Newcastle, temporarily laid off around 7,000 workers.
Despite trade union (SACTWU) opposition to a compromise agreement,
the Chinese and Taiwanese companies won a new deal that allowed firms to
pay less than the collectively agreed minimum wage, and only to return to full
compliance over a period of 16 months.
Source: summarised from Godfrey et al. (2015: 30–32).
In Bangladesh, employer non-compliance is more precisely a problem of

undervaluation of job types or a worker’s skills. Because of the extended
influence of minimum wage setting – stretching up to seven job grades in
the domestic garment industry – many employers seek to avoid paying the
higher minimum wages. Some classify workers into unofficial job grades,
ostensibly to match with probation/training periods, but in practice to defer
payment of the minimum rate for the formal job grade. The unofficial grades
are not stipulated in the collective agreement. Another employer practice is
to downgrade the job in order to pay a lower minimum wage (see Box 10.2).
10.3.6 Responsible supply chain governance

Subcontracting, including use of homeworkers, raises considerable chal-
lenges for enforcement. Where it involves homeworkers (or family business
units), labour law in many developing countries is unlikely to apply, thereby
removing significant numbers of garment workers from any statutory pro-
tection. The case-study data demonstrate that the further down the sup-
ply chain, the worse the working conditions. In Bangladesh, estimates of
wage rates for formally recognised job grades in garment factories uncover
a major discrepancy between subcontracted and direct contracting garment
firms (Figure 10.3). Non-compliance is endemic among these subcontract-
ing factories, with underpayment exceeding 10% among the lower grades 5,
6, 7 and apprenticeship.
Box 10.2
Employer practices of non-compliance in Bangladesh: workers’ experiences

Case-study research uncovered evidence of grade manipulation and under-
payment at garment factories. Among 12 workers interviewed, 7 said their
written contract downgraded what had been agreed orally at the point of
hiring. The following examples are illustrative.
Worker 1 (five years’ work experience, four months at current factory)

In her previous job she worked as a ‘junior swing operator’ and earned
a Grade 5 wage. When hired at the current factory, the employer prom-
ised she would be paid the same. However, her written contract subse-
quently defined her job as the lower, Grade 6 level and paid 5,600 Taka
per month. The statutory minimum wages at the time were 5,678 Taka
(Grade 6) and 6,042 Taka (Grade 5).
Worker 2 (seven years’ work experience, two years at current factory)

He previously worked as a ‘senior swing operator’ (Grade 3) and was told
on hiring (confirmed in a written contract) he would be paid the same.
However, the employer categorised him in an unofficial job grade and
paid just 5,800 Taka per month, far lower than the statutory minimum
wage for Grade 3 of 6,805 Taka.
Worker 3 (five years’ previous experience)

She joined the current factory with the oral assurance of being paid as a
‘junior swing operator’ (Grade 5). However, she was paid at Grade 7, just
5,500 Taka per month; statutory minima for grades 5 and 7 were 6,042
and 5,300 Taka.
Source: adapted from Moazzem et al. (2015: Table 27).
Fieldwork for Pakistan revealed exploitative practices among the furthest

reaches of the garment supply chain, namely homeworkers – estimated to
number between 8 and 12 million and mostly women. Visits to workers’
homes in the Karachi area, revealed that all homeworkers were paid on a
piece rate basis and remunerated at a level far below the statutory mini-
mum wage. In one case, a 15-year old girl reported a reduction in the piece
rate from 30-35Rs per dozen of beading on cuffs and collars to 20–25Rs.
In another, a woman revealed contractors would sometimes find defects
in her work and make deductions from the payment. All five interviewed
women lacked social security protection (Figure 10.4). They had no national
Figure 10.3 Estimated wages at subcontracting and direct contracting garment

factories, Bangladesh.
Source: adapted from Moazzem et al. (2015: table 28).
Figure 10.4 The exploitation of women in Pakistan’s home-based garment industry

Source: Praxis-ILO (2015: 53-54); authors’ compilation.
identity card and therefore were unable to access alternative employment
and training schemes, and could not register for income support programs
(Praxis Labs-ILO, 2015: 51–55).
The “middlemen” – the contractors who provide work to homeworkers –
exercise significant power through prohibiting work with other contractors
(exclusivity condition), fostering competition among homeworkers and
imposing penalties or withdrawing work.
“Women in the same geographic area are likely to source work from the
same contractors, and contractors sometimes foster competition among
the women to lower wage rates. Several home-based workers (HBWs)
reported that contractors engaged in retaliatory behaviour, and would
suspend distribution of work if they tried to negotiate wages. … The
power imbalance between individual HBWs, who need work, and con-
tractors who distribute work means that HBWs will sometimes tolerate
exploitative and abusive behaviour in order to maintain their ongoing
livelihoods.”
(Praxis Labs-ILO, 2015: 56–57)
There are nevertheless hopeful signs that some homeworkers in Pakistan

are collectivising and seeking to improve their working arrangements (see
below).
The case studies also highlight the ambivalent role of retail and interme-
diary organisations which are responsible for the purchase of garment prod-
ucts from our sample countries. In South Africa, one manufacturer made
absolutely clear the apparent indifference of many large retail purchasers
towards legal compliance. The clothing manufacturer argued there was no
possibility of price negotiation. It was unionised and yet non-compliant
with the collectively bargained minimum wage. The manager’s views were
as follows:
“He says he hears about increases in the wage rates from the design
houses – but [the design houses] are not concerned about whether he is
compliant. In any event they should be aware that the prices they are
quoting him could only be met by a manufacturer who is paying less
than the prescribed minimum wage.”
(Godfrey et al., 2015: 37)
10.4 Complementarity with trade union actions on wages?

To be effective, minimum wage protection for garment industry work-
ers requires the strong support and proactive intervention of trade unions
(Chapter 1). Unions can be critical in representing the voice of workers who
fall outside of legal protection, as well as arguing for higher minimum wages
to meet rising living costs and monitoring employer compliance in a context
of limited resource for factory inspections. The five countries have varied
experiences of industrial relations in the garment industry, although not
necessarily a simple reflection of the national picture described in section 2.
This section examines differences in three key variables: union presence, col-
lective wage agreements and collective resistance.
Trade unions and collective bargaining over wages play a varied role in
the garment industry – from a negligible formal presence in Bangladesh
(reflecting its generally “anti-collective” policy approach described in sec-
tion 2) to a stronger role in South Africa. In Bangladesh, unions have a
limited presence, covering only 2% of factories in the ready-made garment
sector and 14% in the other factories. While union leaders record a relatively
large number of trade unions for the industry (possibly up to 300 unions),
their real presence and effectiveness is limited. Reasons include: employ-
ers prohibiting union presence and activity in the factory (accounting for
the displacement of an estimated 144 unions); the closing down of unions;
and the fact that around one in five unions are ‘yellow unions’, set up by
the factory owner. Overall, only around one in ten registered trade unions
are effective in directly influencing wages in the industry (Moazzem et al.,
2015: 42). In Vietnam, the share of enterprises in the garment industry with
recognised unions is very low, compared with the relatively strong level of
union density nationally: just 346 member companies of the employer body
VITAS were unionised in 2013 and only 6% of all registered textile compa-
nies (Chi and Torm, 2015: 27).
In South Africa, the clothing sector benefits from one, very well organ-
ised, trade union (SACTWU), which emerged out of a legacy of regional
trade unions and regional collective bargaining structures developed over
the 1970s and 1980s (Godfrey et al., 2015). Also, in Cambodia, despite low
overall levels of trade union activity, the number of registered unions has
increased rapidly in recent years – from 1,700 to 2,900 during 2009–2013 –
in line with the rapid expansion in numbers of enterprises and workers
employed. One estimate suggests that around three in five workers, mostly
women, are unionised – the highest among garment industry workers any-
where in Asia (Reeve and Hwang, 2015: 6).
In Bangladesh, enterprise collective bargaining is seriously underdevel-
oped. The first formal efforts at undertaking enterprise bargaining in the
garment industry only began in 2011. Interviews with a sample of work-
ers with experience of union-related activities in garment factories presents
a picture of inertia and non-constructive dialogue (Moazzem et al., 2015:
43–44). In Pakistan, while few collective agreements exist, the empirical evi-
dence suggests that those employers who do sign an enterprise agreement
are more likely to comply with minimum wage rules and to build on the
wage floor to set higher wage rates for the various job grades (Praxis Labs-
ILO, 2015: 37).
In Cambodia, where some 425 collective agreements have to date been
registered across the garment industry (2003–2014), many do no more than
replicate minimum standards set out in the legislation; only a small number
include a wider base of entitlements, including bonuses, working hours,
health and safety and overtime (Reeve and Hwang, 2015: 27). Similarly,
in Vietnam, aside from the ongoing collective agreement being piloted for
the garment industry (see below), enterprise bargaining is quite rare, and
where it is present the quality of agreement is low. The government esti-
mates around half of unionised garment companies have a collective agree-
ment, but does not collect data for the industry as a whole (Chi and Torm,
2015: 28).
South Africa presents a starkly contrasting picture with the effective con-
solidation of previously regional collective agreements organised around a
National Bargaining Council that sets agreements for clothing and knitting
for ten regional areas. However, the legal basis for extension to employees
in the KwaZulu-Natal province was successfully challenged in recent years
and this follows an emerging pattern of employer opposition in other indus-
tries (see above).12
Despite (or perhaps because of) the weak organisation of trade unions
in four of the five countries and the limited role of social dialogue through
collective bargaining, the garment industry has been at the centre of indus-
trial relations conflicts as workers vent their frustration with poor work-
ing conditions. In Vietnam, garment industry strikes accounted for almost
half (40–45%) of all nationwide strikes and more than one third (37%) of
reported strikes during the two decades from 1995 (Chi and Torm, 2015: 3,
26). In Cambodia, in an environment of outright hostility towards unions,
involving labour rights violations and violence, garment industry workers
and their unions participated in many demonstrations and nearly 300 wild-
cat strikes during 2013–2014 with the goal of improving the minimum wage
level and combating employer non-compliance. The government reacted
with violent reprisals in early 2014 and prohibited public demonstrations in
Phnom Penh (Reeve and Hwang, 2015: 31).
“Union leaders have been the subject of violence; and in 2014 a violent
crackdown against unionists which involved military police shooting
into a crowd of demonstrators resulted in five deaths and dozens injured
(USDOS, 2015). … [T]he use of short-term contracts is widespread and
serves as an obstacle to unionising; harassments, dismissal or demotion
for reason of union involvement is also common.”
(Reeve and Hwang, 2015: 7)
12 2009 data collected by the National Bargaining Council for the clothing industry suggest
more than half of firms (covering around one in four employees) are non-compliant with
the agreement’s terms and conditions (Godfrey et al., 2015: 11-13). Ten years later, the
improvement of compliance remained a challenged according to the chair of the National
Bargaining Council for the Clothing Manufacturing Industry (Smith, 2019)
In Bangladesh, the social dialogue vacuum in the garment industry has had
seriously adverse and cumulative repercussions, leading to many instances
of industrial relations conflict. Employers have retaliated with harassment,
intimidation, excessive workloads, threats and compulsory redundancies
directed against workers involved (Moazzem et al., 2015: 44). The case of
Bangladesh points to the difficulties of building new, constructive wage-set-
ting institutions after years of repression of trade unions:
“An effective collective bargaining agreement [for the garment indus-

try] is likely to have a positive impact on minimum wages at all lev-
els, which could ensure pay equity. The current experience indicates
that it is not so easy to establish an effective and functional collec-
tive bargaining agreement at the enterprise level unless appropri-
ate measures have been taken to address the challenges and risks to
be involved in trade union related activities. … The lack of collec-
tive bargaining processes perhaps has the worst adverse impact on
[employer] irregularities among the lower grades mainly through a
lack of initiative to improve workers’ awareness regarding their rights
and responsibilities.”
(Moazzem et al., 2015: 47)
Country responses to industrial relations conflict in the garment industry

vary. Examples of proactive, collectivist responses occurred in Vietnam,
Pakistan and Cambodia. Commencing in 2010, Vietnam passed to a third
phase of a pilot programme to establish a new collective agreement for the
garment industry in an explicit response to years of conflictual industrial
relations. By 2015, the pilot agreement counted around 100 enterprise mem-
bers and 140,000 workers (6% of all garment industry workers). If successful
it will represent the first industry collective agreement. In principle, it ben-
efits from well organised trade unions and employer bodies, each commit-
ted to improving workers’ earnings incrementally while securing jobs and
improving general working conditions. At the same time, the social partners
are new to the experience of collective bargaining and must contend with
the strong external influence of statutory minimum wages, which sets the
pace for negotiations (Chi and Torm, 2015: 32).
In Pakistan, in an effort to draw attention to, and reduce, the scale and
scope of exploitative practices waged against homeworkers, the Karachi-
based Home-Based Women Workers’ Federation was set up as an advocacy
and campaigning group to improve working conditions. It has organised
homeworkers into locally based cooperatives so that contractors are com-
pelled to manage the delivery of work via the cooperative on agreed terms,
although the final decision rests with each individual homeworker. It also
claims to have improved the efficiency of the supply chain from the point
of view of contractors since it is better placed to manage the distribution of
work among member homeworkers.
“When the Home Based Women Workers’ Federation is approached
with work by contractors or employers, the trade committees of each
cooperative - comprised of four to eight women - discuss the terms
and conditions with the contractors. The committee decides whether
the wage rate and conditions are acceptable. … The work will only be
accepted if all the members agree. Sometimes, the homeworkers will
refuse an order if their demands for wages are not met.”
(Praxis Labs-ILO, 2015: 57)
Pakistan has also witnessed new protest and collectivist movements among
those employed informally in the power loom industry in the Punjab
province. Each year a collective agreement is signed and occasionally the
provincial government has mediated to reach a settlement. Workers are
represented by a registered trade union, the Labour Quami Movement,
and have engaged in protests and strikes, leading to police repression and
imprisonment of several union leaders (Praxis Labs-ILO, 2015: 39). While
to some extent an effective mobilisation among informal workers, they are
still disenfranchised, with agreed wages set at a rate below the statutory
minimum wage. At the negotiated piece rate, even working 12 hours a day
(more than the eight hours specified in the minimum wage board rules)
leaves workers earning less than the daily minimum wage for the province.
Also, collectively bargained annual rises have fallen behind the minimum
wage board rises. Government representatives are fully informed of, and
even complicit in, developments which means they are routinely condoning
a parallel informal and exploitative world of employment that contravenes
minimum wage legislation.
“The power loom workers are well-aware of the statutory minimum

wage, and acutely conscious of the disadvantages they suffer as workers
in informal sector enterprises, and/or holding informal jobs. However,
reflecting their exclusion from labour laws, this form of collective bar-
gaining is a practical compromise rather than a form of protection. The
process is outside of the legal structures of minimum wage setting. Any
wage rates agreed is a matter of private contract between the workers
and the employers, and do not constitute a statutory minimum wage.
No penalties are attached to the breach of the agreement by employers,
and no remedy is available through the labour protection system.”
Finally, Cambodia has sought to re-establish industrial relations on a

stronger footing through the 2011-14 Memorandum of Understanding. The
industry employer body together with eight of the main union federations
for the garment industry agreed a range of issues with the aim of promoting
more peaceful and productive industrial relations. It is said to have encour-
aged a reduction in the number of strikes and an increase in the proportion
of binding awards issued by the Arbitration Council, leading to a cautiously
optimistic view of the future for the industry.
“The making of the Memorandum, the discussions that have taken

place during its term and those leading to renewal or the possibility of
the same, reflect a growing maturity in industrial relations toward the
use of dialogue, rather than more reactive means, to reach agreement
on important issues. … While it has been suggested that compliance
may have been negatively affected by a lack of knowledge and engage-
ment at the enterprise level, the commitment shown at the representa-
tive level remains a significant development in Cambodian industrial
relations and one upon which further progress can be built.”
10.5 Conclusion
This chapter presented original data about the character of minimum
wage fixing for garment industry workers in five developing countries,
Bangladesh, Cambodia, Pakistan, South Africa and Vietnam. Its central
contribution is to enhance knowledge about what makes minimum wages
effective in specific sector-in-country contexts, which involve varied institu-
tional, business and economic conditions.
Across all seven factors identified as determining minimum wage effec-
tiveness, the evidence from industry data and workplace case studies
reveals multiple and interdependent weaknesses. Statutory coverage of
minimum wage protection is generally limited due to absence of protec-
tion for workers without formal employment contracts (whether or not they
work in formal or informal businesses) and the widespread use of home
work in supply chains. The inadequacy of the real value of the minimum
wage in all countries was exacerbated in the extreme case of Bangladesh
where garment industry workers suffered long ‘hibernation’ periods of
no uprating despite continued increases in living costs. Furthermore, in
the many non-unionised workplaces, non-compliant employers exploited
workers’ fear of job loss or manipulated job grades and skill levels so as
to whittle down minimum rates. In South Africa, some employers even
sought to institutionalise sub-minimum wages by taking legal action
against minimum wage-setting bodies.
The chapter shows that the effectiveness of minimum wages is strongly
interdependent with the structure and practices of industrial relations
actors, especially trade unions. Unions are involved in the process of min-
imum wage fixing to a varied extent across the five countries, but also seek
to represent workers’ wage demands via collective bargaining and to reduce
the incidence of exploitative low pay that is revealed in this chapter. There is
a relatively hostile, anti-collective environment in Bangladesh and Pakistan
so it is no surprise that collective agreements are relatively absent and
unable to build proactively on minimum wage rates for garment industry
workers. Matters have improved in Cambodia although the increasing num-
ber of signed agreements lack substance, and in several countries there is a
worrying trend of employers encouraging ‘yellow unions’. The chapter has
nevertheless documented some significant and innovative developments,
including industry-wide institutional efforts and new collective representa-
tion of home workers, but in all countries far more progress is required to
build the necessary double-layered and complementary institutional protec-
tion via minimum wages and collective bargaining for workers.
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11 Minimum wages and
inequality mitigation in post-
dictatorship industrial relations
systems in Latin America
The case of Argentina, Brazil and
Uruguay
Elizardo Scarpati Costa and Marta Kahancová
Latin America is a region with a high level of wage and income inequali-
ties, which persist after turbulent economic and political changes between
the 1980s and the early 2000s. Compared with other countries of a similar
level of “human development” (as defined by the United Nations), Latin
American countries tend to have a far higher level of income inequality,
with all except Uruguay and El Salvador scoring a Gini coefficient above 40;
Brazil ranks highest in the region with a Gini of 53 (UNDP, 2019). The gen-
eral shift in economic policy from import-substitution industrialisation
to export oriented neo-liberal policies in the region also marked a shift in
labour legislation, industrial relations institutions and government involve-
ment in designing economic policy (Cook, 2002; Bensusán, 2015; Costa and
Costa, 2018). At the same time, the region grew on average 4% per year
between 2003 and 2012 despite the 2008–2009 financial crisis.1 These devel-
opments, coupled with political challenges related to changes in govern-
ment, inform the type and pace of changes in minimum wage policies and
their consequences for wage inequality.
This chapter investigates the discourses related to minimum wage set-
ting in three Latin American countries – Argentina, Brazil and Uruguay –
representing three different post-dictatorship industrial relations systems.
While these countries share a history of economic dictatorship and extensive
wage inequalities, in the last two decades they embarked on quite different
policy trajectories related to the interplay of minimum wage and other labour
market institutions, including collective bargaining, in seeking to mitigate
wide scale income inequalities. The chapter focuses on the changing strategies
of the state, unions and employers’ vis-à-vis the minimum wage policy in the
shifting economic and political context during the period 2003–2019, char-
acterised by economic transition, instability and growing wage inequalities.
1 Source: OECD, ECLAC (Economic Commission for Latin America and the Caribbean)
and ILO
236 Elizardo Scarpati Costa and Marta Kahancová
In some countries, governments implemented social surveys to uncover
if the national minimum wage systems needed adjustment in order to facil-
itate greater social equality. Therefore, the redistributive function of the
minimum wage remains at the centre of interests of governments in order to
combat the deeply rooted income inequality across Latin American coun-
tries (see Chapter 2, Rubery et al., this volume). While in most countries
in the region the state remains the chief architect of minimum wage policy
in the broader context of employment protection and income redistribu-
tion, the evolution of industrial relations suggests differing opportunities
for trade unions and employers to influence the minimum wage setting
procedures. While their role manifests itself differently in the three coun-
tries since 2013, the role of social partners in minimum wage policy has not
always been successful and evidence of a negotiated minimum wage policy
has been declining (Arim, 2016; Marshall, 2019; OIT, 2018; Brito et al., 2016).
This chapter focuses on the role of the state in the minimum wage setting
procedure, as well as the influence that unions and employers developed in
minimum wage setting through collective bargaining at the sector level. In line
with this book’s conceptual framework, we draw implications of these actors’
strategies in collective bargaining for shaping the general public discourse
about the function of the minimum wage as an instrument in wage redistribu-
tion policy (c.f. Bosch et al., 2009; Doellgast et al., 2018; Streeck, 2009).
The empirical focus on Argentina, Brazil and Uruguay is justified by
these countries’ historical, political and geographical contexts, because
they share the same national borders with a similar colonial past despite
different colonisers (Portugal and Spain). In addition, they experienced
dictatorial regimes in the same period (1976–1983). During the 1990s, their
governments were also similar in terms of further neoliberal openness of
the economy with policies of devaluation of minimum wage, privatisation
of sectors previously considered strategic by the state, tighter inflation con-
trol and floating exchange rate policy. Finally, these countries share a polit-
ical change movement that began with President Kirchner in Argentina,
with President Lula da Silva in Brazil and later also reached Uruguay. In
2005, the South American bloc Mercosur strengthened, in parallel, the
institutionalisation of minimum wage valorisation policies in the three
countries, and as a policy of income redistribution, but also supported by
new social assistance programs, which lasted uniformly in the region from
2002 to 2016.
Despite the above general similarities in political and policy trajectories,
the institutional design of the three studied countries shows great variation
(O’Connell, 1999). While all three countries are characterised by centralised
bargaining systems, the extent of state intervention in collective bargaining
differs from little intervention in Uruguay to extensive intervention in cor-
poratist countries Argentina and Brazil. In Uruguay, the limited impact of
the state on bargaining helped establish the stable sectoral bargaining sys-
tem with a plurality of involved trade unions. In contrast, the structure of
Minimum wages and inequality mitigation 237
bargaining partners is extensively regulated in Argentina and Brazil: While
in Argentina the state directly controls the bargaining process and evalu-
ates the economic impact of collective agreements, in Brazil the post-1988
constitution protects trade union autonomy and the state control is of col-
lective agreements is indirectly channelled via the system of labour courts
(O’Connell, 1999).
While the hegemonic political culture in the region strengthened the role
of the state, including in the area of wage policy, this chapter argues that
despite the strong, centralised impact of the state on minimum wage levels,
workers’ representatives and employers were nevertheless able to influence
the process and outcomes of minimum wage fixing. This influence mate-
rialises through sector-level collective bargaining, which serves as pattern
bargaining for the centrally defined minimum wage levels. Moreover, sec-
toral bargaining serves as a mechanism through which employers and trade
unions maintain their influence on the public discourse around the func-
tions of the minimum wage. This dual system allows the coexistence of a
more centralised state in the minimum wage setting policy, with a flexible
labour relations regime (c. f. Cook, 2002), even in Uruguay, which is the
most democratic case. As a last resort, the minimum wage is stipulated by
the executive (government), although there is collective bargaining before it
is fixed.
The chapter starts with a brief summary of the three countries’ economic
context, followed in section 2 by a review of their key characteristics of
industrial relations. Section three offers an in-depth overview of policy
formation regarding the minimum wage and its relation to collective bar-
gaining in Brazil, Uruguay and Argentina. Section four concludes with the
main argument that while the minimum wage is considered an important
resource in shaping wage levels and inequality in all three countries, the
extent to which social partners and collective bargaining processes are
interrelated with the minimum wage policy depends to a large extent on
political power.
11.1 The economic context

The basic economic indicators summarised in Table 11.1 show that the coun-
try selection covers three countries with different population sizes and GDP
per capita. While all three countries demonstrate a high share of informal
work, with Brazil leading with 41.3% of informal work, the official unem-
ployment rates are similar and oscillate between 10 to 12% (see Table 11.1).
Uruguay stands out for its relatively high GDP per capita, unemployment
slightly below 10 percent and a comparatively low share of informal work
(ibid.). 2019 marked a serious economic crisis in Argentina, resembling the
deep crisis of 2001. In turn, poverty increased and reached 32% of the pop-
ulation in 2019 according to the National Institute of Statistics and Census
of Argentina (INDEC).
Table 11.1 Basic economic indicators, 2019
Gini
Informal Global coefficient
Population GDP level GDP p.c. Unemployed work HDI (2010–2017
(million) (€) (€) (%) (%) (2018)* average)
Brazil 210 1,584,315 m 7,563 11.8 41.3 79 53.3

Argentina 45 442,598 m 9,947 10.1 35 40 40.6
Uruguay 3,5 50,463 m 14,630 9.8 25 52 39.5
* Human Development Index (HDI), country ranking out of 189 countries

Source: Brazilian Institute of Geography and Statistics (IBGE), National Institute of Statistics
(Uruguay), National Institute of Statistics and Census of Argentina (INDEC), International
Labour Organization (ILO, 2014), UNDP (2019).
With unemployment around 10% and comparatively high poverty rates

and shares of informal work, the statutory national minimum wage plays
an important role in mitigating inequalities and poverty levels. While the
incumbent governments of the studied countries recognised this challenge,
their responses differed in terms of strengthening government discretion
over wage setting versus a more decentralised approach to wage bargain-
ing between unions and employers and their associations. The next section
presents an overview of key bargaining institutions and minimum wage leg-
islation in each country.
11.2 Collective bargaining and minimum wage setting

Of the three countries, Argentina historically demonstrated the highest
state discretion and control over collective bargaining. Despite some decen-
tralisation efforts in the 1990s, the high state discretion remains in the form
of granting trade unions formal legitimacy through so-called Personería
gremial (PG) and maintaining an active role of the Ministry of Labour in
the coordinated wage bargaining process (Marticorena and D’urso, 2018).
In contrast, Uruguay demonstrates a quasi-unregulated bargaining system,
with bargaining practiced at the sector and establishment levels, but with
weak direct state involvement. The role of the state is limited also in dispute
settlement and arbitration procedures, and legislative support is provided
for decentralised, mostly sectoral/industry level bargaining (Quiñones and
Pucci, 2015). Finally, in Brazil, decentralised bargaining in the past 30 years
was limited while bargaining outcomes generally tended to replicate basic
legal standards outlined in government policy Ministério do Trabalho e
Previdência Social (MTPS), (BRASIL, 2016; Dieese, 2010).The State contin-
ues to invoke the old Labor Code declaring invalid any clause of a collective
agreement which directly or indirectly goes against the government’s eco-
nomic policy. Table 11.2 summarises the basic characteristics of bargaining
trends and procedures in all three countries.
Table 11.2 Comparing collective bargaining systems in Argentina, Brazil and
Uruguay
General
Characteristics State Intervention Centralization/Decentralization
Argentina Historically a highly State confirms trade union status Legislation centralises the
centralised state (personería gremial – PG)2 system; firm-level unions can
intervention into the determining who bargains; only receive PG if a sector-level
bargaining system labor ministry present union does not exist.
until decentralisation throughout the process. All Monopoly representation by
started in the 1990s. agreements must be registered unions with a confirmed PG
with an administrative status, represent members as
authority, which facilitates a well as non-members
powerful position of the state Restrictions on unions with
to consider the further impact recognition but without a PG
of bargaining practice on the status applied.
economy and consumption. Monopoly of collective
1994 Constitution recognises bargaining is recognised for the
governmental discretion as most Representative union.
priority over collective Collective bargaining practiced
bargaining or parts thereof in at sector and establishment
case of economic emergency. levels
The government’s unilateral
discretion strengthened in:
−− decisions whether strikes
are legal
−− involvement in mandatory
reconciliation disputes
−− imposing mandatory arbi-
tration where needed
Brazil High-level centralised 1988 Constitution protects union In 2016, trade union
intervention autonomy; state no longer able membership declined from 82,4
mitigated by the to confer union status or % to 74,46%
1988 Constitution. intervene in union In 2018, after the 2017 labor
The labour reform administration. reform (Law N°. 13.467/17),
in 2017 (Law N°. Intervention still exists but the number of collective
13.467/17) changed enforced through Labor Courts. agreements decreased by 29%
patterns of collective 2017 labor reform (Law N°. compared to the pre-reform
bargaining towards 13.467/17) considerably reduced period. Union status can
more bargaining the judicialisation of conflicts represent a profession by
decentralization. and introduced new ways of industry in geographic
From 2002, trade bargaining and prioritised territory. Law does not allow
unions have been individual dispute settlement. for firm-based trade unions.
practically The State continues to invoke the Trade Union can bargain at
incorporated into old Labor Code declaring firm level or sector level;
governmental policy invalid any clause of a collective oftentimes pursued a bi-level
making with the rise agreement which directly or strategy to avoid the salary
of a left-wing indirectly goes against the limits imposed by government
government until government’s economic policy. policy. Trend toward
2016. decentralization. 1988
Constitution provides that
workers in firms of more than
200 employees have right to 1
elected representative to
promote direct negotiations
with employer. Collective
bargaining it’s Decentralised at
firm level or collective
convention for compulsory
jurisdiction (different categories
at local level).
(Continued)
2 For more details about “personería gremial”, see Bensusán (2015); and Marticorena and
D’Urso (2018)
General
Characteristics State Intervention Centralization/Decentralization
Uruguay Bargaining system Since the 1985 legislative In 2005, the government
with low state weakening of trade union roles, approved a broad set of
intervention the collective bargaining system changes to Uruguay’s labor
remains unregulated. No law relations framework, calling for
defines or requires registration mandatory multi-sectoral
of unions or governs collective collective bargaining through
bargaining or conflict the “Consejos de Salarios”.
resolution. Mutual good faith The new law guaranteed greater
that agreements will be abided concessions to union leaders
underlies the system. During and activists as well as the
conflicts, unions are mainly expansion and
self-regulating via provisions in institutionalization of collective
their charters or collective bargaining processes for
agreements. In 2005, after the previously excluded categories
approval of Laws 10,449 and of workers, such as public-
18,566, lacking legal regulation school teachers, domestic
to define/recognise particular workers and rural workers.
types of unions. Unions remain With minor changes, this
mostly at the industry/sector system remains essentially the
level, according to the previous same till present days.
tripartite salary councils
(Consejos de Salarios)3.
Source: O’Connell (1999); Bensusán (2015); Brasil, Ministério do Trabalho e Previdência Social (MTPS)
2016; Dieese (2010).
Facing a dual challenge to promote decentralised bargaining on the one

hand, while maintaining governmental influence over bargaining on the other,
minimum wage legislation served as an important anchor for facilitating gov-
ernment involvement in collective bargaining. All three countries introduced
a statutory national minimum wage via legislation between the 1930s and
1960s (Marshall, 2019; Mazzuchi, 2011). Brazil introduced its minimum wage
legislation already in 1936 by Act No. 1854. Like other Latin American coun-
tries, Brazil then underwent a period of greater consolidation of the national
minimum wage. Regular increases to minimum wage levels were seen as a
core function of national collective bargaining procedures until 1964 when
this system was abandoned. In Argentina, changes to the statutory national
minimum wage were closely connected to the government’s economic policy,
while in Uruguay minimum wage setting was subject to a greater discretion
of the bargaining parties without direct state involvement.
11.3 Country case studies

This section zooms in on the actual process of minimum wage setting,
analyses the role of collective bargaining between unions and employers
and addresses how bargaining influences minimum wages in conditions
3 For more details about the history of the Salary Councils, see Quiñones and Pucci (2015).
4 Despite the existence of a national minimum wage, Brazil is administratively organised
as a federative republic. Some states in the country have regional minimum wage, always
above the national minimum wage floor.
characterised by unilateral state decisions over both minimum wage levels
and collective bargaining. A comparative evaluation of findings follows the
three case studies.
11.3.1 Brazil: The rise and fall of tripartism and union power in

minimum wage fixing
An increase in the national minimum wage in Brazil is supported by the
constitution, regardless of the political and ideological characteristics of
the current government. Currently, the Federal Constitution (CF) of 1988
establishes the right of workers to earn a minimum wage, which is regularly
adjusted, in order to preserve their purchasing power. The state is obliged to
adjust the minimum wage level at least by the previous year’s inflation rate.
Therefore, according to Article 7, clause IV of the SC states:
“These are the rights of urban and rural workers, as well as others aimed
at improving their social status: minimum wage, fixed by law, nationally
unified, able to meet their basic needs and their families with housing,
food, education, health, leisure time, clothing, hygiene, transportation
and social security, with periodic readjustments that preserve their pur-
chasing power, and their attachment to any purpose is prohibited.5”
Minimum wage setting is closely related to collective bargaining because

of the powers of the Tripartite Minimum Wage Commission. In 2004 this
system underwent further transformation by introducing the “Tripartite
Minimum Wage Commission”, which became responsible for setting the
minimum wage level and its adjustments. This committee comprises sev-
eral institutionalised actors, such as government representatives, business
representatives such as the National Confederation of Industry (CNI), the
Brazilian Confederation of Agriculture and Livestock (CNA), the National
Confederation of Trade in Goods, Services and Tourism (CNC), among
other confederations, and unions of various professional categories, both
national and regional, including CUT – Central Single Workers, UGT –
General Union of Workers, and CTB – Central Workers (DIEESE, 2010).
In Brazil, the professional categories have their own wage floors and dis-
tinct forms of collective bargaining for these. Indeed, these wage floors
are a constitutionally acquired right for the urban and rural workers of
the country,6 which establishes as a guiding principle that wage floors should
5 Full text of the law available at: <http://www.planalto.gov.br/ccivil_03/Constituicao/

ConstituicaoCompilado.htm> accessed February 1st, 2019. (BRASIL, 1988).
6 CF88 – Art. 7 “The rights of urban and rural workers, as well as others aimed at improv-
ing their social status, are: [...] V – wage level proportional to the extent and complexity of
work” (BRASIL, 1988).
Figure 11.1 Tripartite commission collective bargaining, 2005–2016.

Source: DIEESE, 2010
be negotiated by unions and employers. Furthermore, the value of each wage

floor must be determined by the extent and complexity of the work performed.
The policy of minimum wage valorisation increased in importance during
the period 2004–2016, hand in hand with growing trade union power over min-
imum wage determination. This trend is closely connected with the election in
2003 of President Lula da Silva, considered the most influential union leader
in Brazilian history. The president built his political career on ascendancy in
the trade union movement. As a result, the bargaining power of trade unions
increased considerably during this period, referred to as Lulism7. It was the
Lula government that introduced the policy of minimum wage valorisation
under tripartite decision (2004; implemented in 2005). This was practiced until
2016 through the mechanism of the minimum wage law and with the participa-
tion of the tripartite commission. Figure 11.1 shows the main actors participat-
ing in the process of negotiating the minimum wage in the country.
In 2007, the more organised unions agreed with government a rule for
base readjustments that guaranteed real increases in the minimum wage
as a percentage equivalent to the real GDP growth rate. This rule was
7 The “neo-developmentalism” carried out by “Lulism” meant the combination of social pol-
icies aimed at benefiting the working classes through the transfer of income through the real
increase in the minimum wage against inflation. Welfare programs as the main social policy
to rescue the precariat, the increase in the supply of credit to all social classes (preferably
for the middle classes and the political-economic elites) – is based on a partnership with big
capital, maintaining high interest rates, which favors foreign investment, in the country, and
the establishment of the floating exchange rate of the economy. Add to it the solid inflation
control and primary surplus targets to guarantee the payment of the public debt to the mar-
kets. “Lulism exists under the sign of contradiction. Conservation and change, reproduction
and overcoming, disappointment and change in the same movement” (Singer, 2012: 9).
Table 11.3 Trends in the national minimum wage in Brazil, 2009–2019*. Trends in
the value, readjustment and real increase
Nominal
Minimum Minimum Readjustment INPC Real Increase
Year Wage (€) Wage (R$) (%) (%)** (%)
2009 142,1 460,8 - - -

2010 203,1 510,0 9,68 3,45 6,02
2011 245,4 544,2 6,86 6,47 0,37
2012 257,5 622,0 14,13 6,08 7,59
2013 250,8 678,0 9 6,20 2,64
2014 222,3 724,0 6,78 5,56 1,16
2015 244,7 788,0 8,84 6,23 2,46
2016 204,1 880,0 11,68 11,28 0,36
2017 273,1 937,0 6,48 6,58 −0,10
2018 240,1 954,0 1,81 2,07 −0,25
2019 230,4 998,0 4,61 3,43 1,14
Source: DIEESE; countryeconomy.com

* The financial conversion of Real currency to Euro takes into account the current global market
values. As Brazil has a floating exchange rate policy in the last 10 years, the purchasing power
of the Brazilian minimum wage gradually changed in relation to Euros.
** INPC – Consumer price index is used to track inflation trends. It is calculated based on the
average price needed to buy a set of consumer goods and services in a country, compared to
previous periods.
formalised in 2011 by President Rousseff and made legally binding from

2015; at the time of writing, this law is still effective8.
Analyzing the evolution of the weekly minimum wage between 2009 and
2019, according to data obtained from the Inter-unions Department of
Statistics and Socioeconomic Studies (DIEESE), real increases to the min-
imum wage varied substantially: increases reached a maximum of 6.0% in
2010 and 7.6% in 2012, while stagnating or even declining in other years
(Table 11.3).
The average real income of employed workers was €497.70 at the begin-
ning of 2019, according to IBGE official data. This means that the Brazilian
minimum wage represents approximately 47% of real average income,
a figure that is declined in the last 10 years. Part of the problem is that
the minimum wage fixing process responds to both economic and politi-
cal pressures. Economic conditions are accounted for, such as economic
growth, inflation and household consumption. But politics also matters,
especially pressures exerted by deputies and senators (Parliament) on the
executive branch, as well as from civil society interests, including trade
unions. When unions succeed with increasing the wage floor in collective
8 Available at <http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2015/Lei/L13152.htm>
accessed August 5th, 2019.
bargaining agreements for specific occupation groups, they are simulta-
neously and indirectly more able to push for an increase in the national
minimum wage and vice versa.
Remarkably, the last decade prior to the turning point of a new presidency
in 2019, brought a paradigmatic change in the approval of the minimum
wage as a government policy. This change had started already in 2017 under
President Temer, but intensified from 2019 under President Bolsonaro. The
change relates to the idea of personification of public income policies in
the country, or even partisanship. Since 2019, minimum wage policy has
been transformed upon the initiative of the government led by President
Bolsonaro. The government modified the rules of valorisation of the mini-
mum wage policy from 2020. While the unions’ bargaining power increased
with the rise of Lulism from 2003, the opposite can be observed since 2016
that ended the Lulist era.
From 2017, the government sanctioned the largest change ever made in
the labour relations system of Brazilian society9, which comprehensively
changed more than two hundred articles from the Consolidation of Labour
Laws. The post-2019 Bolsonaro government aims to strengthen state discre-
tion over minimum setting and weaken trade union influence in minimum
wage valorisation. Therefore, to some extent, Brazil is witnessing shifts
between two types of wage setting systems, due to dramatic change in the
ideological approach of government.
In such a context of weaker labour justice, trade unions increasingly seek
wage setting via collective bargaining. The Labour reform of 2017 intro-
duced the possibility for employers to sign a collective agreement with a
union without the need for the union to consult its members. As a trade-
off for enabling wage bargaining, it is also no longer possible for unions to
appeal to the Labour Court in case of differing interests. In addition, collec-
tive wage bargaining may be replaced by negotiation between the individual
worker and the employer.10 In short, individual negotiation overrides the
law and collective bargaining; the worker may even negotiate individually
for termination of employment and compensation for any unpaid hours11. In
addition, unions will be subject to new regulations of worker representation
at the workplace, which allows representatives to negotiate directly with
9 Full text of the law available at: <http://www.planalto.gov.br/ccivil_03/_ato2015-2018/2017/

lei/l13467.htm> accessed February 1st, 2019.
10 As provided in art. 611–A, § 3º, CLT.
11 Legal Entity, known in Brazil as the process of “pejotisation” of work, represents the form
of work hiring, where the worker presents himself as a company providing services (legal),
but in fact being just a workforce (individual) and enter into a contract with another com-
pany (employer). In practice, this model removes from the worker the remaining labor
rights of the CLT, as many companies cheat on the provision of the 3th article of the CLT:
“any individual who provides services of an occasional nature to an employer, under his
dependence and upon a salary” (Brazil, 2017).
the employer on behalf of workers without the need to be affiliated with
unions. The reforms also abolish compulsory union contributions and end
the practice of mandatory wage bargaining and union approval in case of
contract termination.
Looking more closely at the issue of unions’ impact on the minimum
wage, the strength of unions, in part, lies in their capacity for political
articulation through union activism. At the same time, the more repre-
sentative the unions are, the greater the chance of political relevance.
According to data collected by the PNAD (National Household Sample
Survey), initiated in 2012 by the Brazilian Institute of Geography and
Statistics (IBGE), the unionisation rate in 2016 was 14.9% of the workforce
occupied in the country and decreased marginally to 14.4% in 2017. IBGE
shows that at the beginning of the historical series, in 2012, the percentage
of economically active unionised workers was 16.2%. This suggests that
there is a coincidence regarding the near stagnation of the national mini-
mum wage from 2016 to 2019 and the fall of unionisation to its lowest level
measured by the historical series. This association reinforces our argu-
ment that, on one hand, the bargaining power of unions in the country
is important in the policy of valorization of the minimum wage, and in
addition, it confirms the idea of hybridism in the Brazilian case as govern-
ments have exercised greater autonomy in setting the national minimum
wage since 2016.
Furthermore, in 2016, the impeachment process of former President
Dilma Rousseff took place. She represented a political continuity of the pro-
cess of valorisation of the policy of raising the national minimum wage. The
Temer government was not interested in maintaining valorisation above the
previous year’s inflation, politically depleting the tripartite collective bar-
gaining commission alleging a process of growing crisis. This ended a cycle
of a policy where of valorisation of the national minimum in view of the
almost unconditional support of the main trade unions for the economic
policies promoted by Lulism (Braga, 2014; Costa and Costa, 2018). In other
words, there is a kind of orphaning of Brazilian trade unionism with the
fall of the Rousseff government, with respect to the loss of unions’ influence
over government in setting the minimum wage.
Most recently, President Bolsonaro and his economic team have approved
the Budgetary Guidelines Law (LDO) for 2020, which stipulate a minimum
wage readjustment from 2020 based exclusively on inflation. This implies
that there will be no decision taken by the tripartite Minimum Wage
Commission, which according to the new government, will no longer be
important.
In sum, trends in Brazil show a greater centralisation of minimum wage
setting in the hands of government, while at the same time bargaining
decentralisation is gaining prominence after years of trade union support
for tripartite decisions over minimum wage rises.
11.3.2 Uruguay: The two-pronged role of salary councils in
minimum wage setting
In both Argentina and Uruguay, although the process of decentralization
of collective bargaining began in the 1990s, it was not until the 2000s that
the debate about raising the value of the minimum wage became central
in both countries. In Uruguay, minimum wage valorization became cen-
tral to the debate when the government reactivated the “Salary Councils”
in 200512. The Salary Council is a tripartite body composed by work-
ers’ representatives (PIT-CNT), businessmen (Cámara de Industrias del
Uruguay – CIU, y Cámara National de Comercio y Servicios del Uruguay –
(CNCS)) and the government, which in the Uruguayan case has a more
intense participation in the negotiation process, through the Ministry
of Labor and Social Security (MTSS). With the arrival of the “Frente
Ampla” (FA) by the government led by President Vázquez (2005–2010),
the Salary Councils changed the mechanism for setting minimum wages
for workers in different sectors and occupations across the economy. This
political and economic re-orientation was continued in the governments
led by Mujica (2010–2015) and again, after his reelection, Vázquez (2016
to date). Since 2005, Salary Councils have effectively negotiated collec-
tive agreements that aim to coordinate wage adjustments with the fixing
of the statutory national minimum wage (Uriarte, 2008), especially after
the adoption of the collective bargaining legislation of 200913. The coun-
cils not only negotiate collective agreements, but also influence statutory
national minimum levels and fix wage floors in each of the sector and/or
occupational agreements. Table 11.4 summarises the operation of Salary
Councils over time.
The consolidation over time of Salary Councils would require a particu-
lar and deeper analysis in view of their constant institutional instability, in
accordance with the characteristics of the political and historical moment
that the country has been going through since 1943 and its legislative
changes. Nevertheless, progress in the democratisation of collective bargain-
ing has been achieved. The discretion of Salary Councils over setting the
national minimum wage was strengthened with the re-instituionalisation of
the councils in 2005 (Arim, 2016). Although the national minimum wage in
Uruguay continues to be established by decree through the executive branch
and parliament aiming at its sustainable growth, in reality the role of Salary
Councils in setting the national minimum wage increased since 2005. At the
same time, wage floors for professional categories are defined by different
12 Full text of the law available at <http://legislativo.parliament.gub.uy/temporales/

leytemp9524080.htm> access September 18, 2019.
13 To learn more about the history of the Salary Councils, see Quiñones and Pucci (2015).
Full text of the law available at <http://www.impo.com.uy/bases/leyes/18566-2009/12>
access on September 27, 2019.
Table 11.4 Periods of operation of the Salary Councils
Time period Legislation name/number Authors’ evaluation
1943–1968 Law 10.449 (12.11.1943) Operational in terms of

minimum wage setting
1968–1985 Law 13.720 (16.12.1968) Functioning until 1978 due to
Decree-Law 14.791 (8.6.1978) the rise of military dictatorship
1985–1992 Law 10.449, art 83 of Law 16.002 Operational in terms of
(13.12.1988) and Decree 178/985 minimum wage setting
(10.5.85)
1992–2005 - Failed to influence minimum
wage setting
From 2005 to Laws 10.449 and 18.566 Operational in terms of
the moment (30.9.2009) minimum wage setting
Source: Ministry of Labor and Social Security of Uruguay
groups and internal subgroups of Salary Councils. It seems that the national
minimum wage serves as a minimum standard for the bargaining of wage
floors by the Salary Councils, while at the same time the Councils have a
direct influence on the uprating of the national minimum wage.
In this sense, macroeconomic factors show that from 2005 onwards the
national minimum wage in Uruguay started to have a considerable real
increase; Table 11.5 documents trends over 2009–2019. Marshall (2019)
Table 11.5 National minimum wage in Uruguay, 2009–2019 evolution of value,

readjustment and real increase over the past 10 years*
Nominal
Year Wage (€) Wage ($) (%) (%) (%)
2009 233,0 4.441,00 - - -

2010 222,4 4.799,00 8 6,93 1,07
2011 212,9 6.000,00 25 8,60 16,4
2012 230,0 7.200,00 20 7,48 12,52
2013 239,2 7.920,00 10 8,52 1,48
2014 235,3 8.960,00 13 8,26 4,74
2015 235,0 10.000,00 11,6 9.44 2,16
2016 233,5 11.150,00 11,5 8.10 3,4
2017 247,9 12.265,00 10 6.55 3,45
2018 285,4 13.430,00 9,5 6,2 3,3
2019 308,0 15.000,00 11,7 6,2 5,5
Source: National Institute of Statistics (INE); countryeconomy.com

* The financial conversion of Uruguayan peso currency to Euro takes into account the current
global market values in respective years
** INPC - Consumer price index is used to track inflation trends. It is calculated based on the
average price needed to buy a set of consumer goods and services in a country, compared to
previous periods.
shows that the national minimum wage in Uruguay increased by approx-
imately 250% in nominal value between 2009 and 2019, while the govern-
ment remained the main actor in the setting and implementation of the
minimum wage. This mechanism served as a historical rescue of low-in-
come segments of Uruguayan society who had previously faced high levels
of deprivation.
Since 2009, according to data from the National Statistics Institute (INE),
the real minimum wage increased above inflation in all consecutive years
(Table 11.5). The average real monthly income of employed workers in all
types of work reached €820.65 in 2019, according to information obtained
from Uruguay’s Economic Investigation Center (Cinve). This means that
the minimum wage represents approximately 46% of real average income,
which is a figure similar to Brazil.
In this sense, the Uruguayan government relies on the Salary Councils
as an advisory board and perceives positive returns to its economic pol-
icy in terms of not only the revitalisation of the minimum wage, but also
as a regulator of certain labour market conditions. It is also notable that
the economic policy pursued over the past 14 years has tried to separate
the national minimum wage from other types of social benefits. This has
allowed a change in the approach towards emphasizing the role of the min-
imum wage as an inclusive public policy, while maintaining the character
of collective bargaining, thereby creating a virtuous trajectory of real wage
development.
Analytical evidence suggests that the success of the minimum wage
promotion policy in the country, supported by the Salary Councils,
can be explained first by the government’s willingness to promote a
significant increase in the national minimum wage, promoting greater
economic and political democratisation, and second by the bargaining
power of Uruguayan trade unions. According to the ILO (2014), the
rate of unionisation in the country in 2018 was 33%, and the unions
maintained their important position in the Salary Councils. This is
demonstrated by the mostly tripartite or bipartite structure of 230
agreements adopted by Salary Councils during the period 2005–2019
(see Figure 11.2).
In sum, Uruguay demonstrates a case of successful and continuous com-
mitment to a long-term negotiated minimum wage setting policy compared
to Argentina and Brazil. The evolution of the national minimum wage
occurred in a policy context that explicitly aimed to gradually decrease lev-
els of wage inequality and poverty by involving Salary Councils in the pro-
cess of wage setting. This policy has been respected by governments since
2005 and yielded a positive influence on poverty mitigation: While the pov-
erty rate reached about 32% of the country’s population in 2006, by 2018
this rate was as low as 8.1% according to sources from the National Institute
of Statistics (INE).
Figure 11.2 Structure of agreements at salary councils, 2005–2019.

Source: authors’ calculation based on data from the Ministry of Labour and Social Security (MTSS)
11.3.3 Argentina: Compromising the effectiveness of national

minimum wage policy
According to Marshall (2019), the “living and mobile minimum wage” was
used as a wage reference only in the private sector until 1991 when the national
public sector was included through Law No. 24,013. Kostzer (2006) states that:
“The living and mobile minimum wage [the national minimum wage]
made up of decades by the central tools used in Argentina to regulate
the labor relations of the Fordist accumulation regime, characteristic
of the so-called welfare state. Its purpose was to serve as a basic indi-
cator of salary compensation in different sectors, to establish a socially
acceptable floor in the consumption patterns of the population and in
function of each specific reality.”
(Kostzer, 2006: 35)
Following the political and economic crisis that struck the country in 2001,
and the transitional government in place until 2003, the election of President
Kirchner (2003–2007) marked the beginning of the political period known
as Kirchnerism, which continued under President Fernández Kirchner
(2007–2015). According to Marshall (2019), the adjustments in the minimum
wage promoted in 2003–2006 caused the real value to double with respect to
the 1990s, many times above inflation. In addition, the collective bargaining
process was reactivated from 2003, after the halting of negotiations during
2000-2002, transferring wage increases by sector through so-called “fixed
sums”; this was designed to maximise base salaries relative to higher paid
categories in each collective agreement, taking into account the improve-
ment of labour market indicators and economic growth.
As in the Brazilian and Uruguayan case, the minimum wage is defined
annually within the scope of a tripartite National Council, known as
the National Council of Vital, Minimum and Mobile Wages (CSM). The
Council is composed of 16 representatives of employers and 16 unions
(Kostzer, 2006). These representatives are selected by the president jointly
with the government for the period of four years as representative of the
tripartite council. During the 1990s, the minimum wage had stagnated due
to the economic policy of dollarisation of the Argentine economy.14 This
situation changed from 2003, when the minimum wage started to increase
significantly upon the implementation of the new wage policy.
According to Kostzer (2006), the composition of the National Council is
determined by the government. Decisions concerning the evaluation work of
the minimum wage are then carried out by the office of either the President or the
Ministry of Labor. In addition, the Council operates through tripartite negotia-
tions on minimum wages with the power to evaluate six specific topics (Box 11.1).
Box 11.1
Remit of the tripartite National Council in Argentina

• Periodically determine the minimum wage
• Periodically determine the minimum and maximum values and the per-
centage provided in Article 118, corresponding to the first four months of
unemployment benefit.
• Approve the guidelines, methodology, procedures and standards for basic
basket definition that becomes a reference for determining the minimum
wage
• Establish the tripartite technical committees referred in Article 97 (a) of
the Argentine Constitution.
• Define guidelines for the delimitation of informal activities in accordance
with article 90 of this law.
• Make recommendations for the development of employment and voca-
tional training policies and programs.
• Propose measures to increase production and productivity.
Source: Kostzer (2006)
14 The dollarisation of an economy means that the country adopts the dollar as its official
currency, eliminating its national currency. Dollarisation is a choice of monetary policy
that protects the country from speculation against the exchange rate.
Table 11.6 National minimum wage in Argentina, 2009–2019* evolution of value,
readjustment and real increase over the past 10 years
Nominal
Year Wage (€) Wage ($) (%) (%) (%)
2009 255,8 1.440,0 - - -

2010 339,4 1.740,0 24,29 22 2,29
2011 379,5 2.300,0 32,18 22,8 9,38
2012 457,4 2.670,0 16,09 10,8 (25,3) 5,29 (−9,21)
2013 452,1 3.300,0 23,91 20,8 3,11
2014 397,1 4.400,0 33,33 23,9 (38,5) 9,43 (−5.17)
2015 553,9 5.588,0 55,22 30 25,22
2016 452,6 7.560,0 35,29 (41) −7,51 (−5,71)
42,8
2017 470,8 8.860,0 30,10 24,8 (26,9) 5,3 (3.2)
2018 263,6 11.300,0 34,90 47,6 −12,7
2019 270,3 16.875,0 49,33 53,5 −4,17
Source: INDEC, Ministry of Production and Labor, countryeconomy.com.

* The financial conversion of the Argentine Peso to Euro takes into account the exact year of
conversion of the Argentine minimum wage due to the historical particularity of the country’s
economy. Argentina is the only case where the increase or decrease in the minimum wage
happens more than once during the year. The country has been living for decades with the
serious problem of inflation. Therefore, the table uses the month of the last increase in the
minimum wage in the relevant year. In addition, historically, Argentine currency (Argentine
peso) has a great volatility in the global market and a strong constant devaluation when con-
verted to Euro for example. In some years, the increase in the minimum wage may have had a
negative real increase, due to economic camouflages that were promoted by the government
regarding the real inflation rate of the country. In 2012, 2014, 2016, 2017 the inflation rate data
released by INDEC (State), strongly disagreed with various internal and external economic
agencies on the reliability of data. They released their own inflationary data, which is included
in the table next to government data.
Despite the beginning of a new political cycle at the end of 2015 with the
election of President Macri (2015–2019), which was opposed to the model
implemented by Kirchnerism, the National Council was preserved and con-
tinued to exercise its institutional functions.
The evolution of the Argentine minimum wage after 2009 suggests extreme
volatility with both upwards and downwards shifts in its real purchasing
power. This is caused by the notorious high inflation in the Argentine econ-
omy, as shown in Table 11.6.
Finally, the average real income of employed workers (all types of work)
was €544.76 until July 2019, according to information obtained from the
Ministry of Production and Labor. As a result, the minimum wage of
Argentine workers is approximately 45% of the real average income.
Returning to the issue of collective bargaining, despite the fact that its
unionisation rate is second highest (at 28%) in Latin America, following
Table 11.7 Collective bargaining by sectors,
2009–2017
Number of Collective
Year bargaining rounds agreements (%)
2009 1331 6,4

2010 2038 6,5
2011 1864 5,7
2012 1744 3,7
2013 1699 4,1
2014 1963 5,1
2015 1957 5,3
2016 1731 3,1
2017 1004 3
Source: Marticorena and D’Urso (2018).
Uruguay (Universidad Nacional de San Martín, Argentina)15, during the

period 2009–2017 the number of concluded sectoral collective agreements in
sectors with bargaining decreased (see Table 11.7). This evidence suggests a
discontinuity of bargaining policy inaugurated in the period of Kirchnerism.
Nevertheless, the real impact of the decline in the number of agreements on
average salary developments ought to be the subject of future research.
In sum, despite the effort to establish a clear policy of valorisation of the
statutory minimum wage during Kirchnerism (2003–2015), and even contin-
ued under the Macri government16 Argentina failed to overcome the macroe-
conomic challenges caused by the dollarisation of its economy that climaxed
in the 2001 crisis; from 2002, the country switched to a floating currency
rate and no longer fixed the peso with the US dollar. In addition, the ques-
tion of the reliability of economic data, especially the rate of inflation, and
the constraints imposed by a series of multi-billion dollar loans from the
International Monetary Fund, reveal a problem of structural mal-adjust-
ment in the economy that has decisively compromised the effectiveness of
minimum wage policy as a regulatory tool. At the time of writing (mid-2020),
the country is under an economic “rescue” program managed by the IMF.
11.4 Conclusions
This chapter compared the development of minimum wage setting policies
and their relation to social dialogue and collective bargaining in three Latin
American Countries: Brazil, Uruguay and Argentina. The chapter shows
that minimum wages have been actively used as part of a governmental
15 Full text of the law available at <https://www.relatsargentina.com/documentos/RA.1-

ORG/RELATS.A.ORG.TomadaSchleser.Maito.pdf> access on September 21, 2020.
16 which originates from a political aspect of “Argentine Peronism”.
policy to mitigate high income inequality in all three countries. Nevertheless,
the relationship between minimum wage setting and collective bargaining
differs across these countries, as well as over time, in terms of both the influ-
ence of trade unions, employers and social dialogue processes on minimum
wage setting (“inwards-oriented interactions”) and the tensions emerging
from minimum wage policy versus collective bargaining as regulatory tools
(‘outwards-oriented interactions’) (see the concluding chapter in this vol-
ume). Electoral cycles and political support for a negotiated minimum wage
setting play an important role in all three countries. During the regimes of
left-wing or socialist governments, the evidence suggests greater political
will towards facilitating trade union involvement in minimum wage setting
via bargaining. Such trade union involvement in national wage bargain-
ing tended to be supported by an increase in sector-specific wage bargain-
ing that used the national minimum wage as a benchmark. Nevertheless,
changes in government in Brazil and Argentina were associated with a turn
away from the policy of a negotiated minimum wage – specifically in Brazil
under Bolsonaro and Argentina under Macri. Uruguay with its continuous
political commitment to negotiated minimum wage setting is an exception
to this broader trend in the region.
The minimum wage has nevertheless been an important policy tool in
inequality mitigation. In the economic history of Brazil, whenever the share
of workers in the formal economy increased, despite working for minimum
wages the average wages in the economy also increased. By fostering an
institutionalised minimum wage as a state policy and thus fighting against
casual informal work, the government contributed to a reduction of poverty
and mitigation of income inequalities. This was observed as a “domino” or
“lighthouse” effect (Medeiros 2015); in the author’s own words:
“[…] the rise in the minimum wage, the average wage paid in informal
employment and the income from self-employment approached the sal-
ary paid in formal employment […] with the reduction of unemployment
and growth of formal employment, remuneration in these activities
tends to converge with minimum wage […] the minimum wage has been
established as a reference and negotiation basis for income formation
for both employers and employees.”
(Medeiros, 2015: 288)
In Argentina and Brazil, while decisions over minimum wage increases

were centralised in the hands of government, the role of centralised collec-
tive bargaining at the sectoral level diminished. Long-term trends suggest a
strong governmental discretion over minimum wage setting combined with
the decentralisation of bargaining. The growing governmental power can
be partly explained by broader economic policies, such as the dollarisation
of the economy in Argentina and fighting fierce inflation, of which the min-
imum wage setting policy is crucial. Finally, the role of the minimum wage
in wage inequality mitigation closely interacts with the need to improve
incomes among workers in the informal economy in all three countries. The
precise nature and extent of the “lighthouse effect”, of the minimum wage
on working conditions in the informal economy demands further research.
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Part IV
Conclusion
Lessons for theory and practice
12 Conclusion
Understanding the multiple interactions
between institutions of minimum wages
and industrial relations
Damian Grimshaw, Irene Dingeldey,
Thorsten Schulten
As with all labour institutions, minimum wages around the world share univer-
sal principles of design and intent but are not uniform in their application or
functionality. The nine empirical chapters in this book add to a growing inter-
est among social sciences scholars (especially employment relations and politi-
cal economy) in disentangling the context-specific characteristics of minimum
wages, with special attention to country and sector conditions and the diverse
roles of trade unions, employers and governments. In the tradition of compara-
tive institutionalist research, and with an eye on international policy formulation,
the purpose of this book is to highlight how specific contingencies fundamentally
influence the functioning and effectiveness of minimum wages. This means that
the minimum wage in France, for example, can be expected to play a distinc-
tive role in the labour market and to interact differently with social policy and
employment relations, as compared with the minimum wage in say Germany or
in Slovakia. Comparisons between developed and developing countries point to
even more marked dissimilarities, reflecting differences in institutional resources,
the reach of trade unions and the size and influence of the informal sector.
This argument does not lessen the political power of a minimum wage’s
universal principles. In all regions of the world, the intent of a minimum wage
is to fix a minimum amount of remuneration that protects a worker against
exploitative pay. It is the strength and significance of this universal principle
that explains why it is one of the most widely implemented labour market
interventions. There is near consensual agreement that if left unregulated,
labour markets do not generate decent wages for all workers. A minimum
wage is therefore first and foremost a distributive instrument (Freeman,
1996) and it can have a significant positive effect in reducing wage inequal-
ity, as is consistently shown in analyses of both developed and developing
economies.1 Yet its distributive effects are not automatic or one-dimensional.
The egalitarian promise of a minimum wage can mean different things in
different contexts – ranging from a tool to combat in-work poverty or to raise
1 Recent empirical evidence includes Bossler and Schank (2020), ILO (2020), Kristal and
Cohen (2017) and Maurizio and Vazquez (2016).
260 Damian Grimshaw, Irene Dingeldey and Thorsten Schulten
pay for female-dominated occupations, to boosting labour’s income share
against that of shareholders. Moreover, its equality-enhancing potential may
be constrained by, or bump up against, the strategies of governments, trade
unions and employers, each of which may be pursuing policies and practices
with an alternative distributive outcome in mind.
With improved knowledge about the diverse complementarities and con-
tradictions in the way a minimum wage is embedded and how it functions in
a country, we can develop clearer theoretical ideas about its holistic effects.
Moreover, knowing that wages perform multiple functions in capitalist soci-
eties (see Rubery, Johnson and Grimshaw, Chapter 2) helps us to appreciate
the indeterminant forces shaping minimum wages in society. In this conclud-
ing chapter, we return to the central questions posed at the beginning of this
book, which were to understand the multiple interactions between institutions
of minimum wages and of industrial relations at country and sector levels and
assess how these different types of institutional interactions shape the value of
minimum wages. A first interaction is “inwards-oriented”, so called because
it involves the viewpoints, interests and direct actions of trade unions and
employer bodies in shaping statutory minimum wage rules – from campaign-
ing for a new statutory minimum wage to consulting over its level or arguing
for new rules about which workers are protected. A second interaction is “out-
wards-oriented” since it consists of the points of conflict or complementarity
between minimum wage rules and institutions of collective bargaining. The
evidence in this book demonstrates that both inwards and outwards inter-
actions are dynamic, especially in response to the changing power resources
of unions and employers, as well as to their strategies towards wages for low
paid workers. Moreover, the interaction type tells us a great deal about the
relative ability of different social actors to shape the value of the minimum
wage, although, as we show below, there is no single one-to-one mapping.
We conclude this book by calling for more interdisciplinary research that
considers how to repurpose minimum wage policy. While typically presented
as a labour market policy instrument, minimum wages are also a critical
component of social policy, macroeconomic policy and employment rela-
tions policy. Minimum wage policy formulation has long been dominated
by mainstream economics research, yet its obvious relevance for other pol-
icy arenas is attracting important contributions from social policy, feminist
economics and industrial relations scholars. We believe that a more rounded
appreciation of its multi-functionality and multi-layered embeddedness in
economy and society will produce richer policy insight.
12.1 Inwards interaction: the role of trade unions

and employers in minimum wage fixing
The evidence in this book clearly demonstrates that the design, operation-
alization and impact of minimum wages are intertwined with a country’s
traditions and institutions of industrial relations. This section provides a
Conclusion 261
comparative overview of ‘inwards-oriented interactions’, which occur when
the views of unions and employers influence, or are incorporated into, the
fixing of minimum wages.
In fixing a statutory minimum wage, it is good practice for governments
to consider the views of trade unions and employers prior to taking deci-
sions about changing the minimum wage rate. For the International Labour
Organisation, the incorporation of “evidence-based social dialogue” is one
of its core principles for minimum wage policy – for the following reasons:
“[Social dialogue] provides policymakers with important information for

effective policy design, improves the chances of buy-in (ownership) and
therefore effective implementation, and advances social and industrial
peace and stability by minimizing misunderstandings and tensions.”
(ILO, 2016: 24)
However, this book points to considerable variety in the quality of inwards

interaction, as well as divergence in recent trends. Germany’s new statutory
national minimum wage, introduced in 2015, represents an institution that
in design and application has so far been positively responsive to social dia-
logue. The unions originally argued fiercely over the demand for a statutory
minimum wage, but they then led one of their most successful political cam-
paigns. The new German minimum wage law places Germany’s unions and
employer bodies in a strong position as representatives on the newly estab-
lished Minimum Wage Commission, even though declining collective bar-
gaining coverage in some sectors was a reason for the increase of low-wage
employment. Moreover, and unusually compared to other countries, the
new law prioritises collective bargaining in establishing the guiding wage
pattern; minimum wage adjustment must follow the trend growth of col-
lectively bargained average wages, which grants further authority to social
partners. As such, Germany’s institution of minimum wage fixing proac-
tively bolsters the power resources of both trade unions and employer bod-
ies and is widely perceived as resulting from “quasi negotiations” between
social partners (Bosch et al., Chapter 6).
In the absence of a statutory minimum wage, Sweden and perhaps espe-
cially Norway or Italy may well follow the path of Germany in future years.
For now, however, the bulk of low-wage workers are still protected by collec-
tive bargaining. Nevertheless, it is notable that instances of poverty inducing
wages while rare in Sweden and Norway are a growing problem in Italy. The
minimum wages fixed in different sector collective agreements in Sweden,
Norway and Italy are coordinated horizontally between sectors and verti-
cally with firms. However, protective gaps are emerging, especially in light of
increasing use of posted workers and migrant workers in low-wage sectors. The
evidence suggests that Swedish unions are better equipped than Norwegian
unions to secure wage floors for those workers and employers that fall outside
collective agreements (Also and Eldring, Chapter 3). The difference lies in the
surrounding architecture of institutions that provide stronger “resources”
for Swedish unions (Doellgast and Marsden, 2019), especially the right to
take industrial action to force service providers to sign a posting collective
agreement and the legal obligation (set out in the 2008 Immigration Act)
to assess whether employers of migrant workers are hiring on equal terms
to those in the sectoral collective agreement. In Italy, a new statutory min-
imum wage is on the political agenda but neither unions nor employers are
in favour. This is largely because high and stable collective bargaining cov-
erage (around 80%) allows unions and employers to proactively negotiate
minimum wages for different sectors in line with productivity and living
standards (Molina, Chapter 4).
In the nine developing countries reviewed in this book, it is notable that
tripartite consultation, of varying forms and degrees of influence, does play a
role in minimum wage fixing. In South Africa, as in Germany, the considera-
ble experience of unions and employer bodies in consulting over industry-level
minimum wages is likely to be invaluable in their representation on the newly
established Minimum Wage Commission (introduced in January 2019). The
case of Uruguay also suggests a strong institutional dynamic between social
partners’ roles in the spheres of collective bargaining and minimum wage set-
ting (Scarpati Costa and Kahancova, Chapter 11). In other countries, however,
experience and expertise are either lacking or not adequately called upon by
government in the minimum wage fixing process. The reasons are complex but
relate to the underdevelopment of industrial relations activities such as collec-
tive bargaining, the exclusion of social partners from realms of economic and
employment policy (for example, during periods of right-wing government rule
as we find in Brazil) and, especially in Bangladesh, Indonesia and Pakistan, an
anti-union approach by the state involving decades of on-off repression and
curtailing of union activities (Grimshaw and Muñoz de Bustillo, Chapter 10;
van Klaveren, Chapter 9; Scarpati Costa and Kahancova, Chapter 11).
Given this context, it is especially important to understand the role of
social dialogue in minimum wage fixing in developing countries and to
ask whether this can provide a platform to expand the influence of joint
regulation of employment conditions in the formal and, in particular, to
informal sectors. In Bangladesh and Pakistan, the tripartite minimum wage
boards set complex grids of wage rates by job position and skill – with rates
for seven grades and for apprentices in the Bangladeshi garment industry
for example. In Indonesia too, minimum wage fixing has for certain peri-
ods provided a forum for unions to demonstrate to their members what
they are doing to combat wage poverty. There are functional similarities
therefore with a collective wage agreement. Nevertheless, the government
retains authority. So, while it establishes an important realm for consulta-
tions between social partners, this is not evidence of functional equivalence
between the two wage-fixing institutions. The long periods of minimum
wage ‘hibernation’ in Bangladesh underscore its relative dysfunctionality
(Grimshaw and Muñoz de Bustillo, Chapter 10) and in Indonesia, where
Conclusion 263
collective bargaining institutions are urgently needed, the idea that social
dialogue in minimum wage fixing might be a platform for strengthening col-
lective bargaining is said to be “rather illusory” (van Klaveren, Chapter 9).
The relationship between social dialogue and government authority in
minimum wage fixing is also a key concern in the chapters covering Southern
Europe, France and Central and Eastern Europe where there has been an
observed swing to unilateral government decision-making. One of the bene-
fits of having social partners involved in the regular negotiation of minimum
wage rates is that it can be an effective bulwark against governments hijacking
minimum wage policy, whether for populist purposes – hiking the rate before a
national election for example – or as a knee-jerk response to a macroeconomic
shock – cutting or freezing the minimum wage during a recession for example.
The chapters provide ample evidence of the latter since they cover the 2008–
2009 economic crisis and the policy responses instigated by the Troika in coun-
tries identified as posing a risk to the stability of the Euro. Greece overturned
decades of tradition and enforced a new unilateral role for government to fix
the minimum wage, starting by cutting the adult rate by 22% in 2012. Social
partners had to wait seven years before a formalised consultation process was
re-established. During 2019–2020, both unions and employers continued to
press for a return to the pre-Troika framework that fixed the national mini-
mum wage in a collectively negotiated agreement (Molina, Chapter 4).
Spain and Portugal also witnessed the imposition of unilateral state con-
trol over the minimum wage in the years after the economic crisis but then,
like Greece, re-established consultation processes. However, unlike Greece,
the Spanish and Portuguese governments have set ambitious medium-term
targets of above-inflation raises in the minimum wage, amounting to a rise
of 20% over four years in Portugal (2016–2020) and a one-off boost of 22% in
Spain (2018–2019), with further rises planned (see Figure 12.1).2 In both cases,
social dialogue is said to have played a less significant role than governmen-
tal politics (Molina, Chapter 4). Notably, while left-wing governments are
pursuing this goal in Spain and Portugal, the cases of the UK or Hungary for
example demonstrate that the left does not have a monopoly on this agenda.3
2 In Portugal the minimum wage increased from €530 in 2016 to €635 in 2020, an increase
of 19.8% over four years. In Spain, the minimum wage was raised from €736 in 2018 to
€900 in 2019, an increase of 22.3% in just one year. Moreover, the 2019 rise was the first
of several designed to ramp up the minimum wage to reach 60% of median earnings by
2024 <www.wageindicator.org/salary/minimum-wage/>. In both countries, the monthly
rate is paid over 14 months and so under-represents the value by approximately 17% if
re-estimated for 12 months. In both countries, annual inflation has averaged less than 2%
during recent years (see, also, Molina, this volume).
3 In 2015, it was a right-wing government in the UK which fixed the target of raising the
national minimum wage to 60% of median earnings by 2020. The government then set a
higher target to reach two thirds of median earnings by 2024. In Hungary, it was a right-
wing government that unilaterally increased its minimum wage from HUF 25,500 to HUF
40,000 in 2001 (57%) and then to HUF 50,000 in 2002 (25%) (Grimshaw and Bosch, 2013).
Figure 12.1 Country examples of government imposed minimum wage cuts, freezes
and upratings.
It appears then that in several countries more direct government action in

recent years is generating above-inflation rises in the minimum wage. The same
is true in Bulgaria, which suffered a three-year freeze after the economic cri-
sis but then benefited from a government commitment to raise the minimum
wage significantly during 2013–2019 by approximately 80% – despite frequent
objections from trade unions and employers that government had side-lined
social dialogue (Kahancova and Kirov, Chapter 5). Slovakia has also witnessed
significant minimum wage rises recently, well above average earnings growth,
thanks largely to unilateral government action to top up the automatic indexed
uprating. While such government actions bring to mind France’s coup de pouce,4
it would appear the French state has for many years been more likely to follow
the recommendation of its “group of experts” – a group of mainly neoclassical
economists; the last such pouce was in 2012 (Delahaie and Vincent, Chapter 8).
12.2 Outwards interaction: The inter-relationship between

collective bargaining and minimum wages
The institutional interactions between minimum wages and social dialogue
are not confined to an inwards-oriented form. They are also outwards-ori-
ented in the sense that they concern points of connection with the wider
4 In France, when the government enacted a higher increase than that stipulated by law, it
was widely referred to as a coup de pouce, literally a “boost” (Gautié, 2010).
Conclusion 265
institutions of collective bargaining, especially the wage bargaining strate-
gies of unions and employers in negotiating sector and firm level collective
agreements. Both unions and employer bodies may exhibit conflicting and
contradictory positions towards minimum wage policy from their positions
as collective bargaining actors. Tensions arise especially where minimum
wage policy is at odds with specific conditions experienced at sector or firm
level, notably market conditions, labour supply issues and cost pressures.
This of course also means that the “inwards” orientation of social dialogue
described above is necessarily infused with the viewpoints and strategies
associated with collective bargaining. There may also be a strong comple-
mentarity of strategies and viewpoints, likely reflected in a combination of
strong forms of both inwards and outwards interactions.
The role of social actors has been at the centre of the book. The evidence
suggests that it is unions that most consistently campaign to raise mini-
mum wages to a decent standard. The wider context of shifting trends in
union power and collective bargaining coverage are important factors to
appreciate. In certain circumstances, it makes sense for unions to lobby
for higher statutory minimum wages as a means to help boost collectively
agreed wages even if this means temporarily overtaking wage rates in col-
lective agreements. Where unions lack power compared to the employers,
the statutory pressure of a rising minimum wage provides a vital counter-
vailing instrument to lift collectively agreed wages that are too low, as the
experience from Germany suggests (Bosch et al., Chapter 6). For their part,
employers may exhibit shifting and conflicting views towards minimum
wage policy. For specialist outsourcing companies, for example, minimum
wages that are too low may conflict with a need to shore up the reputation
of the company as a decent employer (especially if minimum wage rates
fall below norms of a living wage), yet too high minimum wages may eat
into the cost advantage on which outsourcing business typically relies upon.
Overall, therefore, the question as to what actors are seeking to achieve from
a minimum wage is far from straightforward and requires detailed analysis
of the sort presented in this book.
As we argued in Chapter 1, there are a variety of forms of interaction
between minimum wages and collective bargaining, each shaped by the
‘institutional distance’ and their relative influence on overall wage-fixing.
Table 1.2 in Chapter 1 specified five “ideal types” of institutional interac-
tions with corresponding characteristics regarding the level of collective
bargaining coverage and the value of the minimum wage. Answering our
initial questions, “How does minimum wage setting interact with collec-
tive bargaining at the country and sectoral levels?” and “How do different
ideal types of institutional interaction shape trends in the value of minimum
wages?” this section applies these ideas to the empirical evidence presented
in this book. Of interest is not only the characterisation of different devel-
oped and developing countries, but also the potential for complex hybrid or
mixed effects captured by the empirical focus of the book on specific sectors.
12.2.1 Country ideal types
We begin the comparative analysis by examining how the different countries
align with the characteristics of the different ideal types. Four of the five
ideal types are presented in Figure 12.2.5 The four types prove valuable in
characterising the country-level institutional dynamics in 17 of the coun-
tries covered in this book. We turn to those countries that fall outside these
ideal types (Slovakia and the Netherlands), as well as the distinctive sector
characterisations that prevail in many of the countries, below.
The first type, “Isolated minimum wage”, characterises the country-level sys-
tem in six countries. Because collective bargaining only protects a small frac-
tion of the workforce (less than 30% in all six countries), the statutory minimum
wage affords the only protection for most workers against exploitative levels of
pay. Importantly, this ideal type allows for wide variation in the value of the
minimum wage; in other words, there is ample scope for “institutional inde-
terminacy” (see Deakin and Sarkar 2008) regarding the specific consequences
for minimum wage value. What this means in practice is a strong role for the
state in determining the minimum wage value in a context of relatively weak
outwards interaction, weak power resources of the social partners and a likely
weak inwards orientation also, although the latter varies with the political ori-
entation of government towards unions’ role in economic and social policy.
Figure 12.2 Ideal type institutional interactions with static country illustrations.
Source: authors’ compilation drawing on ideal types set out in Chapter 1, Table 1.1. Data for low,
medium and high levels of collective bargaining coverage and minimum wage value are detailed
in Table 12.1.
5 The “Distant co-existence” type, which refers to a situation of high collective bargaining
coverage with negotiated wage floors well above, and fixed independently from, the mini-
mum wage, is not presented since in the time under investigation it does not represent very
well the general pattern observed for any of the countries reviewed in this book.
Conclusion 267
What the country evidence demonstrates is that the Isolated minimum
wage type exposes low-wage workers to two risks – a government stop-start
approach towards minimum wage upratings and a failure of the minimum
wage to provide adequate protection. The largely absent interaction with
collective bargaining reflects social partners’ limited power resources and
means that unions and employers are unlikely to exert influence over state
policy. But the trend value in the minimum wage value is nevertheless varied.
In two countries, Greece and the United States, the minimum wage is low by
international standards. Greece suffered a highly disruptive transformation of
its wage-fixing institutions in response to Troika demands implemented during
2010–12, resulting in the collapse of collective bargaining coverage and erosion
of the minimum wage value (Karamessini and Grimshaw, 2017); in institutional
terms, Greece therefore shifted very rapidly from the Distant interaction type
(collective bargaining coverage of more than 60% and a relatively low mini-
mum wage value) to an Isolated minimum wage type with damaging conse-
quences for the incidence of low-wage employment (see Figure 12.5 below).
In the United States, the federal minimum wage has been the lowest among
OECD countries since 2015 (PPP value), and, remarkably, has been frozen
at $7.25 since 2010 (13% decline against prices up to 2018); it is in fact the
OECD country with the longest period of minimum wage freeze in the last
four decades.6 It has nevertheless proven responsive to social dialogue at the
state level as demonstrated by the growing number of states legislating for a
$15 wage floor under pressure from “Fight for $15” campaigns mobilised by
trade unions and coalition groups; it is estimated that close to a third of the
US workforce are now effectively covered by the $15 minimum.7
However, the same Isolated type interaction generates a medium value
minimum wage in Bulgaria, the UK and Vietnam. Aside from Bulgaria’s
freezing of the minimum wage for three years after the financial crisis, what
distinguishes these countries from Greece and the United States is proactive
government policy to uprate the minimum wage on a regular annual basis,
despite having a similar context of weak social partners. Figure 12.3 demon-
strates the gap in experience between, on the one hand, Greece and the
United States (with a stop-start uprating policy and long-term stagnation)
and, on the other, Bulgaria and the UK which have enjoyed two decades of
consistent uprating. Largely in response to evidence of in-work poverty and
high shares of low-wage work (see below), the governments of Bulgaria and
the UK have recently instituted policies to ramp up the real and relative
level of their minimum wage (Rubery et al., Chapter 2 and Kahancova and
6 The current ten-year freeze outstrips the past two freezes of eight years each (1981–1989
and 1998–2006). Among OECD countries, Ireland takes second place with a seven-year
freeze which was maintained in the years after the financial crisis (OECD data <https://
stats.oecd.org/Index.aspx?DataSetCode=RMW#>).
7 <https://news.bloomberglaw.com/daily-labor-report/states-with-15-minimum-wage-
laws-doubled-this-year>
Figure 12.3 Diverse trends in minimum wages in four ‘Isolated type’ countries,
2001–2020.
Source: Eurostat minimum wage data, monthly minimum wages, Purchasing Power Standard,
<https://appsso.eurostat.ec.europa.eu/nui/show.do>
Kirov, Chapter 5). However, EuroFound evidence suggests there is still a

long way to go in addressing in-work poverty: more than half of all mini-
mum wage earners in Bulgaria (55%) say they find it difficult to make ends
meet – the second highest share in the EU after Greece where an alarming
85% report difficulties meeting needs (Eurofound, 2020: Figure 15).
The second type – “Close interaction” – characterises France, Portugal
and Uruguay very well, and to a lesser extent Argentina, Brazil and South
Africa where coverage is undermined by a relatively large proportion of the
workforce engaged in informal work (see Table 12.1). It is described by rel-
atively high coverage of collective bargaining (medium/high in Figure 12.2)
and the overlapping of the statutory minimum wage with negotiated min-
ima fixed in collective agreements. In France, the close institutional inter-
action combined with near universal collective bargaining coverage seem
to be powerful factors in ensuring that the minimum wage is sustained at
a relatively high value (see Figure 12.4) and, moreover, that both collective
bargaining and minimum wage developments act as potential motors for
real wage growth.
Nevertheless, the country cases point to complexities arising from the
structures of collective bargaining and changing political regimes. Both
France and Portugal have experienced a decentralisation of collective bar-
gaining. However, while France has sustained its high collective bargain-
ing coverage, Portugal has experienced a decline since the financial crisis
(Figure 12.4). Evidence of the very high share of workers earning at around
the level of the minimum wage in Portugal – 12% of female employees and
Conclusion 269
Table 12.1 Four interaction types between minimum wages and collective
bargaining with sectoral variation, 2016–2019
CB Kaitz
Type Country coverage index Sector variation?
1.Isolated Bulgaria Low Medium –

MW
Greece Low Low –
Indonesia Very Low High MW varies by sector and
province - Hundreds of
sectoral and regional MWs
UK Low Medium Public sector collective
agreements are a mix of Close
interaction & Distant
interaction
US Very Low Low –
Vietnam Low Medium Partial evidence of ‘Distant
interaction’ in the garment
industry
Isolated Bangladesh Very Low – MW varies by sector - MW
multiple boards set wages for 42 sectors
MWs by skill and job grade;
Extremely restrictive low
coverage since 3 in 4 industries
not covered by MW and only
5% of workers in formal work
Cambodia Low – Potential for ‘Close interaction’
in garment industry
Extremely restrictive coverage
since MW only covers the
garment industry (only 6% of
workers in formal work)
Pakistan Very Low – MW varies by sector and province
– MW Boards for 5 provinces
each set multiple sector rates;
Low coverage since only 18% of
workers in formal work
2.Close France High High –
interaction
Portugal High High –
Argentina High High Dualist coverage since only
applies to the 52% formally
employed workforce
Brazil Medium High Dualist coverage since only
applies to the 55% formally
employed workforce
Uruguay Medium High Moderate coverage (76% of
workers in formal work)
South Africa Low/ Medium Dualist coverage since only
Medium applies to the 65% formally
employed workforce
(continued)
CB Kaitz
Type Country coverage index Sector variation?
Netherlands High Low Some examples of Distant
interaction (cleaning & retail
sectors)
Slovakia Low/ Low Public sector CBAs more likely to
Medium fall below MW than private
sector CBAs
3.Distant Germany Medium Low Wide sector differences: e.g.
interaction Isolated MW (hairdressing),
Close interaction (fast food)
Spain High Low –
4.Substitute Italy High – –
for
statutory
MW
Norway High – –
Sweden High – –
Notes: countries highlighted with italics font only partially align with the “ideal type”; the most
recent (2016–2019) data for collective bargaining (CB) coverage refer to very low (<15%), low
(15 –29%), medium (30–59%) and high (>60%) collective bargaining coverage (Slovakia and
South Africa are borderline ‘low/medium’ with coverage of 30% and 29%, respectively); the Kaitz
index refers to the minimum wage as a proportion of median earnings with low (<50%), medium
(50–59%), high (60–69%) and very high (>70%).
Source: adapted from Chapter 1, table 1.1 with empirical evidence from Chapters 2–10, this vol-
ume; sources for CB coverage are the ICTWSS database plus national data from Chapters 2–10;
sources for the Kaitz index include OECD, ILO and Eurostat data (also Chapter 1), plus Bhorat
et al. (2017) for South Africa, Hansen et al. (2016) for Vietnam and Rani et al. (2013) for
Indonesia; source for informal work ilostat.ilo.org/topics/informality.
Figure 12.4 Comparing examples of close interaction: France and Portugal –collec-
tive bargaining coverage and trends in the kaitz index.
Source: OECD minimum wage data (minimum relative to median full-time earnings) and
ICTWSS collective bargaining coverage data (‘AdjCov’).
Conclusion 271
8% of male employees, the second highest share in the EU (Eurofound, 2020:
Figure 2) – suggests that company wage bargaining is not adding much to
the low base rates in sectoral agreements and that for a large share of work-
ers the rising minimum wage may be crowding out effective collective bar-
gaining. Nevertheless, the trade union concern is likely to be tempered by
the benefit to low-wage workers of a rising minimum wage (in relative and
real terms8) and a falling risk of low-wage employment (Molina, Chapter 4).
This is unlike the situation in France where there is a strong dynamic inter-
action between sector base rates and the SMIC, and where firm bargaining
tends to top up SMIC-level sectoral rates, ensuring that only a relatively low
share of workers are paid at or around the minimum wage (see Figure 12.6
below; Delahaie and Vincent, Chapter 8).9
The influence of changing political regimes comes to the fore in the cases
of Argentina and Brazil. The positive institutional interaction between collec-
tive bargaining and minimum wage ‘valorisation’ in these two countries was
strongly inscribed in Argentina during the Kirchner Presidencies (from 2003
to 2015) and in Brazil during the Lula/Roussieff regime (2003–2016). Both
countries then swung to Conservative governments, leading to the withdrawal
of government support for trade unions and U-turns away from minimum
wage increases (Scarpati Costa and Kahancova, Chapter 11). The national
data reported in this book suggest that the valorisation policy in Brazil (and
even more so in fact in Uruguay) was largely effective in terms of keeping up
with and even overtaking general living costs. Argentina tried, but suffered
from the extreme volatility of its macroeconomic conditions and suffered
massive swings in the real value of its minimum wage, upwards and down-
wards. Figure 12.5 plots how the minimum wage changes look compared to
changing monthly earnings – a form of Kaitz index, albeit with mean instead
of median earnings. According to ILO wage data, only Uruguay experienced
a consistent rise in the value of its minimum wage relative to average wages.
Two countries, Germany and Spain, are well represented by the third type
of institutional interaction described as “Distant interaction” (Figure 12.2).
The minimum wage is an explicit point of reference in negotiating wage rates
in some sectors, but there is a significant wage differential, say 10 or 20% higher
on average. This is likely to be a key reason explaining: a) the relatively low
level of the minimum wage relative to median earnings – the Kaitz index is
estimated at only 0.46 in Germany and 0.41 in Spain (2018 OECD data); and b)
the very small share of workers paid the minimum wage – 3% of female work-
ers and 2% of male workers in both countries (2017 data, Eurofound 2020).
8 Following a three-year freeze in its minimum wage, Portugal has increased its value in
real value (from an hourly rate of 4.98 in 2014 to 5.76 in 2018 (2018 PPP US$) and in relative
value (from 0.52 to 0.61, 2013–2018) (OECD minimum wage data).
9 Eurofound data for 2017 suggest the share of female and male employees earning 90% to
110% of the minimum wage is 12% and 8% in Portugal and 5% and 3% in France (2020:
Figure 12.2).
Figure 12.5 Comparing examples of close interaction: trends in the kaitz index
(mean wages) in Argentina, Brazil and Uruguay.
Note: Kaitz index is not estimated using median earnings since only mean wage data are availa-
ble; the index is therefore underestimated relative to the Kaitz calculated using median earnings;
the dotted lines connect points of data where yearly data are missing.
ILO: Monthly average wage and minimum wage data from ilostat.ilo.org.
In Germany, while there is some inter-sectoral variation (see below), most

sectors fit the pattern of Distant interaction, although this has evolved in
recent years. When the statutory national minimum wage was introduced
in 2015, it overlapped with a considerable number of low wage rates in sec-
tor agreements (conforming with a type of ‘Close interaction’), but this has
quickly diminished with each subsequent rise of the minimum wage suggest-
ing that collectively agreed wages have expanded the gap while maintaining
interaction (Bosch et al., Chapter 6). Some low-wage sectors nevertheless
are still characterised by a type of Close interaction.
For its part, Spain had long languished in a type of “Distant coexistence”
during the 1980s and 1990s, marked by a very low value minimum wage, at a
large distance from wages negotiated in sectoral and regional collective agree-
ments that covered more than two thirds of the workforce. In recent years this
has changed – thanks largely to a rising minimum wage – with clear evidence
of dynamic interaction between the two institutions. The 2018–2020 inter-
sectoral national agreement for the first time fixed a minimum of €14,000
for negotiated wages, purposefully set at a rate comfortably above – and yet
in sight of – the substantially uprated statutory minimum of €12,600 in 2019
(Molina, Chapter 4). It is notable that in both Germany and Spain, we are
Conclusion 273
Figure 12.6 Incidence of low-wage employment by institutional type, European

countries, 2006–2014.
Source: Eurostat earnings data; low-wage earners as a proportion of all employees in enterprises
with 10 employees or more (excluding apprentices, agriculture, forestry and fishing and public
administration and defence), defined as earning two thirds or less of the national median gross
hourly earnings, Structure of Earnings Survey.
witnessing in recent years a concerted response from social partners, acting

with government, to combat a high incidence of low-wage work, especially
among female workers, and in-work poverty.10 The institutional type of
‘Distant interaction’ may provide an effective frame for further improve-
ments in the statutory minimum wage coupled with strong social partner
engagement that can ensure upwards ripples of wage rises along the wage
distribution through responsive collective bargaining.
Finally, the fourth interaction type labelled “Substitute for minimum wage”
characterises Italy, Norway and Sweden. There is no statutory national min-
imum wage. Instead, minimum wage protection is afforded by high collective
bargaining coverage in each country. While there are emerging challenges of
protective gaps in each country, as we described above, it would appear this
institutional type sustains a relatively good record at minimising the risk of
low-wage employment; only France, among our sampled countries, produces
a similarly decent outcome (see Figure 12.6).
12.2.2 Sector and hybrid types

While the country-level portraits provide a valuable comparative perspec-
tive, a central thesis of this book is to question the relevance (and durability)
10 An estimated 29% of women workers are low paid in Germany and 20% in Spain (2014
data, Eurostat earnings data).
of an average country type in light of recent evidence of the erosion, dual-
ism and fragmentation of country models (Hyman, 2018; Marginson, 2017;
Refslund, 2016; Vaughan-Whitehead, 2018). Several chapters in this book
explored this theme and the findings point to significant variation in forms
of wage-fixing and pay equity outcomes across sectors, as well as hybrid
country types – namely, countries that only partially align with the pro-
posed ideal types in Figure 12.2. Table 12.1 summarises the key results.
Two countries, the UK and Germany, illustrate the need to account for
sectoral conditions that differ from the country norm. In the UK, collective
agreements in the public sector display Close and Distant forms of interaction
with the statutory national minimum wage. The interaction is especially close
in local government where the collectively agreed lowest rates have frequently
been overtaken by upratings in the minimum wage in a manner similar to that
witnessed in France (Grimshaw et al., 2017). In other parts of the UK public
sector, collective agreements have maintained more of a Distant interaction
with the minimum wage; for example, the 2020–2021 healthcare wage scale
fixed the lowest collectively agreed hourly wage at £9.21, 6% higher than the
statutory minimum wage (for workers aged 25 and over) of £8.72.11 In Germany,
while most core industrial sectors negotiate wages at a distance from the new
statutory national minimum wage, as characterised in Figure 12.2, there are
examples of low-wage sectors that display a type of Close interaction (Bosch
et al., Chapter 6). In the fast food sector, the collective agreement had to uprate
its lowest rates in East and West Germany by more than 10% to comply with
the newly introduced minimum wage in 2015. For the next five years collec-
tively bargained wage increases have followed the minimum wage upratings
very closely. Nevertheless, this model is expected to change. In response to
workers’ dissatisfaction with low wages, unions successfully negotiated a four-
year deal (2020–2024) that will increase the lowest hourly wage paid to a fast
food worker to €12 – considered a fair and decent minimum. From 2021, there-
fore, there is likely to be considerable distance between the statutory minimum
wage and the fast food sector minimum – unless the €12 threshold also serves
as a catalyst for accelerating minimum wage upratings, which would make this
a very interesting example of institutional change.
Consideration of the developing countries included in this book raises
three issues. Because Indonesia, Vietnam, Bangladesh and Pakistan have
multiple minimum wages, the country types might be more precisely labelled
as “Isolated multiple minimum wages”. Typically, where there are separate
minimum wages by province or sector, there is a significant differential
between the lowest and highest minimum wage. In Indonesia, minimum
wages are up to 30% above the district minimum in the food and beverage
industry, for example, but 15% lower in clothing and footwear (van Klaveren,
11 Details available at <https://www.nhsemployers.org/pay-pensions-and-reward/agenda-for-

change/pay-scales/hourly>
Conclusion 275
Chapter 9). Bangladesh displays the widest differences: in 2015 the monthly
minimum for unskilled workers in the tea garden industry was US$41 and the
highest minimum was fixed for the tannery industry, more than seven times
higher at US$306 (Grimshaw and Muñoz de Bustillo, 2016). These multiple
statutory minimum wages are therefore partially fulfilling the institutional
function of collective bargaining by fixing minimum rates (with social dia-
logue input) more appropriate to the industry and/or local labour market.
The second issue relates to the low presence and weak impact of collective
bargaining aside from a handful of specific sectors and specific enterprises;
so there are instances of interaction, but the evidence is patchy. For exam-
ple, in Cambodia, while the garment industry has more than 400 registered
collective agreements, the evidence suggests they do little more than repli-
cate legally stipulated minimum standards. Moreover, the potential for trade
unions to improve conditions is seriously hampered by anti-union actions
by government, similar to the situation in Bangladesh. In Vietnam, indus-
trial relations developments in the garment industry are more promising. A
multi-phased pilot programme to establish a new collective agreement for
the industry provides evidence of Distant interaction (Grimshaw and Muñoz
de Bustillo, Chapter 10). There was an initial determination to establish a
wage premium above the statutory minimum wages for the four regions in
Vietnam – ranging in size from 19 to 26%. In 2015, however, uprated mini-
mum wages almost caught up with the collectively bargained rates until new
negotiated minima were fixed (at a reduced premium of 13 to 21%) (Chi and
Torm, 2015). As in other countries and sectors, institutional types can evolve
in different directions, in this case from Distant to Close interaction.
The third developing country issue concerns coverage and compliance.
The country profile is only meaningful if it captures the bulk of the country’s
workforce and yet developing countries are characterised by large shares of
informal self-employed and family workers who mostly fall outside min-
imum wage protection (although country case law may extend or retract
coverage to such groups) (Rani et al., 2013). Among the nine developing
countries covered in this book, the share of the informal workforce varies
from 24% in Uruguay to 95% in Bangladesh.12 Even restricted to wage earn-
ers, there are still wide gaps in coverage. Vietnam stands out for its universal
coverage, which means all wage earners are protected by the regional mini-
mum wages regardless of their employment status as formal or informal – as
recommended by ILO guidelines (ILO, 2016). Indonesia also has near uni-
versal coverage. However, it exempts domestic workers from coverage, which
institutionalises sex discrimination in wage protection policy. Moreover,
while Vietnam has a strong compliance record, Indonesia does not (Rani et
al., 2013). Other countries, especially Bangladesh and Cambodia, have far
more restrictive legal coverage. In Cambodia, the statutory minimum wage
12 See country data at the ILO website, <https://ilostat.ilo.org/topics/informality/>

only covers workers in the textile, garment and footwear industries and in
Bangladesh more than three in four industries (around 77%) are excluded
(Grimshaw and Muñoz de Bustillo, Chapter 10).
Two countries deserve further analysis because they can only be par-
tially captured by one of the institutional types presented in Figure 12.2.
The Netherlands is only a partial fit with the Close interaction type due to
a lower than expected minimum wage value. This type of close institutional
interaction is expected to drive an upwards wage dynamic, where strongly
positioned trade unions (with high collective bargaining coverage) are able
to press for wage rises and sustain a relatively high value minimum wage;
France, for example, has long established a close interaction that has sus-
tained a high value minimum wage (more than 60% of median earnings for
the last two decades) and a low risk of low-wage employment (below 10%). Yet
in the Netherlands, where unions are relatively strong, despite evidence of a
similarly close institutional interaction, the evidence points to a worse set of
pay equity outcomes: it registers a Kaitz value of less than 0.5 and a high risk
of low-wage employment, close to 20%.13 So what can explain this difference?
Detailed analysis of institutional interactions suggests the Netherlands
has for the most part shifted from a type of Distant interaction in the 1990s
and early 2000s to Close interaction (Been et al., Chapter 7). The evolution
from one type to another started even earlier, around 1990, when pay rises
for the lowest collectively agreed wages began to follow the annual uprat-
ings of the statutory minimum wage, which were considerably less than
growth in collectively negotiated average wages. This meant that by 2005,
almost a quarter of employees were covered by a collective agreement that
set its lowest wage at or below the minimum wage, and by 2015 the share had
increased to more than half (56%) – significant evidence of Close institu-
tional interaction. At the same time, employers made increasing use of low-
wage entry points to new jobs: around two thirds of net job growth during
2009–2018 were jobs paid between the statutory minimum wage and a dif-
ferential of 30%. The conclusion of Been, De Beer and Salverda (Chapter 7)
is that in most sectors, unions have not, until recently, prioritised low wage
developments and have conceded low wage gains especially in sectors with
a large share of flexible jobs and low union membership. Nevertheless, there
are exceptions. For supermarkets, unions have maintained a significant
20–25 percent gap over the last decade between the lowest bargained rate
and the minimum wage. Also, while the cleaning sector agreement lowered
its base rate in 2018 to the level of the minimum wage, it has established
a steeper scale of wage increments over a shorter period of tenure (Been
et al., Chapter 7). These two sector examples therefore do align with Distant
13 For the Netherlands, the minimum wage relative to median earnings (Kaitz index) is
0.47 (2018 data, OECD) and the incidence of low-wage employment is 18.5% (2014 data,
Eurostat).
Conclusion 277
and Close interaction types. Moreover, the call in 2019 by the largest Dutch
trade union, FNV, for a substantial uprating of the minimum wage (from
around €10 to €14) may signal a new determination among unions that the
scourge of low wages must be prioritised.
The case of Slovakia is quite different because its borderline low/medium
collective bargaining coverage (30% in 2015, down from 48% in 2001) means
it is a hybrid of “Isolated minimum wage” and “Close interaction” types.
Indeed, it is drifting quite rapidly to the Isolated type. In the last decade,
union density has fallen from 21% to 11%, signalling a loss of union power,
and collective bargaining coverage is down from 40% to 30%. Moreover,
recent government initiatives to uprate the statutory minimum wage without
prior negotiations with social partners (Kahancova and Kirov, Chapter 5)
are in line with expectations of the Isolated minimum wage type where state
intervention crowds out collective bargaining especially in low-wage sectors.
12.3 Time to repurpose minimum wage policy?

Whether imposed by legislation or negotiated in encompassing collective
agreements, the minimum wage needs to be analysed and understood as a
normative labour market policy intervention that is intertwined with other
labour institutions, especially those involving social dialogue. In an effort to
extend our knowledge about how minimum wages work in contemporary
labour markets, this book has gathered the latest empirical evidence from
a variety of developed and developing countries. Each chapter investigated
how institutions of minimum wages and collective bargaining have devel-
oped in recent years, with attention to possible conflicts and complementari-
ties, the changing strategies of trade unions and employers and the balance of
government action versus effective social dialogue in minimum wage fixing.
In this final chapter we have compared the country and sector findings by
focusing on the inwards- and outwards-oriented interactions between min-
imum wage rules and social dialogue. Moreover, by applying the analytical
framework set out in Chapter 1 we have presented a novel approach for under-
standing how certain distributive effects of minimum wages are enabled and
constrained by four types of institutional interaction – whether Isolated min-
imum wage, Close interaction, Distant interaction or Substitute for a mini-
mum wage as described in Figure 12.2. Countries can move from one type to
another, as most dramatically witnessed in the case of Greece, and sectors
are not always bound by the country’s general type, as we see very clearly in
the case of the UK and Germany for example. Overall, a deeper understand-
ing of social actors’ roles in shaping these institutional interactions contrib-
utes to our ability to answer additional key questions: why do countries have
a high or low risk of low wage employment?; what is the relevance of strong
collective bargaining power for the value of a statutory minimum wage?; and
what are the likely consequences of government discretion in minimum wage
fixing in an industrial relations context of weak unions?
We conclude with two final issues for further research and policy discus-
sion. The first concerns the relevance of a minimum wage for workers who
are not classified as formal employees. We know, especially from develop-
ment studies research, that a minimum wage can be a positive benchmark
or signal for workers (and their employers) in informal employment –
often referred to as a “light-house effect” (Lee and McCann, 2014). There
are therefore lessons for developed countries from research in developing
countries where it is apparent that minimum wage rules (like other insti-
tutional rules) often exert an influence beyond their formal parameters,
improving conditions for workers in informal settings, as well as for the
self-employed. However, more research is needed to figure out the condi-
tions and contingencies that strengthen this signalling effect. Likely factors
include: the strength of formal production linkages between formal and
informal economy business units; the rate of compliance among workers in
formal employment (as a demonstration effect); the capacity of trade unions
to galvanise non-unionised groups of workers, whether self-employed or
informally employed workers, around a decent minimum wage (as we have
witnessed in many parts of the gig economy); and the role of trade unions in
strengthening employer compliance with the minimum wage.
A second issue concerns the urgent need to repurpose minimum wage pol-
icy in order to appreciate its wider benefits for economy and society. The
evidence in this book suggests that a minimum wage should be as much an
instrument of social policy and industrial policy as it is a labour market pol-
icy tool (see, also, Rubery et al., Chapter 2). With regard to social policy, there
is growing concern around the world as to whether or not a minimum wage
supports an adequate household income. Many advocates of a European
minimum wage refer to a decency threshold, or a living wage, which relates to
a measure of earned income that avoids poverty (Schulten, 2012; Fernandez-
Macias and Vacas-Soriano, 2013; Schulten and Müller, 2019). Such notions
are central to minimum wage discourse in the Netherlands and Spain, as
well as successful sector bargaining campaigns, such as the German fast
food sector, documented in this book. Implicit in these debates is the need
to expand attention to varied social policies, which have traditionally sought
to top up low wages to a living income. Examples include in-work benefits,
which is a subsidy to low-wage employers, strongly favoured by employer
associations in France, for example. The problem with this approach is that
they are means tested against household income and so often do not top up
the earnings of women or young people who tend to be second earners in a
household. Further research on the implications for gender equality of the
precise policy equation between minimum wage uprating and welfare trans-
fers would add to our knowledge about the contingent conditions explain-
ing the distributive effects of the minimum wage, as well as the strategies of
employers and trade unions (Gammage, 2015; Rubery and Grimshaw, 2011).
Also, as the Rehn-Meidner economic model of Sweden instructed us,
a decent minimum wage can play a critical role in a country’s industrial
Conclusion 279
policy (see, also, Rubery et al., Chapter 2). It can promote higher wages for
improved productivity and investment in a sector by chasing out under-per-
forming enterprises and encouraging increased efficiency. Moreover, it can
foster progressive change in business practices of industrial organisation,
such as restricting the use of subcontracting low value-added work in highly
cost competitive labour markets. By raising the value of a universal min-
imum wage, companies and public sector organisations face smaller cost
advantages from outsourcing low-wage employment and may be more likely
to organise long-term production and technological innovation in-house.
In sum, this book has contributed to our understanding of the institu-
tional dynamics of a minimum wage in diverse country environments. The
empirical focus on the role of trade unions, governments and employers in
shaping minimum wage policy and the complex interactions with collective
bargaining contribute to a growing field of research and policy interest in
exploring how countries can make labour institutions more compatible with
goals of pay equity and decent employment for all. The evidence adds to the
weight of knowledge that minimum wage policies, in concert with collective
bargaining, are vital to protect the most vulnerable workers, ensure real
wage growth and contribute to global social justice.
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Index
Note: Page numbers followed by ‘n’ refer to notes.
actor-centred approach 65–67; min- Cambodia 5

imum wages and distributional children 26, 138, 199, 213
impact 67; social partners’ autonomy CITUB national protest 97, 99
versus state 66–67 close interaction 7, 170, 174, 184, 268
actual hourly wages 143 collective agreements 5, 6, 8, 13, 43,
actual minimum wages 4, 5, 201 46–49, 53, 54, 56–59, 70, 116, 118, 126,
actual wages 47, 51, 56, 57, 143, 152, 166, 133, 154, 156
170, 172–174 collective bargaining 2, 3, 5, 20, 21, 40,
adequate minimum wages 1, 11, 12, 82 87–108; minimum wages, inter-
adult minimum wage 138–140, 143 sections 7–9; scope of 5–7 see also
agreed minimum wages 5, 44, 47, 123, individual entries
163, 171, 173, 179, 182, 223, 224 collective bargaining, France: French
agreed wages 7–9, 13, 39, 94, 103, 124, minimum wage (SMIC, “salaire
127–130, 173, 175, 265 minimum interprofesionnel de
Argentina: collective bargaining and croissance”) and 162–186; French
minimum wage setting 238–240; statutory minimum wage, character-
economic context 237–238; national istics 162–165; level of wages, SMIC
minimum wage policy effectiveness, impact 173–174; rise at firm level
compromising 249–252 167–170; social partners’ strategies
autonomous collective agreements 39, 175–184; strong interdependence
123 between SMIC 170–173; structural
and economic characteristics, union
Bangladesh 5, 207, 209, 212–214, 217, strategies 181–184; trade unions and
218, 220–222, 224, 228, 232, 262, 275 employers’ organisations 175–179;
banking sector 176, 180–184, 186 wage inequalities and wage moder-
bargained minimum wages 170, 218, 227 ation 179–181; wage setting mecha-
bargaining strategies 94, 129, 162 nism 165–167
BGN 96–99 collective labour agreements (CLA)
blue-collar workers 46, 49, 50, 163, 186 138, 140, 142, 147, 149–151, 153, 158
Brazil: collective bargaining and company agreements 57, 71, 130, 162,
minimum wage setting 238–240; 168, 169, 173
economic context 237–238; tripartism company-level bargaining 31, 42, 43, 71,
and union power 241–245 99, 100, 165, 167
Bulgaria 94; collective bargaining and compliance rates 171, 200
actors 95; minimum wage develop- “Confédération démocratique du
ment 95–99 travail” (CFDT) 167, 175, 177,
Byggnadsarbeterförbundet 46, 47 179–182, 184
282 Index
“Confédération Générale du travail” hängavtal 46, 47
(CGT) 168, 175, 177–179, 181, 182, Hartz Laws 122
184 high bargaining coverage 6, 9, 39, 40,
consumer price index 163n1 45, 49, 58, 59, 119, 123, 131
coordination 42 higher minimum wages 11, 22, 30, 31,
cross-sectoral agreements 83, 84 48, 133, 201, 221, 224, 227
Cyprus 5 higher statutory minimum wages 129,
265
distant coexistence 9, 123 high minimum wages 25, 30, 31, 265
distant interaction 8, 156, 271–277 hospitality 40–45, 49–50, 52, 53, 57–60
Dutch neo-corporatist model 138
IF Metall union 48
economic sectors 58, 99 ILO convention 131 33
economic thinking 32 Incomes Data Services (IDS) 32
employment relationship 18, 19, 27, 32 Indonesia: collective bargaining
essential workers 1 202–203; cost of living 199; economic
European Commission 1, 11, 12 development and labour relations
192–192; employer compliance 199–
fairness 19 200; employment and wage growth
FNV 158, 159 201–202; formality, informality and
French minimum wage (SMIC, “salaire inequality 193–194; formal setting
minimum interprofesionnel de crois- 195–196; general wage level 198–199;
sance”) 162, 163, 165–167, 170–176, minimum wage development
179, 182, 184; collective bargaining 194–198; minimum wages in 191–203;
and 162–186; committee, expert politics of minimum wage-setting
group 164–165 200–203; 2015 reform 196–198,
French trade unions 175, 182 201–202; trade union movement 194
full-time workers 11, 21, 90, 91 Indonesia Jobs Report 196
industrial relations 42; conflicts 229,
garment industry 200, 206, 207, 209, 230; systems 40, 64, 235
214, 215, 218–220, 222, 228–231, 275; industry agreement 44, 54, 55, 212, 215
workers 206, 207, 209, 218, 219, 221, industry minimum wages 5, 221
223, 225, 227–233 industry-wide collective agreement
gender 19, 21, 24, 29, 32, 74, 180, 185, 51, 52
186; pay gap 19; relations 24 informality 191–203
German collective bargaining 115–133; informal sector 6, 12, 13, 191, 193, 199,
collectively agreed wages, develop- 200, 259, 262
ment 124–128; continuous erosion International Covenant on Economic,
of 117–119; fast food sector 128–129; Social and Cultural Rights
German Minimum Wage Law 124; (ICESCR) 9
hairdressing 129–131; low-wage sec- International Labour Organisation
tor, increase 119–120; new German (ILO) 1, 3, 248
minimum wage regime, emergence isolated minimum wage 7, 94, 123, 266,
120–122; statutory minimum wage, 277
interaction 122–128; types of interac-
tions 123–124 Kaitz index 11, 20, 28, 75–77, 198, 270,
German Minimum Wage Commission 271
124, 129 Kebutuhan Hidup Layak (KHL) 196,
German Minimum Wage Law 124, 127 197
German trade unions 115, 118 Kirchner, Fernández 249
Ghent system 40, 45, 46, 58 Kirchnerism 249, 251–252
Global South 10 Konfederatziata na nezavisimite
Great Depression 24 sindikati v Balgaria (KNSB) 95n2
Index 283
labour markets 39, 44 235–255; legal instrument and
labour migration 51 collective bargaining 91–94; level and
Latin America 235–255 adequacy of 9–13; as living 22–26;
legal minimum wage 19–21, 27, 67, 68, multiple functions of wages 17–33;
71–73, 78–81, 83, 84 policy 2, 3, 138, 141, 235–237, 244,
legal regulation 87–108 252, 253, 261, 265; post-dictatorship
living wages 9, 10, 22–29, 32, 75, 77, 80, industrial relations 235–255; as price
199 20–22; rates 29, 43, 54, 137, 141, 197,
lower minimum wage rates 21, 22 200, 218, 261, 263, 265; in Southern
lowest wages 8, 13, 130, 149, 150, 156, Europe 64–85; textile and garment
158, 159, 276 industries, significance 207–210; for
Low Pay Commission 31 textile and garment industry workers
low-wage competition 39–60 206–233; valorisation 242, 244; and
low wage earners 72–74, 93, 131 wages as social practice 29–30; and
low wage levels 12, 124, 125 wages in managerial control 30–32
low-wage sectors 116, 119–121, 127, 153, see also individual entries
261, 272, 274, 277 Mouvement des entreprises de France
Lula/Roussieff regime 271 (MEDEF) 167, 175, 176, 180
Lulism 242n7 multiple functions, wages 17–33
multiple interactions 259–279; col-
main trade unions 197, 245 lective bargaining and minimum
median wage 11–13, 23, 25, 28, 30, 33, wages, outwards interaction 264–277;
75, 198, 199 country ideal types 266–273; repur-
metal sector 105, 107, 154, 156, 181, 182, pose minimum wage policy 277–279;
185 sector and hybrid types 273–277;
minimum inter-professional guaranteed trade unions and employers, inwards
wage” (“Salaire minimum interprofes- interaction 260–264
sionnel garanti,” SMIG) 23, 162, 163
minimum wage effectiveness, garment national collective agreements 4, 80,
industry 215–227; complementa- 121, 123, 128, 130
rity, trade union actions 227–232; National Commission for Collective
complementary interaction, payment Bargaining (CNNC) 164, 165
practices 222–223; employer compli- national tripartism 100
ance 223–224; high coverage 216–218; nation-wide collective agreements 53, 127
regular uprating 220–222; suitable negotiated minimum wage 66–68,
level 218–220; supply chain govern- 70–73, 78, 84, 106, 123
ance 224–227 negotiated wages 83, 137–160
minimum wages: in Central and neo-developmentalism 242n7
Eastern Europe (CEE) 87–108; and neoliberalism 87
collective bargaining, Germany Netherlands 137–160; employers,
115–133; country case studies 94–107; unions, government and minimum
country systems and industrial wage 144–147; government policy
relations 210–215; determination, and collective bargaining, wage rates
mechanisms 91–94; developments, 150–151; lowest collectively negoti-
CEE 88–91; earners 10, 11, 88–91, ated wage rates 148–150; low-wage
164; fixing 196, 203, 213, 214, 221, employment incidence 151–153; mini-
232, 237, 241, 260–263, 277; imple- mum wage, legislating 138–141; mini-
mentation and enforcement of 13–14; mum wage and collective bargaining
in Indonesia 191–203; inequality 147–153; minimum wage and general
mitigation and 235–255; institutional wage trends 141–144; negotiation
intersection, industrial relations process 156–158; statutory minimum
213–215; as instrument of redis- wage and 156–158; three sectors
tribution 26–29; in Latin America compared 153–156
284 Index
NIESR research 31 social dialogue 87, 88, 100, 101,
normal wage agreements 43 106–108, 214, 215, 261–265, 277
Norway 40, 41, 43–46, 52–60, 261; con- social partners 66, 67, 78–82, 84, 93, 94,
struction, common interests 56–57; 96–98, 101, 108, 138, 144, 175, 213, 262
enforcing minimum wage floors Southern Europe 64–85; legal mini-
53–54; hospitality, less controversies mum wage, Italy 79–80; minimum
57–58; shipyards, war on extension wage, Portugal 80–81; minimum
54–56; traditional model and 52–58 wage, Spain 82–84; minimum wage
Norwegian trade unions 40, 47, 58–60 regimes in 68–71; minimum wages,
Greece 77–79; wage inequalities and
outwards interaction, 260, 264–277 minimum wages, evolution 71–77;
wage setting in 68–71
parasitic trades 10 statutory minimum wages 3, 32, 39–60
polder model 138 statutory national minimum wage 60,
politics 191–203 238, 238, 240, 246, 272–274
posted workers 22, 46–48, 52, 55, 56, strong trade unions 60, 116, 182
58, 140, 261 structural changes 44
Posting Act 47 substitute for the minimum wage 8,
poverty line 23, 96n4 266, 270, 273
power resources 39 supermarkets sector 153, 154, 157, 158,
private sector 21, 105, 138, 163, 182, 249 172, 182, 183, 186
private service sector 45, 50, 125 Sweden 2, 5, 20, 40, 41, 43–52, 58, 59,
productivity growth 143, 144, 158 261; autonomy 45–52; charting tra-
productivity levels 20–22, 68, 80 jectory 49–52; collective agreement,
public sector 7, 9, 74, 99, 105, 118, 131, posted workers 48–49; construction
274 sector 46–48; hospitality sector
49–52; manufacturing sector 48–49;
regional collective agreements 229, 272 trade unions and Laval case 46–48
retail trade sector 185 Swedish trade unions 47, 59
rural workers 240–241 “Syndicat national des banques” (SNB)
182
Salary Councils 246–249
Scandinavia 39–60 tax credit systems 25
Schröder, Gerhard 115 temporary agency work 45
sectoral agreements 9, 31, 53, 71, 117, trade unions 5, 40, 60; actions 207, 227;
165, 167, 169–171, 182, 184, 271, 272 confederation 81, 97, 100; movement
sectoral bargaining 57, 167–169, 172, 95, 120, 121, 194, 200, 242; power 28,
182, 184, 237 184; strength 40, 116
sectoral base rates 173, 174 transparent mechanism 97, 99, 108
sectoral collective agreements 71, 79, tripartite agreement 4, 5
80, 99, 129, 172, 252, 262 tripartite negotiations 87, 88, 93, 94,
sector-in-country institutionalist 100, 101, 103, 250
approach 206–233
sector-level wage bargaining 105, 108 “ultra-reactionary” pin money notion
self-employed workers 74, 75, 83 24
silver-bullet methodology 23 union density 40, 41, 56, 59, 95, 116, 118,
Slovakia 99–100; collective bargaining 228, 277
and actors 100, 102–105; indexation unionisation rate 181–183, 245, 251
and minimum wage fixing 105–107; Uruguay 5, 6, 235–238, 246–249, 252,
minimum wage determination 253, 268, 271; collective bargaining
100–105 and minimum wage setting 238–240;
Smith, Adam 19 economic context 237–238; salary
social actors 1 councils, role 247–249
Index 285
wage disparity 43 white-collar workers 46, 185, 186
wage distribution 11, 50, 73, 149, 152, women 19, 21, 24, 25, 73, 74, 163, 179,
158, 159, 195, 273 180, 183–186, 225, 227, 228
wage floors, securing 39–60 workers 5–7, 9, 10, 19, 23, 52, 126, 200,
wage growth 42, 178, 201 215, 217, 221–225, 230, 231, 278
wage levels 8, 9, 12, 53, 54, 57, 93, 94, World Bank 193–196, 209
156, 157, 198, 199, 202 WSI Collective Agreement Archive 125
wage negotiation 50
weak trade unions 191–203 youth wage rates 156, 157

(Routledge Research in Comparative Politics) Irene Dingeldey, Damian Grimshaw, Thorsten Schulten - Minimum Wage Regimes_ Statutory Regulation, Collective Bargaining and Adequate Levels-Routledge (2021

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(Routledge Research in Comparative Politics) Irene Dingeldey, Damian Grimshaw, Thorsten Schulten - Minimum Wage Regimes_ Statutory Regulation, Collective Bargaining and Adequate Levels-Routledge (2021

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Minimum Wage Regimes

This book goes beyond traditional minimum wage research to investigate

Damian Grimshaw is Professor of Employment Studies at King’s College

Thorsten Schulten is Senior Researcher at the Institute of Economic and

Interest Group Organisation in the European Union

Coalition Government as a Reflection of a Nation’s Politics and Society

Transparency and Secrecy in European Democracies

Climate Governance across the Globe

The Future of Political Leadership in the Digital Age

Electoral Participation in Newly Consolidated Democracies

Exploring Organized Interests in Post-Communist Policy-Making

Minimum Wage Regimes

Edited by Irene Dingeldey, Damian

List of figures vii

1 Introduction: Minimum wage regimes in Europe and selected

2 Minimum wages and the multiple functions of wages  17

3 Securing wage floors in the absence of a statutory minimum

4 Minimum wages in Southern Europe: Regulation and

5 Shaping minimum wages in Central and Eastern Europe: Giving up

6 The interplay of minimum wages and collective bargaining

7 Downward convergence between negotiated wages and

8 The SMIC as a driver for collective bargaining: The interplay

9 Minimum wages in Indonesia: Informality, politics and

10 Are minimum wages for textile and garment industry workers

11 Minimum wages and inequality mitigation in post-dictatorship

12 Conclusion: Understanding the multiple interactions between

1.1 Collective bargaining coverage (in %) and minimum wage

1.1 Different types of minimum wage regimes in Europe and

Minimum wages are an almost universally accepted instrument for reg-

1.1 Different types of minimum wage regimes – An overview

Regime Scope Statutory regulation Collective bargaining

Universal National Western and Continental Western and Continental

In most of the countries with universal minimum wage regimes, it is the

1.2 The scope of collective bargaining

1.3 Different types of intersections between

other form, Distant Interaction.

1.4 Level and adequacy of minimum wages

Median wage Average wage

2000 2019 2000 2019

1.5 Implementation and enforcement of minimum wages

Links to wage function

either or both of these should be differentiated according to perceived differ-

2.1 Minimum wages as price

2.2 Minimum wages as living

“…evidence shows that, contrary to what happened in previous down-

• Living wages may be acting as an important campaign to raise the over-

2.3 Minimum wages as an instrument of redistribution

Gross increase Percentage of wage Cumulative effect

National Minimum Wage £1.0bn 1.2% 1.2%

Source: Lansley and Reed (2013)

the Kaitz index. As Dingeldey et al. note (table 1.3 this volume) 21 out of 25

2.4 Minimum wages and wages as a social practice

2.5 Minimum wages and the role of wages

2.6 Discussion and conclusion

Actors’ strategies influencing

3.1 Background – Wage setting the Scandinavian way

Norway 34 53 27 19 43 (64)a 73 (77)a 36 (83)a 28 (100)a

in Norway, construction and hospitality (hotels, restaurants and catering).

growth, with relatively high negotiated minimum wages and a compressed

3.2 Pressures from above and below

3.3 Sweden – Successful autonomy?

3.3.1 Construction sector: Trade unions reluctant to change

3 EU court judgement C-341/05 Laval un Partneri Ltd v Svenska Byggnaddsarbetareförbundet

3.3.2 Manufacturing sector: Unions negotiate a separate collective

List of figures vii

2 Minimum wages and the multiple functions of wages 17

1.3 Different types of intersections between

2.5 Minimum wages and the role of wages

3.3.1 Construction sector: Trade unions reluctant to change

3.3.2 Manufacturing sector: Unions negotiate a separate collective

4.1 The role of minimum wages in Southern Europe:

4.3 The evolution of wage inequalities and minimum

Table 4.2 Low-wage earners as a proportion of all employees

4.4.1 Setting minimum wages in Greece: From negotiation

5.1 Minimum wage developments in Central

5.2 Mechanisms for minimum wage determination:

5.3 Country case studies: The interplay of actors

Table 5.4 Wage growth dynamics in Slovakia: % changes to minimum wage,

5.3.2.4 From indexation to fixing the minimum wage

6.1 Erosion of collective bargaining and increase

Figure 6.1 Collective bargaining coverage in Germany, 1998–2019 in % of workers

Figure 6.2 Collective bargaining coverage in Germany according to wage quin-

6.3 The interaction of the statutory minimum wage

6.3.2 Effects of the statutory minimum wage on collectively

Figure 6.5 Distribution of wage groups in German collective agreements in January

6.4 Close interaction between statutory minimum wages