Cross-business and intra-business wage inequality in Europe

Since the 2008 crisis, wage growth around the world has largely been driven by growth in emerging countries. This has slowed recently, but has accelerated once more in developed countries. The International Labor Organisation’s World Report on Wages 2016/2017 confirms this.

A globalised economy requires a coordinated approach to wage policies around the world. In 2016, the G20 called for the implementation of macroeconomic policies aimed at stimulating significant growth in earnings as well as encouraging sustainable wage policies that better reflect the productivity gains. Indeed, in the vast majority of countries, the proportion of labour deemed to be value added has been in decline for several decades due to wage growth that has remained well below productivity. This has been the case, for example, within Germany, the United States, and China, although in these countries the wage share has rebounded somewhat in recent years.

The ILO notes that wage inequality has increased across a number of EU countries over the past few decades, but has been mitigated somewhat since 2002, and more notably in 2006.

The ILO notes that wage inequality has increased across a number of EU countries over the past few decades, but has been mitigated somewhat since 2002, and more notably in 2006. Whilst inequality between sectors and businesses has played a central role in recent developments regarding wages, such inequality cannot explain everything. An analysis of the situation in 22 European countries reveals that in 2010 wage inequality across businesses represented 42% of all wage inequality and that the issue is more pronounced in companies with a comparatively high average wage. According to the study, the situation amongst the companies which pay the highest wages is a concern, with the lowest paid 1% earning an average of 7.00 EUR per hour whilst the highest paid 1% earn more than 840.00 EUR per hour. On the other hand, the wage gap between men and women, which has reduced in general terms across Europe remains increasingly evident amongst the top earners and is expected to reach nearly 45% for those within the highest percentile of the wage distribution structure.

Most countries within the European Union have implemented statutory minimum wages, but their amounts remain quite varied.

Minimum wage and collective bargaining agreements remain the preferred instruments for simultaneously reducing cross-business and intra-business inequalities. Most countries within the European Union have implemented statutory minimum wages, but their amounts remain quite varied. Some remain particularly low when compared to national productivity or average wages. As a result, the ILO advocates the involvement of both employers and employees when determining the minimum wage and stresses the importance of the field of application alongside the implementation of regulations or other such wage agreements so that all workers, even the most vulnerable, are effectively protected. Where collective bargaining takes place at a national, sector or industry-wide level, and incorporates multiple employers coordinated across a number of different levels, inequalities between businesses and within businesses are reduced accordingly. On the other hand, where collective bargaining takes place on a narrow basis, that is, the agreement is formed at a business or establishment level, the relative effect is limited to internal inequalities within that specific entity.

New initiatives have been implemented in recent years to encourage collective bargaining and slow the advance of inter-business inequality.

New initiatives have been implemented in recent years to encourage collective bargaining and slow the advance of inter-business inequality. This includes agreements between buyers and their subcontractors to integrate all elements in the supply chain together by way of collective bargaining.

Whilst reducing internal wage inequality has also generated numerous private sector initiatives to self-regulate the salaries of senior executives often based on the concept of greater shareholder involvement. Currently there are people who want to go further than this and wish to discourage short-termism in favour of executive compensation that takes into account the long-term performance of the company concerned. It seems though that cross-business and short-term wage inequality are two sides of the same coin!