The taboos that have long surrounded the evolution of the minimum wage in Europe have begun to fall. Governments’ fear of significant increases in this legal minimum level of pay, which led leaders to think twice before implementing them, now seems a relic of the past. The most recent signal comes from Germany, governed by an alliance between Christian Democrats and Social Democrats, which has just decreed the largest increase ever applied to this income. With inflation controlled, which remains around 2%, and in the midst of a structural crisis of its economy, the coalition executive announced a gradual increase close to 14% in just over a year.
The step taken by Chancellor Friedrich Merz’s executive will lead to an increase in the German minimum wage by almost 50% this decade. If this comes true, it would not even be the largest increase in the EU: in Poland, a country with weak collective bargaining and trade unions, the increase from 2020 will be close to 80%; in Hungary 50%; in the Netherlands and Portugal it will exceed 30%. It is the countries that already have rather high minimum wages, such as France (16%) and Luxembourg (22%), which have accumulated the smallest increases in these five years of the third decade of the 21st century. Not included in the statistics are Sweden, Finland, Denmark, Austria or Italy, countries where there is no legal minimum wage due to their model of employment relations, which already provides for high wages. This occurs especially in the Nordic case, which is strongly based on social dialogue and negotiation between employers and trade unions with high levels of membership.
Several causes explain a change in trend like this, which is observed in governments across the political spectrum, from the left to the far right. Underlying all these causes is a lesson learned during the euro crisis: “We followed a deliberate strategy aimed at trying to reduce wage costs (…) and, when combined with a pro-cyclical fiscal policy, the net effect was only to weaken our domestic demand and undermine our social model.” This is how Professor Mario Draghi, also a former president of the ECB and former president of the Italian Republic, summarized the lesson learned a year and a half ago, when he prepared the report with his advice for restarting the European economy.
“Economic literature” has also done its part in breaking down taboos, explains Carlos Vacas, of Eurofound. “In 2000, 2010 or 2015 there were new empirical studies that started to observe that the negative effects (of the rate increase) were not as great as we thought,” explains this researcher from the foundation dependent on the European institutions which is dedicated to the evaluation of working conditions and other social issues in the EU. The expert clarifies: “This does not mean that there are no negative effects, but that they are not that serious.” These consequences are basically the destruction of low-wage jobs that are no longer profitable for the employer if the wage increases. But, as demonstrated, for example, by a recent study by the Spanish Revenue Agency on the latest increases in the minimum wage in Spain, there are also positive effects by contributing to the increase in GDP or the improvement of working conditions.
In that lesson and in the social and political problems that have emerged after years of recipes for austerity and wage devaluation, especially among the lowest paid, Torsten Müller, a German researcher at the European Trade Union Institute, sees the deep root of these increases. And he gives as an example that the EU adopted a minimum wage standard in 2022: “It represents a change of mentality. The European Commission realized that it was necessary to find a different approach to the financial crisis and all its austerity measures, since these posed a problem for the (social) legitimacy of the European project.”
The change in “mentality” was clearly seen during the pandemic. The mountains of public money invested to cushion the blow of covid-19 are a clear example of this. Soon after came another litmus test, the price crisis, which had a direct impact on minimum wages. In 2022 and 2023 the increase in inflation reached double digits and, if the lowest wages were not increased accordingly, there was a risk of losing purchasing power. “Governments, both in 2023 and 2024, were quite quick and protected the purchasing power of workers with these salaries,” explains Carlos Vacas, of Eurofound, who analyzes the evolution of minimum wages every year. In January last year, Vacas already predicted that 2024 would bring a change in trend, with minimum wage increases outpacing inflation in most countries with that figure in their legislation.
But prices have lost steam and the increases continue. Why? Both Vacas and Müller point out that the European minimum wage directive has taken up the baton. This rule, in reality, does not contain major obligations for Member States. It cannot because the powers of the European institutions do not extend to the detailed regulation of working conditions. The directive contains recommendations: it recommends setting the minimum wage at 60% of the average salary in the country (precisely the value that is halfway between the highest and the lowest) or at 50% of the average salary. Although it is not mandatory, many countries are following it: some incorporate the advice into their legislation and others follow it as policy principles. Although it is also true that, for now, only two states reach these thresholds: France and Slovenia.
“It was an important tool to promote adequate wages, strengthen collective bargaining and put pressure on national governments,” explains Müller, who underlines that this rule had a greater impact in Central and Eastern European countries, where the capacity for union pressure is very low. “In these states there is no institutional framework that favors collective bargaining, as happens in France, Spain and other Western European countries”. Minimum wage increases of 15.5% in 2025 in Bulgaria or Croatia, 12.3% in Lithuania, 11.4% in the Czech Republic or just over 10.2% in Poland support these claims.
This is what leads Müller to mark November 11 on his calendar. That day the EU Court of Justice will rule on the legitimacy or otherwise of this directive, which is contested by Denmark, arguing that it exceeds the powers that the European treaties reserve for community institutions: “If the directive is revoked, it will be a hard blow for social Europe and also for the citizens, because they will see that it is now recommended to increase salaries and that this is not possible. It is difficult to explain to people”, he warns.
