A case for higher living wage in Europe

Living wage in Europe

What’s a living wage and how do we calculate it? This is a discussion worth having, because it is a matter of legality and respect for rights that are fundamental.

The straightforward answer is that a living wage must reach at least 60% of a country’s average salary. This isn’t a random figure: the European Committee of Social Rights set the bar in the European Social Chart, which establishes a series of social and economic rights–and acts as a watchdog. Countries signing the chart make a commitment to implement those rights.

On the ground, the reality is less auspicious. Spain, as some other state members, doesn’t exactly show a good record, unfortunately. The living wage, in particular, is far too low from the €900 per month it should be.

Article 4 – Right to a fair remuneration Paragraph 1 – Decent remuneration. The Committee takes note of the information contained in the report submitted by Spain.

“In its previous conclusion (Conclusions XVIII-2) the Committee held that the minimum wage was manifestly inadequate as it fell far below the threshold of 60% of the average wage. It also requested detailed information on net values of both minimum and average wages.

“The Committee notes from the report that on the basis of the Royal Decree 1632/2006 of 29 December the minimum inter-professional wage was fixed at € 570,60 per month. It rose to € 624 in 2009 by virtue of the Royal Decree 2128/2008 of 26 December. The Committee however observes that the report, again, fails to provide information as requested on the net values of minimum and average wages. It notes from Eurostat that the average annual gross earnings in 2007 amounted to € 21,890 in 2007 (€ 1,824 per month). Therefore, even in the absence of information on the net values, the Committee considers that despite the growth of minimum wage, the situation remains unchanged – the level of the minimum wage remains very low and thus not fair. The Committee also notes from OECD3 that minimum relative to average wages of full-time workers in 2007 amounted to 45%.

“Conclusion. The Committee concludes that the situation in Spain is not in conformity with Article 4§1 of the Charter on the ground that the minimum wage is manifestly unfair.”

But it isn’t just a matter of fundamental rights. The latest studies on the economic effects of rising or cutting down minimum wages agree that a higher minimum salary improves families’ quality of life and well-being, with no consequences for their employability.

In Spain, according to the Tax Agency, some 30% of all workers receive a salary below the living wage mark. If a government fixed this, workers’ income would be increased as that of the rest of the family members, so the case for a change is dire. In fact, data tell us that workers with too low salaries remain in that situation for long periods of time. Rising the actual minimum wages would benefit families at risk of social exclusion and poverty with no backlash results for the stability of those jobs.

This isn’t even a new idea. In 2006, more than 650 economists—five Nobel Prize and six presidents of the American Economics Association included—wrote a call for a higher minimum salary.

A usual criticism is that such measure would make life harder for companies. Yet, the impact is very small, as small as its costs in relation to general costs—it turns out that employers can easily offset the effort, as it only involves an increase in wages for some of their staff: companies can reduce working hours, remuneration in kind, better distribution with tiny adjustments in directors’ pay, and so on.

This is a big deal, indeed, but only for those workers and their families who need it.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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