2023-09-22 14:17:00
It is a bold conclusion that emeritus professor Wiemer Salverda draws Economic Statistical Reports, a journal of economists. In the past, Salverda regularly wrote regarding and conducted research into inequality in incomes and wealth. His main point: Overall, purchasing power increased by regarding 30 percent in half a century. For the minimum income, the increase was 0.
Why is that and why is it not widely known? Salverda goes back to 1969, when the statutory minimum wage was introduced. The aim was for that wage to grow along with other wages: to follow the growth in prosperity. The same goal has existed for benefits since 1974. These were then linked to the minimum wage. Both goals have since been confirmed by a number of cabinets. But in practice little came of it. The idea that minimum wage earners contribute to prosperity growth is, writes Salverda, ‘completely illusory’.
Unique event in the Europe of that time
This is partly due to the policies of a number of cabinets. The Lubbers I cabinet lowered the minimum wage in 1984. ‘A unique event in the Europe of that time’, writes Salverda. After 1984 there were ‘many years’ in which the minimum wage was ‘frozen’. This happened once more in 2004 and 2005. Cutbacks were one reason for this, the idea that a higher minimum wage would lead to job losses was another.
A second explanation for the difference in prosperity growth is somewhat more complicated. The increase in the minimum wage is determined by the increase in the ‘collective wage index figure’. This is calculated by Statistics Netherlands (CBS) and determined by the collective agreements that employers and trade unions make regarding wages.
But that figure, says Salverda, is a lower limit. Employers (sometimes) pay their employees more than agreed in the collective labor agreement. Employees can receive extra increments or promotion. These increases are not included in the CBS index figure.
Pressure applied
The index figure only contains collective labor agreement wages. But these only form a part of all wages, a part that is also becoming smaller. Around a third of all wages are now not covered by a collective labor agreement. Wages without a collective labor agreement, for example in 2006-2019, rose much faster than wages with a collective labor agreement: 5.8 percent compared to 3 percent. Employees with high wages are often not covered by a collective labor agreement. The number of people earning high wages – one and a half times the median hourly wage – is rising. Finally, cabinets have exerted pressure to keep the low collective labor agreement scales low. Salverda: the CBS index figure does not provide a good picture of the general wage level.
Salverda’s conclusions are clear. Since 1984, overall wage levels have increased by 27 percent. But the collective labor agreement wage index has remained the same in almost thirty years. Relatively speaking, the minimum wage is lower than in 1984. According to Salverda, it will be as high in 2022 as in 1972. Salverda also reports that the minimum wage in 1976 was 62 percent of the average wage. In 2021 that was still 37 percent.
Is there anything that can be done regarding it? On January 1, 2023, the minimum wage was increased by 10 percent. A new increase will follow soon. A good thing, says Salverda. This means that ‘the account of the long-term neglect is far from settled’.
The richer people in particular benefit
To compensate for the backlog that minimum wage earners have incurred over the past almost fifty years, the minimum wage would have to increase by almost 30 percent. The same applies to benefits. The latter, writes Salverda, would cost the government approximately 19 billion euros.
That’s a lot of money. But Salverda points out that the labor discount in income tax has increased significantly since 2015: a total of 19 billion. These increases were introduced to make working for a minimum wage more attractive. But according to Salverda, it is mainly the rich and dual-income households who benefit from this labor tax credit.
Peter Hein van Mulligen, chief economist at CBS, was not available for comment on Friday.
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