Minimum wage targets paradoxically do not protect the lowest-paid

According to an interesting statistical study published last week, the lowest monthly wage in Greece is slightly over 600 euros. The system of minimum wages is in place in 18 of the 25 member states of the European Union; about 17 percent of Greek salary earners are paid according to these guidelines. In the study, Greek minimum wages fall into the middle category, 22 percent higher than Portugal’s and 13 percent higher than Spain’s. However, only 6 percent of employees receive the lowest wage in Portugal and 13 percent in Spain. The Greeks are simply low paid but the Iberian low-paid tend to be only part-time workers. The Greek problem is well known and is particularly present in three categories of employees: women, the young and poorly educated unskilled workers. Most of them (85 percent) work in the private sector and 64 percent in services. If the low nominal wages are adjusted to comparable purchasing power units, the Greek minimum real wage improves by 35 percent to 821 euros, 24 percent higher than the Iberians’. Comparisons aside, there are two reasons for the large concentration of workers in the lowest bracket in Greece. First, small professional experience and collective bargaining agreements favor older employees irrespective of qualifications and performance. A second reason is staying with the same employer only for short periods; the low-paid work on average 3.5 years for the same employer, compared to 10.5 years for those receiving higher pay. The small size of firms paying the basic wage is an additional explanation; low-paying firms have on average 108 employees, higher-paying ones 220. In the old days of double-digit inflation, the position of labor unions on the minimum wage in collective-bargaining negotiations with employers had a rather defensive character. Today, when inflation has fallen substantially, negotiations aim for a more general improvement in real salaries, with a view to reducing the distance from pay in the rest of the EU. This goal, however, cannot be served through collective negotiations, particularly when the percentage of workers in the lowest-paid bracket is so large. The continued persistence of this logic will easily lead to a distortion of free bargaining. And again, as is the case in practice, if better-performing firms improve their employees’ pay alone, free of collective-bargaining constraints, the division of the economy into dynamic and problematic enterprises will intensify. It is well known that the participants in these negotiations are on one hand leaders of dynamic enterprises, and on the other hand, labor unionists originating in the public sector, where working conditions are much better than in the private sector. The result is that the product of their negotiations hardly heeds the interests of firms which must cut costs.