UEL Business Union Criticises Plans to Increase Minimum Wage

The Union des Entreprises Luxembourgeoises (UEL), Luxembourg's union for private-sector businesses, has shared its position on the government's plans to increase the minimum wage.

On Friday, Luxembourg's Prime Minister Xavier Bettel announced that the minimum wage would go up 2.8% from 1 January 2021. Following this news, the UEL released a statement in which it expressed concern that "such an increase in the context of the current economic crisis is simply not sustainable".

The UEL argued that any increase in the minimum wage would "destroy more existing jobs" and "prevent the creation of new ones", adding that its priority as a business union is to "preserve the economic fabric and fight against unemployment".

The union explained the exceptional nature of the current situation in Luxembourg, where GDP fell by 7% this year in "an unprecedented economic crisis". The union added that the minimum wage had already increased by over 7% in the past two years and this new increase would come on top of a total cumulative increase of over 70% since 2000. The UEL warned that such an increase is "completely disconnected from the reality of the labour market in our neighbouring countries".

In addition, the UEL maintained that the foreseen 2.8% increase would entail an additional cost of more than €60 million for Luxembourg companies, especially impacting the sectors with many employees on minimum wage - sectors which tend to be those already most affected by the crisis (e.g. hotel and catering, retail and transport). The union argued: "Such an increase will weigh overwhelmingly on these very labour-intensive sectors".

The union added that the compensation of €500 per employee on minimum wage up to the end of June for companies benefiting from the recovery plan (vulnerable sectors) offered "little consolation" due to the increase in wage-related costs. 

According to the UEL, the minimum wage adjustment mechanism is "unfair" in the sense that the increase in wages in certain economic sectors leads to an increase in other sectors, without taking into account the assessment of productivity in these sectors. As a result, the latter see their wage costs increased, "inflicting a further loss of competitiveness vis-à-vis companies in neighbouring countries (not subject to this mechanism) and increasing the risk of losing public contracts".

In addition to the risk of job loss due to possible business failures, the union warned that the minimum wage increase would further increase the difficulties of less qualified people finding employment, which would in turn result in increased unemployment.

Whilst the UEL recognised the difficulty for households earning minimum wage and living in Luxembourg to make ends meet, the union argued that it is a matter of "tackling the problem intelligently", attributing these financial difficulties mainly to rising housing prices - an issue which cannot be solved by increasing the minimum wage: "The minimum wage cannot be the adjustment variable for a stressed real estate market".

Finally, the UEL recalled that the biennial increase in the minimum wage is not automatic.