Minimum wages threaten the labour market

A people’s initiative is calling for a minimum wage that is higher than in any country with which Switzerland competes as an export economy, says economist Beat Kappeler. The former trade unionist warns of negative consequences for the labour market.

On May 18, Swiss voters will decide on the introduction of a national minimum wage. This union demand would be a novelty in the Swiss wage structure. Until now, there has only been a collective bargaining agreement, negotiated between employers organisations and trade unions and covering only branches, regions or selected businesses.

The minimum wage would be anchored in the constitution. Concretely, it demands a minimum legal wage of CHF22 ($25), indexed to prices and wages from 2011. This corresponds to a monthly pay check of about CHF4,000, according to the unions. Special situations, such as training wages or courses, would be exempt.

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Sector negotiations

The initiative has met resistance from employers’ associations, restaurant owners, hoteliers and retailers. They argue that if the demanded minimum wage exceeds the productivity of these branches and of the export industry, the only option would be restructuration, redundancies and relocation abroad.

In other words, it would be the workers who would bear the brunt. Moreover, wage negotiations would be preferable to state regulation. One can understand this point of view, because despite a generally high level of productivity in Switzerland, there is also a need for work that hardly makes a profit. However, the various sector negotiations take this into account.

Wage-dumping measures

It’s true that the Swiss labour market is regulated by a pretty tight network of collective bargaining agreements which by and large also regulate the minimum wage. But these agreements vary from branch to branch and a few fall below the demanded wage scale. The unions estimate that if the initiative is accepted, around 9% of wage-earners would see their wages increase.

In addition to the collective bargaining agreements are the so-called “supporting measures” which have been in force for ten years and were introduced as part of the free movement of people accord with the European Union. In order to prevent unfair competition and wage-dumping, the law requires branches and regions to adhere to the wages fixed in the collective bargaining agreements. That also goes for companies – often foreign – which haven’t reached a collective bargaining agreement. Commissions which are represented equally by employers, unions and authorities monitor the application of the law and sanction potential abuses.

What’s more, national and cantonal authorities have to declare the wages fixed in the collective bargaining agreements. Thus the negotiated salaries become national minimum wages, which nevertheless vary from branch to branch.

So a part of the Swiss labour market is already controlled by the authorities. But the initiative calls for a change of system – plus an obligation would be placed on authorities to support the minimum wage also in special regional contracts and across all branches.

Beat Kappeler

The 67-year-old economist writes a weekly column in the NZZ am Sonntag.

He has written various books on the Swiss economy, socio-political issues, the financial crisis and Switzerland’s policy on Europe.

He was a lecturer in social policy at the Swiss Graduate School of Public Administration (IDHEAP).

From 1977 to 1992 he was secretary of the Swiss Federation of Trade Unions.

More than the US and Germany

The other aspect is material. The demanded minimum wage exceeds the minimum wage in all countries with which Switzerland competes as an export economy. In the United States, the government of President Obama is pushing for a national minimum wage of at least CHF9. In France, it is €9.53, which is roughly CHF11.55. From 2015 Germany will have a minimum wage of €8.50 (CHF10.30). So it is not only the politicisation of the minimum wage that is controversial but also the amount.

The organisers of the initiative point to the generally high wage levels and cost of living in Switzerland. They also reckon money could be saved on income support. Another argument is that they say it is almost impossible for a family to afford basic costs on less than CHF4,000 a month.

But that is to misjudge the situation of wage-earners at the lower end of the scale. First, it has been proven that almost all households have more than one source of income. Studies by the Organisation for Economic Co-operation and Development (OECD) showed years ago that, with time, low earners often climb up the wage scale. For some people a low salary is therefore a transitional phase, not the final stage of their career. For many young people, immigrants and labour market returners, low salaries are even the key to entering professional life.

Saturated labour market

Voters obviously have to form their own opinion. Considerations that are not directly connected to the issue will also play a role. People are fed up to a certain extent by the bonuses and high salaries of bankers. On the other hand the Swiss labour market is saturated and some people will think that each person can help themselves, without the need for state or union mediation.

The large, export-oriented companies, which have found themselves in a difficult situation since the brutal rise of the franc since 2010, will not refrain from drumming into their employees the need to exercise restraint in this issue. Hopefully this Swiss restraint will also have its way elsewhere.

(Translated from German by Thomas Stephens)