Europe is heading at full speed toward a second edition of the financial crisis. Greece must once again be saved from “bankruptcy”; again the crisis involves generalised cuts and privatisation. What is the connection between the ongoing crisis in public finances and the development of low cost labour? At first sight there is none. Logically, the control of government debt merely requires “fiscal consolidation” (newspeak for sobriety.) But some think otherwise. When the troika (ECB, IMF and European Commission) visited the Irish government in Dublin to negotiate the 80 billion support, Ireland understood only too well why. The country was given a choice between money support with higher interest rates or cheaper money, but with structural changes such as reducing the minimum wage from €8 to €7 per hour. In the current negotiations with Greece, the discussion will be the same: new cash at better rates in exchange for a reduction in the minimum wage by €100 (from €680 to €580).
So the debt problem is dealt with by means of sobriety and overt attacks on the standard of living, including reductions in the minimum wage. In Eurozone countries with a lower debt ratio the same road will be followed. In Germany, a growing section of the workforce is working with no minimum wage while for many others sectoral wages stagnate.1 There is only one way to translate such a development: the general impoverishment of the working population. The figures themselves speak very clearly: in all countries of the EU the share of wages in added value2 has gone down over thirty years from 75% to 56%. Capital has therefore become a growing slice of the pie (the “added value”).3 Looking at the distribution of national income, income from employment in European countries is on average 12% lower, while investment income increased proportionally.4 This shows that the impoverishment of the one leads to the enrichment of the other.
The causes of this impoverishment of the salaried class are now known:
1) The bargaining position of trade unions has weakened both in terms of companies and global society;
2) new social-dialogue rules (such as the wage norm in Belgium) make it more difficult to enforce wage increases;
3) the competitiveness of firms serves as a guideline for determining the wage margin where productivity growth used to be the yard stick.
All this has meant not only that wages are stagnating but that they even have fallen behind the growth of global wealth. In other words, we have a limping growth. In fact, the wage bill is the only parameter that governments (whether of right or centre-left stamp) are still using. And indeed, with the European Stability Pact (1992), all macroeconomic levers were tied down: monetary policy is fixed; the budget deficit (the infamous 3%) and low inflation (± 2%) are also fixed. Low interest rates ensured that credit was massively available – not only to finance investments but also and especially to finance the negative effects of wage stagnation on the “consumer demand” (family expenses) fluctuations. In other words, wage stagnation and the granting of credit are inextricably bound up with each other.
This infernal mechanism for squeezing wages is reinforced by the generalised intensification of competition that is taking place both within Europe and globally. For instance, in the EU the ratio between the lowest and highest wage is 1:12 in monetary terms and 1:6 in purchasing power terms (PPS – (purchasing power standard)). To make the picture a bit more concrete: the minimum wage in Rumania is €100 and a truck fully loaded with 30 tonnes needs less than 36 hours to make the run i.e. less than €2500. It is unnecessary to draw up a chart on the impact differences in salary and transportation costs can have on exchange. To be sure, industrial production is not entirely outsourced to Eastern Europe, but the blackmail is everywhere and it has been more than sufficient to squeeze wages.
This brings me to the core of my argument: the crucial issue of social standards and their harmonisation standards in Europe. Without closing the wage gap, or rather without upward social convergence, in Europe we are going to enter a social desert in coming years. It is not only about the “bottom of the labour market” but also and especially about the “middle class”.
Trade-unionists know very well why the minimum wage, the statute of social insurance and social standard norms, are of great importance. Without such social norms, the situation would look much worse today. The minimum wage is one of the pillars of a “social citizenship”, just as are social security, working time regulations, or the right to paid leave. Today, these pillars are threatened by the IMF and the European Commission.
How can the downward social spiral be blocked? The answer is extremely simple: by using a social floor. This exists to some extent at a national level, but the lack of harmonisation within the EU means that the national social norms are coming under increasing pressure. Wage competition undermines the social security systems, is pulling more and more people down and increases the number of working poor. Only social rights and standards ensure that people do not sink into poverty. Without a “social floor”, the entire workforce will be pulled down.
It is also true that the labour shortage (scarcity of posts and skills) may slow down the downward wage dynamics. And because demographic evolutions could create shortage, the neoliberal employment policies, inspired by the philosophy of Lisbon, focuses on the increase in the employment rate. We know the consequences: an activation policy where the unemployed (through sanctions) are called to order while older workers see their right to early retirement crumbling. The more people present themselves in the labour market, the higher the competition for the available jobs and the more easily can wages be squeezed. Those who, like Frank Vandenbroucke, say that the continuation of activity is a “social’ objective” should also try to offer solutions to precariousness and working poverty.
Unfortunately, few are speaking out for the need of a European minimum wage – neither the left nor the European Trade Union Confederation do so. The ETUC, at its last congress in Athens (April 2011) has still not taken a position on this matter. Owing to disagreements between Federalists and anti-European sensibilities the ETUC has confined itself to the very general requirement of a “social Europe”. In left circles, the argument is that a European minimum wage is very difficult to achieve from a practical standpoint. It is indeed difficult today to imagine a European social directive resting on a majority of 27 members. Some argue that there would be no legal basis for harmonisation of wages, as this, for the moment, continues to be a matter of national competence (like fiscal matters). But such data do not necessarily disqualify the project of social convergence criteria. There are regions and sectors with a similar labour productivity, where equal pay is economically justified. A 1996 analysis showed that the minimum wage in 11 of the 15 member states was situated at 50 to 55% of the average wage – a good starting point to pursue further convergence. Of course, the enlargement of the European Union to 27 member states did not help. But the lack of a social convergence pact did so even less. On this point it has to be said that in the late 1990s European social democracy squandered almost all its opportunities. Social harmonisation has never been made a point of contention, even when a majority of European governments were centre-left (1998-2002).
But today it goes without saying there is a need for a European minimum wage and that we therefore can no longer maintain a silence about this. This also means that there is a need to lay down a correct definition of wages. Either they follow a liberal and market-oriented approach where supply and demand determine the price of labour – in this case it will be “normal” that we will soon earn as little as in low-wage countries. Or the pay is defined as a negotiated scale based on education and experience, and to the direct wage is added a “social wage” with pensions and rights such as the right to a substitute income in the event of illness, disability or unemployment. This second approach in part blocks the working of the labour market, and is based on the income levels necessary to have a “good” life. Wages must then be tied to the evolution of global wealth (measured in GDP per capita), taking into account productivity gains and price increases.
The left and the labour movement should accept the second approach as a basis and thus fight against the market-orientated definition, also on the European level. The demand for social convergence should become tangible. Some points of view, published, for example, by the very moderate Robert Schuman Foundation, defend the option of a European minimum wage based on the target figure of 60% of median income, which is the poverty line.5 But this seems too low a target figure, for minimum wages must be at least 20% above the poverty line; if not, compensation income will approach the poverty line. In figures, this means a minimum wage in the countries of Eastern Europe from 400 to 500 PPS instead of 150 to 200 in the Eastern European countries, to go from 600 to 1,000 PPS in the southern European countries, and from 1,300 to 1,500 PPS in the core of the Eurozone. Once the minimum wage is defined upward, social convergence will be more understandable and realistic. We will then be half way. Without clear goals every battle will get bogged down.
We have no choice. Without social convergence of wages and benefits the social model in Europe is in danger of being washed away, which will also have significant economic consequences. The fact that no clear legal basis exists for upward social convergence is not an argument. The European Commission has a guarantee fund to help countries in trouble, even outside the existing legal framework. This proves that necessity knows no law and that political will is decisive.
A European minimum wage and social convergence criteria would have to form an essential part of all actions of the European Trade Union Confederation, national trade unions as well as the political left. A European minimum wage is also a concrete response to growing nationalism; it is the appropriate response to the attacks of the IMF and the European Commission and provides a unifying social conflict perspective. Only on the basis of concrete measures, which represent an immediate improvement in the working lives of millions of workers, can the left and the labour movement regain their credibility. Tomorrow or the day after, when the crisis of the Euro shakes the European edifice, when radical reforms are needed, then the left must use this opening to shape social harmonisation, through the convergence of norms and a European minimum wage. Those who don’t want to face this challenge wold do better to flee Europe.
This article is based on the exposition delivered in Parliament during the May 31 conference organized by the European left GUE-NGL-NFB in collaboration with 40 NGOs and social movements.
1) Minimum wages in Germany are only conventional, non-statutory and applicable only to the CAO’s signatories. Today there are more than 5 million workers with hourly wages of less than 6 Euros.
2) With Eurostat and in company accounts the “value added” (VA) is the sum of wages and profits (before taxes); the VA becomes wealth through the deployment of labour.
3) M. Husson, Un pur capitalisme, Page Deux, 2008.
4) T. Crystal, “Good Times, Bad Times: Postwar Labor’s Share of National Income in Capitalist Democracies”, American Sociological Review, 2010, no. 75 (5), 729-763.
5) The median income corresponds to the level of the whole income divided into two equal parts, starting with the lowest and ending with the highest. Unlike the average (which can occlude important nuances) the median shows better where “top” and “bottom” are situated.