Abstract
Introduction
Defining the ‘right amount’ of a living wage is not easy: whether in-work poverty exists is dependent not only on wages but also on working time, household structure, regional wage disparities and the strength of the welfare state. To live above the poverty line is a human right, to be guaranteed by government. Wages and minimum wages have to provide sufficient income to avoid poverty, while also adequately remunerating workers for their labour.
Due to a collective bargaining coverage rate of around 98 per cent, Austrian unions are able to increase minimum wages via collective agreements, thereby ensuring incomes above the poverty line for people working full-time. With minimum wages set by collective agreements and not by law, they remain living wages in Austria. The latest agreement between the social partners on the lowest minimum wage set it at €1500 a month, payable 14 times a year. All collective agreements providing for minimum wages below that level are to be upgraded by 2020. The 19th Congress of the Austrian Trade Union Federation (ÖGB) set the new minimum wage target for the coming years to €1700.
In many European countries, discussions about what is an adequate level of wages have taken a new turn, with the focus now on a ‘living wage’. The concept is undergoing a renaissance especially in countries where neoliberal reforms and/or the Great Recession have devastated wage-setting mechanisms. Currently we are seeing growing income and wage inequality as well as an increase in in-work poverty in many EU countries. This is a consequence of the political weakening of trade unions, retrenchment of public institutions and a growing power asymmetry between labour and capital. Therefore, new approaches to (minimum) wage setting are needed.
In our short background piece, we first discuss the practical and political problems involved in defining and pursuing a living wage strategy. We go on to define what minimum/living wages mean from an Austrian perspective. We then give a short overview of (the history of) minimum wage policy in Austria. Finally, yet importantly, we outline future challenges for the minimum/living wage strategy of Austrian unions.
Dimensions of a living wage
The idea of a living wage has always been a core element of minimum wage setting by unions and legislators (Müller and Schulten, 2017). Defining a living wage involves many factors, only some of which can be influenced by unions. One of the most obvious factors is that the hourly wage should be high enough to generate sufficient income for people to live a decent life. But this income is also dependent on the
Looking at the annual dimension, the risk of poverty in Austria is 6.8 per cent for those employed over the whole year (EU-28: 9.0 per cent) 2 but more than doubles to 16.0 per cent (EU-28: 16.8 per cent) for those employed less than that. Therefore, the issues of employment stability and working time are also important factors when defining a living wage.
Moreover, an adequate living wage is also highly dependent on the
The ‘at-risk-of-poverty’ threshold for a single person in Austria in 2017 was €14,851 net disposable annual income, equivalent to a monthly gross wage of €1255 (paid 14 times a year, the standard payment schedule). The current minimum wage benchmark of €1500 thus constitutes sufficient work incentive for single persons to work for the minimum wage, even if social benefits for those not working provide an income level above the poverty line.
For households with two adults, everything depends on their work intensity. 3 In a two-child household where both partners work full-time at the benchmark €1500 minimum gross wage, household net income would clearly be above the ‘at-risk-of-poverty’ threshold; just to reach this threshold they would each need a gross income of €1130 (see Table 1).
Household constellation, poverty threshold and gross wages.
Source: Own calculations, based on 2017 numbers and regulations. Only general family transfers are included, and not means-tested or conditional transfers.
A single parent working full-time at the minimum gross wage of €1500 with one child would also exceed the €1434 needed, even if we assume no transfers from the other parent. For a single parent with two children, things would be too tight when there is no other support or income. They need a €1705 gross monthly wage to escape poverty.
A country’s
Finally, yet importantly, there is an
Minimum wages are more than just living wages
Minimum wages should guarantee a higher living standard than social benefits. In public debates, the question is always: how much higher than social benefits should minimum wages be? Conservatives argue that minimum wages must be sufficiently higher to provide an incentive to work, while progressives argue that fair wages also need to provide fair compensation for the work done. In any case, wages need to be high enough to avoid poverty. Moreover, Austrian unions argue that wages, and also minimum wages, should take account of the country´s macroeconomic performance, ensuring that everyone gets their fair share.
Being a relatively small and prosperous open economy in Europe, the wage-setting situation in Austria is somewhat better than in other countries. Larger countries usually have more difficulties to achieve high collective agreement coverage rates as productivity levels on the part of companies and costs of living on the part of workers tend to diverge by larger margins. An open economy is a very mixed blessing in this respect, being detrimental to the setting of minimum wages as international competition poses an additional constraint to national wage-setting autonomy, especially when exchange rates to most trading partners are fixed as in the case of the eurozone. On the other hand, external competition helps discipline high-productivity sectors, which in boom times can pass on wage increases to customers, at the expense of real wages in the domestic-oriented sectors.
Nevertheless, Austria is confronted with growing social inequality, a declining but, by Austrian standards, high unemployment rate and around 300,000 persons considered as belonging to the working poor (Statistics Austria, 2018), mainly but not only due to part-time or part-year employment. The setting of minimum wages in Austria is part of the general system of collective wage setting and the main collective bargaining institutions continue to function as always.
Collective bargaining coverage is about 95–98 per cent, one of the highest rates in Europe. The social partners – mainly industry-level organisations of the ÖGB on the employee side and industry-level units of the Austrian Chamber of Commerce (WKO) on the employer side – currently negotiate over 500 collective agreements a year (Astleithner and Flecker, 2017; Glassner and Hofmann, 2019). Therefore, Austrian unions are able to increase minimum wages via collective agreements, ensuring an income above the poverty line for people able to work full-time.
Minimum wage policy in Austria
There is no statutory minimum wage for all workers in Austria. Austrian unions are in favour of industry-level collective agreements as they regulate minimum wages for all occupational groups of workers and not just for the least qualified, least experienced and least powerful. Moreover, a statutory minimum wage might put pressure on all groups already enjoying higher wages, and could be abolished far more easily in the event of unfavourable political majorities.
Minimum wages have been set ever since the beginning of collective agreements in Austria. However, they are set by collective agreements. These agreements are not restricted to setting just one lowest level for everyone. Collective agreements fix entire pay scales for the respective industries. These pay scales set a minimum wage for each job according to criteria such as occupation, tenure or location. Nevertheless, they do constitute binding minimum wages for the group concerned; they can be overpaid but not undercut. Furthermore, the minimum wage for the lowest qualification also sets the floor for everyone covered by the agreement. As coverage approaches 100 per cent this system implicitly also constitutes a general minimum wage system.
The sometimes quite high minimum wages for higher-qualified longstanding employees are necessary because there is hardly any dismissal protection in Austria. It is perfectly legal by Austrian standards for an employer to terminate an employment contract and offer a new contract at a lower wage at the same time. The only protection for workers’ income lies in the collectively agreed minimum wages for their job/tenure because these must not be undercut. Therefore, minimum or collective wage policy in Austria is not only an instrument to avoid low pay but also a necessary part of fair payment policies for all employees, even higher-paid ones.
Beginning in the 1990s, Austrian trade unions started to set a formal target for a minimum wage, which means a coordinated level for the lowest wage category in all agreements. This target is part of union demands in subsequent wage negotiations. It became part of all regular negotiations, with unions keeping the minimum wage in line with general wage increases, even in times when a minimum wage is not popular in the political debate. From a political economy point of view, minimum wage debates tend to be cyclical. From time to time, they hit the headlines, usually triggering a debate on a statutory minimum wage. But there are also many years where the general wage negotiation process is the only mechanism to bring about increases in the lowest pay scales.
It is important to note that, for the vast majority of workers, minimum wages as set in collective agreements are sometimes substantially higher than the level of the lowest wage group addressed in the coordinated minimum wage demands. The lowest minimum wage groups in many agreements comprise very few employees. These categories often cover people in their initial period in the job. After a few months in the job, these workers are automatically reclassified to higher wage groups, and enjoy the protection of higher minimum wages as set in the agreement.
The first demand set by the ÖGB (the Austrian Trade Union Federation) at its 12th Congress in 1991 was for a minimum gross monthly wage of 10,000 ATS (equivalent to €727) (ÖGB, 1991). The figure was set in relation to the minimum pension level (at that time 6000 ATS/€436) which serves as a ‘politically agreed’ poverty line for single adults in Austria. A minimum wage of 10,000 ATS allowed a sufficient add-on offsetting the higher social security contributions of active workers. Since then, the targeted minimum wage has been increased several times by the trade union congress (1996: 12,000 ATS/€872; 1999: €1000; 2007: €1100; 2010: €1300; 2015: €1500; 2018: €1700). Once set, these union targets were gradually implemented in the relevant collective agreements.
While explicit campaigns for higher minimum wages only took place sporadically, the actual implementation of a minimum wage policy via regular collective bargaining secured minimum wage increases in every wage round. Whenever a new target was discussed, it turned out that more than 90 per cent of all workers already received wages above the old target due to regular increases.
From a policy perspective, the setting of new minimum wage demands serves multiple purposes. First, it documents the general agreement of unions on a floor for wages applicable to all industry-level agreements. Second, it is accompanied by campaigns putting pressure on those employers who have not yet reached the old minimum wage target. Third, it sets a new standard in the political debate over what organised labour in Austria considers to be a fair minimum wage. The so-called ‘beacon function’ of the minimum wage also explains the ‘round numbers’ chosen (€1000, €1700, etc.). It is the intention of the unions to set a signal, even for the informal economy in Austria.
Over the last 20 years there have been two instances in which the ÖGB and the employers’ organisation WKO have explicitly signed a cross-industry memorandum, agreeing to support their members in reaching the specific minimum wage level in industry-level agreements. The first such agreement was signed in 2007 and set the consensual minimum wage target at €1000. Unions had already started to target this goal in 2000 at industry level. The cross-industry agreement helped to raise minimum wages for those in the few remaining agreements inside and outside the Chamber of Commerce’s ambit such as lawyers, doctors and other liberal professions. The second cross-industry agreement was recently signed in 2017, with employers and unions agreeing to implement fully a minimum wage of €1500.
In Austria, gross wages are paid 14 times a year (including a Christmas and holiday bonus). The minimum holiday entitlement is five weeks, plus 9 to 12 public holidays per year. By comparison, the median yearly income in 2017 (the latest year available) was €41,510 for full-time employees working the whole year (min. 360 days) (Statistics Austria, 2017). This equates to €2965 per month. Based on a 40-hour working week (the upper limit of the regular weekly working time in Austria), this results in an hourly wage of €19.95. The minimum level of €1500 equates to an hourly wage of €8.65. Including holiday and Christmas bonuses, paid in practically all jobs in Austria, this rises to €10.10. Measured in relation to the median wage (Kaitz-Index), this corresponds to a relative minimum wage level of 51 per cent.
According to the 2017 general agreement, the lowest wage in every agreement has to reach €1500 by 2020. However, in most agreements, this floor was already surpassed before 2017. In the hotel and catering sector and the textile sector, the lowest minimum wage group was paid €1500 in 2018. The hairdressing sector has agreed on a transition period until 2019, with only a few minor sectors like shoemakers making use of the full transition period.
While the social partners reached an agreement on the minimum wage at national level, implementation takes place at industry level. However, there is a credible threat in case of non-compliance at the industry level, as Austrian law does allow binding national agreements, though up to now these have not been used to set minimum wages.
In 2018, the 19th Congress of the ÖGB set a new minimum wage target of €1700. As in former rounds, this target has already been implemented in many agreements for industrial workers and also in certain service sectors such as banking and finance. According to the ÖGB, there are currently some 420,000 workers (approx. 12 per cent) earning less than €1700 on a full-time basis (ÖGB, 2018), especially women and younger workers.
Future challenges
Minimum wages can only focus on full-time working contracts. In times of increasing part-time employment, increased working time flexibility and fragmented employment over the course of a year, insufficient income from work reflects not just low wages but also the precariousness of labour relations. To secure a decent standard of living for the entire working population in Austria, adequate social security benefits in the event of unemployment, health problems or disability and public policies providing care, education and housing are just as important as the height of minimum wages.
But even in the field of minimum wages, there are still many challenges in Austria. The first is to improve collective agreement extension mechanisms to cover the remaining 2 to 5 per cent of non-covered employees. Some of them are employed in agriculture, some are in liberal professions or private non-profit organisations, whereby not all of these 2 to 5 per cent are necessarily low paid. The second is to improve the mechanism to secure compliance with existing rules. Current regulations allow the extension of collective agreements within similar industries. The ÖGB wants to allow general extensions of a limited set of rules such as minimum wages, working time, etc. beyond similar industries.
Concerning compliance, it would be helpful to have automatic compliance checks via the social security or tax system. Currently, whenever social security contributions are audited, compliance of firms with minimum wages is also part of the review. Unions in Austria would however prefer automatic controls.
Another major issue is to improve cross-border cooperation to secure compliance with minimum wage standards in firms from neighbouring countries. Given the large cross-border income differences, especially between Austria and its Eastern neighbours, the task is even more important. Eastern colleagues are more likely to accept lower wages as these are still far above the wages in their home countries.
A decent minimum standard of living has to be guaranteed for everyone in society: for children, the elderly, the unemployed or the handicapped alike. Minimum wages have to ensure that, even in the lowest-paid regular wage groups, working people receive fair compensation for their labour. Consequently, minimum wages have to be significantly above the level required just to get by. Without labour, there can be no prosperity.
Footnotes
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors. It was written as part of the authors’ regular employment with the Austrian Chamber of Labour.