Adequate Wages: Challenges and Opportunities

Dr. Janna Besamusca, Assistant Professor at Utrecht University and member of the WageIndicator Foundation supervisory board, discusses the EU Directive on Adequate Wages, highlighting its strengths, the opportunities it offers, and the challenges that need to be considered.

What are some challenges you foresee with the EU Directive on Adequate Minimum Wages?

The first challenge, I believe, lies in the term "adequate wages." 

To me, this concept is more of a political construct than a measurable entity. Broadly speaking, adequate wages should cover the essentials needed to maintain a certain living standard. However, this is very personal and context-specific—my wage is adequate if it allows me to achieve the lifestyle I aim for, including basics like groceries, rent, health insurance, and perhaps the occasional leisure activity, like going to the theatre or taking a holiday.

When we scale this concept to a societal level, it becomes complicated. We then have to assume what standard of living people should want or need to meet. This is where differing interpretations come in, as seen in directives like the Adequate Minimum Wage Directive, which broadly defines adequate wages as those that allow for a decent, dignified living. However, it leaves the specifics up to individual member states, suggesting that wages should be set at 50% of the mean or 60% of the median wage. This approach is rooted in inequality metrics, where adequacy is relative—if I can afford my essentials but can’t match my neighbours' standard of living, my wage may still feel inadequate.

In contrast, the living wage concept, which traces back to the ILO's early work on minimum wages, focuses on meeting the cost of living for a family. This is more of a poverty-based approach, emphasising the essentials over relative comparisons with others.

Can you explain the inequality approach to calculating an adequate wage in simple terms?

The EU Directive on Adequate Minimum Wages encourages EU member states to take a more relative approach to determining adequate wages, which is why the 60% of the median wage is often discussed. It is important to bear in mind, however, that the 50-60% thresholds are only suggestions and not mandatory rules for countries to follow.

This approach relates adequacy to the overall wage distribution in the country, aiming to ensure that workers aren't left too far behind the average earnings. For instance, if a country has a large income gap, with high earners like Bollywood actors pulling up the average, then calculating 50% of that average will result in a much higher figure. On the other hand, a more equal wage distribution might produce a more moderate number.

Should we focus on reducing inequality or ensuring that people can make ends meet?

Ideally, we should aim for both reducing inequality and ensuring people can make ends meet. However, that's my political opinion rather than a scientific one. While reducing inequality is important, it's more of a political decision. You could argue that either focus—on reducing inequality or on living wages—could define adequate wages.

To ensure people can live comfortably, it makes sense to work towards living wages. The statutory minimum wage should be the legal baseline, but it might not always meet living wage standards. Ideally, some minimum wages already align with living wage thresholds or inequality benchmarks (Check this visual).

This is where data from the WageIndicator comes into play. The nuanced typical family lower and upper bound living wage metrics the organisation offers, ensure a couple of things: using the lower bound as a minimum ensures a safety margin, but because you’re right at the living wage threshold, you’ll always need to keep an eye on this salary group; after all, as soon as prices rise, this group may fall below the living wage again.The upper bound offers greater certainty that workers are earning a living wage and provides a buffer for future consumer price increases Check this visual) 

The upper bound estimates also account to some extent for the differing life circumstances of workers. One worker may have a smaller family, while another may have a bigger family, but an upper bound estimate ensures most people are able to make a living. While no estimate is perfect due to varying individual needs, using broader thresholds provides more security and ensures that most people are covered.

Is it fair to argue that the Adequate Minimum Wage Directive may undermine the living wage movement?

I don’t believe it does. The real danger is that making the issue overly complex might discourage action. Simplifying the approach is crucial to avoid this.

What are your thoughts on Corporate Sustainability Reporting Directive (CSRD) reporting? How should companies approach it in light of the Directive?

When it comes to reporting in CSRD activities, the minimum wage is something that needs to be documented. You must confirm that all employees earn at least the minimum wage, but this doesn’t necessarily reflect a living wage or adequate wages—it just shows compliance with the law. In some countries, meeting the legal minimum wage may already mean paying a living wage, but in most cases, it doesn’t.

The first step is to report on, and comply with, the statutory minimum wage. If this wage is equal to or above the threshold for a typical family’s upper bound, it can be considered a living wage. If it’s below the lower bound, then it’s not a living wage. In those cases, you’ve not yet shown whether workers in your supply chain earn a living wage and more progress is needed. I would suggest that you  report the percentage of workers earning at least the statutory minimum wage and at least the lower bound living wage estimates; hopefully, that is 100% or near 100%. Then report the percentage earning at least the upper bound, and those earning at least the single breadwinner threshold, so you can show you’re doing more.That stepped approach should also allow you set detailed aims for the next reporting period, publicly or internally. 

Does the Directive strengthen the collective bargaining process?

I believe that by allowing European member states the autonomy to define what constitutes an adequate wage, the directive provides unions with greater bargaining power. This aligns well with WageIndicator’s approach.

It's important to emphasise that the living wage thresholds WageIndicator publishes are intended as wage floors—no one should earn below them. However, in practice, not all employees within a business earn the same wage. These thresholds serve as a foundation for social and collective bargaining, offering a fact-based starting point for wage negotiations.

For instance, in negotiations about statutory minimum wages, employers might propose setting it at the typical family lower bound, while trade unions might advocate for the upper bound, especially in contexts like the Netherlands, where many women work part-time. The ability to negotiate within these fact-based ranges is particularly valuable in countries where the tradition of social dialogue is less consolidated.

September, 2024