DISCUSSIONS over increasing the minimum wage often end in a dispute between trade union representatives and employers, with the former supporting an increase and the latter insisting it will hurt businesses. After the two sides had previously failed to reach an agreement, the Labour Ministry stepped in and increased the minimum wage by 3.2 percent to €327.2 in 2012 and to €337.7 in 2013. In 2011 the minimum wage rose by 3 percent to €317, the SITA newswire reported.
Recently, the Institute for Economic and Social Studies (INESS), an economic think tank, came with its own proposal to actually decrease the minimum wage to €1, or to a sum which will minimise its impact on the labour market, and to introduce a payroll allowance. INESS says this would increase the net salary of low-income employees and maintain their level of social welfare, and support job creation for low-qualified people and long-term unemployed.
Despite the aim to fight poverty and increase the social standard of working people, “the effects of the minimum wage are often counterproductive and do not achieve the declared goals”, INESS explained when presenting the analysis. The institute called the increase in the minimum wage “only a business” in which the rise in wages of one group of employees results in the loss of jobs for another group. INESS added that its alternative will increase both net income and the employment rate.
While the representatives of employers welcomed the proposal, the trade unions defend the institute of the minimum wage, saying it is important for Slovakia.
The introduction of the payroll allowance would mean a decrease in the payroll-tax burden of employees with gross income of less than €555. Currently, payroll taxes represent 36 percent of every euro of an employee’s labour costs. After implementing the payroll allowance, an employee’s net income would increase, according to INESS’ calculations.
Moreover, the allowance will support the creation of about 10,000 new jobs, as the total labour costs for employers will decrease, INESS predicts.
On the other hand, the payroll allowance would result in the loss of state income equalling about €330 million, INESS said, adding that the state could try to compensate for it through other sources.
If its proposal is not accepted, INESS suggests an alternative: eliminating the minimum wage only for people younger than 30 and in regions where unemployment exceeds 10 percent.
The proposal provoked various responses.
“If the government has the interest to increase the net salaries of low-income employees, it should happen through the payroll allowance, not through an increase in the minimum wage,” Martin Hošták, secretary of the National Union of Employers (RÚZ), told The Slovak Spectator.
Regarding lowering the minimum wage to €1, Hošták said that RÚZ has been trying to open a discussion over the total abolishment of the minimum wage, explaining its negative impact on the labour market.
Branislav Masár, executive director of the Federation of the Employers’ Associations (AZZZ), told The Slovak Spectator that if there is a discussion over a decrease in the labour costs for employers and an increase in the net salary of employees, they will support it.
Yet, trade union representatives disagree with INESS’ recommendation, saying “the abolishment of the minimum wage would be serious interference in the system of labour-law relations”, Martina Nemethová, spokesperson for the Confederation of the Trade Unions in Slovakia (KOZ), told The Slovak Spectator.
No agreements have been made yet
The representatives of the employers and trade unions have already met to discuss the minimum wage. Since their July 15 deadline for making a final deal was not met, the Labour Ministry was, based on the law, expected to submit its own minimum wage proposal by the end of July. The social partners will discuss it at their next meeting, slated for August 12.
“The Labour Ministry has the interest in increasing the minimum wage by a real and rational amount, which takes the possibilities of the current Slovak economy into account,” Michal Jurči from the ministry press department told SITA.
Though the ministry did not specify a sum, based on the law on minimum wage, it should increase by at least 2.4 percent, i.e. by about €8 per month. The sum is calculated so that the index of the year-on-year growth of the average monthly wage is added to the current level of the minimum wage. The ministry also has to take into consideration the development of consumer prices, employment and living wages, the Sme daily wrote.
Yet, the trade unions propose to increase the minimum wage by 8 percent, to €364.7, explaining that the net salary of low-income employees should not be lower than the poverty level, currently standing at €315, Nemethová of KOZ said.
Regarding possible compromises over the final agreement over the minimum wage, KOZ is “willing to accept measures which will solve the current deplorable status of the working poor”, Nemethová told The Slovak Spectator.
On the other hand, the representatives of employers say that the minimum wage should not increase next year since there are still problems with employment and with companies eliminating jobs rather than creating them, Masár of AZZZ said.
“Since it is an artificial pressure evoked by law, it might not help the economy under the current conditions,” Masár added.
Regarding a possible compromise in discussions over the minimum wage, Hošták of RÚZ proposed freezing the minimum wage until the jobless rate decreases to a certain level. The association proposes 10 percent, but Hošták said there is room for discussion.
Minimum wage harmful to labour market
The INESS’ document contains a list of several ways in which the minimum wage negatively impacts the labour market, for example, by increasing in the number of unemployed, especially when the minimum wage is higher than the market wage in the selected field or region. Moreover, it harms low-income and low-qualified workers the most, as the increase in wages of one group of employees results in the dismissal of another group, INESS explained in the analysis.
The minimum wage also fights poverty selectively, rather than broadly, since, while it helps one group of low-income employees, it harms people who either lose their job or are unable to find work because of low demand from employers. In addition to this, it negatively affects the employment of young people and limits their chances of finding a first job, according to the institute.
Hošták said that the INESS analysis in fact confirmed RÚZ’s claim that the minimum wage deforms the labour market and employment.
KOZ, on the other hand, considers the whole document “an intentionally compiled mixture of opinions which should serve to maintain or increase the profit of those who ordered the analysis”, as Nemethová told The Slovak Spectator.
Slovakia does not observe the international documents stipulating that an employee should receive a salary that will secure him and his family a respectable livelihood. This is contained in the Slovak constitution, she added.
“The reality in Slovakia is that the current minimum wage does not protect [employees] from poverty,” Nemethová said, adding that if the minimum wage was set above the poverty line, any negotiations over its increase would be unnecessary.