Analysing the EU’s adequate minimum wage proposals through a Romanian lens
Claudia Sofianu and Dan Raut of EY Romania consider the challenges faced by EU member states as they prepare for the transposition of Directive (EU) 2022/2041 by the end of 2024.
The latest EU statistics released in January 2023 illustrate how national minimum wages in the EU range from €399 (approximately $440) per month in Bulgaria to €2,387 in Luxembourg and how the member states can be classified into three categories:
Group 1 (Luxembourg, Germany, Belgium, the Netherlands, Ireland, and France), with a national minimum wage above €1,500 per month;
Group 2 (Slovenia and Spain), with a national minimum wage higher than €1,000 but lower than €1,500 per month; and
Group 3, with a national minimum wage below €1,000 per month. This group includes Cyprus, Portugal, Malta, Lithuania, Greece, Poland, Estonia, the Czech Republic, Slovakia, Croatia, Latvia, Romania, Hungary, and Bulgaria.
Even though its average annual growth rate during the past 10 years was the highest in the EU (14.4%), Romania’s national minimum wage of €606 is one of the lowest among the member states.
EU directive on minimum wages
Directive (EU) 2022/2041 on adequate minimum wages in the European Union entered into force in October 2022, and is supposed to be transposed by the member states by mid/end 2024.
The directive aims to ensure that the minimum wage is determined transparently and predictably by each member state and to generate certainty and stability in the EU labour market. Even though all EU countries have minimum wage provisions through social protection systems, this remuneration does not cover all the costs of a so-called decent living in most cases.
The directive is also intended to reduce and eliminate abusive subcontracting, bogus self-employment and undeclared overtime, and its “primary goal is to establish a framework to improve the adequacy of statutory minimum wages and enhance effective access of workers to minimum wage protection, including through collective bargaining”, according to a summary by the International Labour Organization.
Each EU country will set its minimum wage level according to national macroeconomic indicators. EU officials have provided examples of computation mechanisms based on:
The value of the consumption basket (as provided by national statistical reports, since the basket of goods and services at real prices established at the national level can be instrumental to determining the cost of living);
60% of the gross median wage; or
50% of the gross average wage.
How is Romania positioned today?
Romania belongs to the group of countries with statutory minimum wages. In contrast, collectively negotiated minimum wages are found in only six EU countries:
Sweden (where they are set through negotiations between trade unions and employers).
However, any comparative analysis should consider the large differences between the economies of the member states, and their key indicators, such as gross domestic product and consumer price levels. For example, in 2021, Ireland had the highest price level among member states, 44% above the EU average, while in Romania the price level was 45% below the EU average.
The following data is based on the most recent statistics available in Romania, for January 2023:
Current value in lei
Current value in euros
Projection (as per the directive’s scenarios); for example, 50% of the average wage in euros
Average gross wage
Average net salary
Minimum consumption basket for a decent living for a single adult in Romania (as stated in the Ombudsman's Report)
The minimum net wage should be computed starting from this value (as such, a minimum of €547 net per month)
National minimum gross monthly wage
National minimum net monthly wage (the value from No. 4 after various deductions as per the law)
Thus, today, the guaranteed minimum wage in Romania is lower than the minimum wage required for a decent living as stipulated in the directive.
The consumption basket – i.e., €547 – is, presumably, the best barometer of what is required to have a decent living. The minimum net monthly salary of €383 is quite far below. On the other hand, if we compare the minimum wage with the value of 50% of the average wage, the differences are not that high (i.e., the values in rows 1 and 2 versus the values in rows 4 and 5).
The above invites the question of whether the authorities will look for the most beneficial formula for the employee or adopt a computation method with a lower impact on the national economy.
In addition, can the EU minimum wage become a shield against the negative impact of inflation? Although this initiative could contribute to higher inflation, its effect should be inversely proportional, because the inflation currently felt in Romania affects low-wage earners more than medium- and high-wage earners. Thus, an increase in the minimum wage could ensure that low-income earners' purchasing power is protected even in times of social and economic turmoil.
By looking to the above high-level simulations, we can easily observe how calculations based on the basket of goods and services can result in a more positive impact for Romanian employees. Otherwise, if the authorities only look at the benchmark with average wages, it is clear how the impact would be almost ‘invisible’ (since the potential increase is less than 8%, which would not even cover half the current inflation rate of between 15 and 20%).
To this end, the Romanian authorities have nominated a task force unit to take charge of transposing the EU directive. One official has already stated in a press interview that Romania most likely will not rely on any information regarding the consumption basket, since there is no governmental institution to analyse this sort of data. The representative said that Romania will probably refer to the ratio of 50% of the national gross average salary when implementing the EU minimum fair wage in Romania. If this idea is finally transposed, it may ensure theoretical compliance, but will it achieve the core scope of the directive?
Without making other suppositions, it is worth waiting to see how other countries (especially from Group 3) transpose the directive, so that in a few years we can measure the directive’s impact (as a whole) in the EU bloc.