The minimum wage in Luxembourg is now ‘just’ 13.6 times higher than Bulgaria’s

Last year we started the 2011’s version of this article saying that the existing gap between Luxembourg’s minimum wage and Bulgaria’s was 14.3 times. In 2012 this gap has been slightly reduced to 13.6 times. Although the absolute GDP in Luxembourg is only 1.15 times higher than Bulgaria’s, its GDP per capita is “only” 16.5 times higher. This is one of the several macroeconomic factors (an important one is competitivity) that explains the huge existing gap betwen their minimum wages.

As you can see on the graph there are 6 countries which surpass 1 000 euros in their minimum wage. In fact, they are not the only ones, since there are some european countries that are not included (Germany, Denmark, Norway, Finland, etc.). On the other side, there are 10 countries where the minimum wage is below 400 euros.

The minimum wage is usually established by law but in certain countries collective agreements are being used as a mechanism to regulate the minimum amount of money that a worker must receive in exchange for his/her work. The amount of the minimum wage it is not updated every year, and does not alway rise. In Spain the new President, Mariano Rajoy, has already unveiled his intention of not update the minim wage, leaving it at the same value than in 2011, as a consequence of the economic crisis. This is not the only country in doing so since other ones like Portugal and Greece are even lowering the value (Portugal by 3% and Greece by 22% -it will enter into force on March 1st, 2012-).

When updating the minimum wage governments and collective agreements must take into account inflation and the overall economic situation. But the decision carries a strong political burden. Bulgaria increased the minimum wage in 2012 by 7.6% although inflation it has been below 5% most of the year and the economic growth forecasted by the IMF for 2011 has been reduced to 1.9%.

What is the minimum wage?

Minimum wage is the lowest amount a worker can be legally paid for his work. Eighteen European countries have some kind of statutory national minimum wage (in a similar way to non-European countries, such as Canada, Japan and the USA). This group is made up of nine of the ‘old’ EU 15 Member States (Luxembourg and Portugal also have statutory national minimum wages) and all of the 10 new Member States, apart from Cyprus which has a statutory minimum wage for a few specific occupations only. Whereas France, Greece, Portugal, Spain and the Benelux countries have a long tradition of protecting pay at the bottom of the labour market in this way, Ireland and the UK introduced national minimum wage systems only in the late 1990s. In Austria, Denmark, Finland, Germany, Italy and Sweden – the remaining six ‘old’ EU Member States – as well as in Norway and Cyprus, collective agreements are the main mechanism used for regulating low pay.

[notice]Don’t miss our latest update: Minimum wages in Europe (2013)[/notice]

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