Minimum wage to see record high increase

THE LABOUR Ministry has proposed the highest minimum wage increase in the last few years. As of next year, the minimum monthly wage should rise by 7.95 percent (or €28) to €380. In previous years the increase oscillated around 3-4 percent. The proposal still has to be approved by the cabinet in order to appear on the payroll of low-income employees. The trade unions, however, want a higher increase in the minimum wage, while employers say the minimum salary should not rise at all. The representatives of towns and villages are likely to support the wage increase, but a lower one than what the ministry has proposed.

The proposal came after the social partners failed to make a deal by July 15 over the minimum wage for next year. The amount should, as the ministry explained, solve the problem wherein the net income of those earning only the minimum wage did not reach the poverty line, set at €346 in 2012.

In return for accepting a higher minimum wage, the ministry has proposed decreasing employers’ contribution payments for their employees. Thanks to this measure, employers’ labour costs will not increase and they will not be forced to dismiss employees, the ministry claims.

“The aim is to significantly increase the net income of people with low salaries and simultaneously not to decrease their attractiveness in the eyes of companies,” Labour Ministry spokesperson Michal Stuška said, as quoted by the TASR newswire, on July 23.

The ministry has not specified whether it will decrease the payments to the social insurer or to the health insurers. The detailed proposal will be presented to the tripartite at an August 18 meeting.

The Confederation of Trade Unions (KOZ) was proposing an even higher amount: €400 a month. Similar to the ministry, it claimed that the net sum people earn should be above the poverty line. KOZ will insist on this amount at the next tripartite meeting, Martina Nemethová, spokesperson for KOZ, told The Slovak Spectator.

The Association of Towns and Villages of Slovakia (ZMOS) also supported the minimum wage increase, but not by more than 5 percent, i.e. to €369.6 a month, TASR wrote.

On the other hand, the employers’ representatives did not support increasing the minimum wage, saying it is not a good move in the current economic climate. Martin Hošták, secretary of the National Union of Employers (RÚZ), said the minimum wage should not rise as long as the unemployment rate remains above the European Union’s average, as reported by TASR. Slovakia’s jobless rate stood at 12.78 percent in June, while in the EU it was only 10.2 percent.

“If the minimum wage increases, it will harm the labour market,” Hošták said, as quoted by TASR.

Though the Federation of Employers’ Associations (AZZZ) also does not see the rise of the minimum wage to €380 as a good thing, it supports a discussion about increasing the minimum wage while decreasing the labour costs of employers. This could motivate employers to create more new jobs for minimum wage-earning employees and decrease the number of jobless, according to the AZZZ.

“Employers have been calling for decreasing the payroll tax burden for low-income groups for a long time,” Rastislav Machunka, head of the AZZZ, said in a statement provided to The Slovak Spectator.

He added that the employers will welcome the move if the drop in the payroll tax burden results in an increase in the disposable salaries of low-income employees. The higher salaries will then result in increased consumption and, finally, in higher tax income for the state and better GDP, Machunka continued.

Also, KOZ supports the idea of decreasing employers’ payments, but stresses this should include health transfers, since the decrease in contributions to the social insurer, Sociálna Poisťovňa, would affect pensions in the future, as reported by the public-service Slovak Radio (SRo).

Though lower labour costs can diminish the negative effects of a higher minimum wage, they will not eliminate them, warns Radovan Ďurana, analyst with the Institute for Economic and Social Studies (INESS) think tank. According to him, the proposal will not help create more new jobs than now.

He went on to say that the decrease in health transfers, for example, would be unfortunate, as it unnecessarily interferes in the health insurance market. He stressed that even today the payments for state policyholders are not enough.

“The ideal solution would be to abolish the minimum wage and to subsidise the payroll taxes in social insurance,” Ďurana told The Slovak Spectator. “Only this can help increase the net income of employees and decrease the labour costs of employers.”