Institutions for Wage Determination in the EU and Turkey: A Comparative Perspective

Institutions for Wage Determination in the EU and Turkey: A Comparative Perspective

Gürdal Aslan (Izmir Katip Çelebi University, Turkey)
DOI: 10.4018/978-1-7998-1188-6.ch011


This study provides information on wage floor determining institutions, the statutory minimum wages, and collective bargaining agreements, in the EU countries to examine differences and commonalities of these institutions between the EU countries and Turkey. The interaction between these institutions and the labor market performance of the EU Member States and Turkey is also investigated. Therefore, the minimum wage levels and the collective bargaining coverage with the labor market indicators, namely the wage inequality measured with D1/D9 ratio and the incidence of low-wage workers, are compared. Findings indicate that the wage inequality and the incidence of low-wage workers are relatively lower in the countries with comprehensive collective bargaining systems characterized by high rates of collective bargaining coverage and union density. Turkey is one of the countries with the highest wage inequality compared to the EU countries. Improving the coverage rate of collective bargaining might help to reduce wage inequality.
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The European Union (EU) is supposed to bring people together and contribute to the prosperity of all European citizens despite the heterogeneity between countries. In the EU area economic dynamics are heterogenous in terms of the level of industrialization or deindustrialization, employment, wages, social protection, public services and the standard of living. Due to these differences, in an increasingly competitive economic environment the cooperation between EU countries is becoming more and more difficult as evidenced by the failures of fiscal and social harmonization attempts.

One of the EU harmonization projects is building a European minimum wage, which has not been achieved so far. The debate on the possibility of building a unique and common wage floor at the EU level has started in the1990s. In recent years, more and more academics, observers or some European institutions (such as the European Trade Union Confederation) have proposed the establishment of an EU-wide minimum wage to strengthen social Europe and to reconcile citizens with the European project (Schulten et al., 2016). According to its supporters, if a common minimum wage is set for the EU countries, it would enable to improve two major issues: the fair remuneration of work and the convergence of standard of living within the EU (Vaughan-Whitehead, 2012).

However, according to some observers, this harmonization project is not easy to implement because wages are heterogenous and there are institutional differences in the determination of the minimum level of wages among EU countries (such as collective bargaining agreements or statutory/legal minimum wages) (Vaughan-Whitehead, 2012). Besides, countries where collective bargaining is the only mechanism for setting minimum wages (especially Nordic countries) perceive a common European minimum wage as a threat to their well-functioning collective bargaining systems (Eldring and Alsos, 2012).

Even though the possibility of implementing a common wage floor at the EU level is still under debate between its supporters and opponents, the interest in institutions for wage determination (or determination of minimum level of wages) has increased in EU countries (BIT, 2010; Vaughan-Whitehead, 2010). The increases in wage inequality, the incidence of low-paid workers and the incidence of the working poor in EU countries after the 1980s have led to this renewed interest in minimum wage institutions. At the same time, the decline in the collective bargaining coverage rates, the weakening of trade unions and the increasing incidence of irregular employment have contributed to this renewed interest (Vaughan-Whitehead, 2012).

Consequently, minimum wage fixing systems have been established or strengthened to address unduly low pay and to reduce wage inequality in some countries where there is not any effective collective bargaining system or the existing collective bargaining systems become less effective. Since the early 1990s, eight EU countries have introduced legal minimum wages at national level. These countries are Czech Republic, Slovakia, Poland, Estonia, Slovenia, the UK, Ireland, and, most recently, Germany (in 2015). While 22 out of 28 EU countries have national statutory minimum wages, remaining six EU countries (Denmark, Italy, Cyprus, Austria, Finland and Sweden) do not have nation-wide minimum wages. Collective bargaining is the only mechanism which enables to fix wage floors in these countries (Eurofound, 2018).

The two major labor market institutions determining wage floors- minimum wages and collective bargaining- are implemented in order to restrict the degree of wage inequality, to tackle with poverty and to reduce the incidence of low-paid work (OECD, 2000). Therefore, the role of minimum wages and collective bargaining systems is important for a better labor market performance. In addition, while collective bargaining coverage and union density rates show to what extent collective bargaining systems are comprehensive, the significance of legal minimum wages primarily depends on its absolute and relative level (BIT, 2010).

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