Deadlock over 2012 minimum social security thresholds

Annual negotiations among the Bulgarian social partners over social security thresholds have run into difficulties. The thresholds act as sectoral minimum wages in many industries and were introduced to stop employers paying contributions on the basis of the national minimum wage, rather than their workers’ true pay. The average increase agreed across 50 sectors (out of 85) is 7%. Unions welcome this, but employers are worried about burdening firms with extra costs.

Background

Social security thresholds have been agreed for 50 of Bulgaria’s 85 employment sectors, and so far the average increase is running at 7%. If thresholds cannot be agreed in the remaining 35 sectors, then this average would normally be applied across the board. However, because the social partners cannot agree and businesses have raised concerns that increasing the thresholds too much will damage the labour market (BG1009021I), the Minister of Labour and Social Policy Totyu Mladenov has asked the National Council for Tripartite Cooperation to consider whether the proposed general 7% increase is too high.

Social partners’ opinions

According to Plamen Dimitrov, Chair of the Confederation of Independent Trade Unions in Bulgaria (CITUB), the negotiations for the 2012 minimum thresholds have brought some good results. Compared with last year, negotiations have been less complex and resulted in the greater average increase of 7%. In 2011, agreement was reached for only 30 of 77 employment sectors and thresholds increased by an average of 5.6%. Labour productivity grew during the year at a relatively high rate of about 5%–6% and industrial production in some sectors is doing well. In these circumstances, Minister Mladenov is obliged by law to extend the average increase to all other industries.

However, the Executive President of the Bulgarian Industrial Association (BIA), Bozhidar Danev, argues that the economic climate remains uncertain and there is a very real risk of another recession. He said the priority should be maintaining employment, not burdening businesses with an increase in social insurance levels and wages. He added that the higher social insurance thresholds would be a severe blow to small and medium-sized enterprises (SMEs) which are just managing to survive. Mr Danev also wants the law changed so that social security thresholds are recommendations for SMEs rather than a statutory obligation. He insists that before making such a decision, the impact must be assessed by the social partners, including on income and financial stability of the National Social Insurance Institute (NSII).

The sticking point

The main point at issue is whether the practice of negotiating the minimum insurance thresholds stops employers paying lower amounts than legally required, or whether the increased contributions will tempt employers to try to evade paying them. According to some liberal economists the rise in the thresholds comes at a difficult time for the labour market as it may lead to a growth in Bulgaria’s informal economy. However, trade union experts are adamant that if there are no minimum insurance thresholds, employers will pay social insurance based only on the national minimum wage.

Commentary

Minister Mladenov is in a delicate situation. He is legally obliged to impose an ‘administrative increase’ on economic activities which do not have a threshold agreement, but he is also under great pressure from employers who oppose the rise. He too is not convinced that raising the threshold is a good idea, and has asked the National Council for Tripartite Cooperation to discuss the matter, with the expectation that the social partners will manage to achieve a ‘correct and fair decision’. However, the issue may not be as serious as it seems. The sectors concerned are ones in which:

  • workers are generally insured on the real amount of their wages;
  • the economic situation is favourable and it would not be a problem for most employers in these sectors to increase security thresholds by an average of 7%;

They include forestry, the production of tobacco products, printing and publishing, chemical and pharmaceutical industries, transport and storage, the financial and insurance sector, information technology, and health and culture.

It seems that the conflict between the social partners has more to do with the negotiation system and its existing rules rather than the prevention of any negative effects on the labour market.

Lyuben Tomev, Institute for Social and Trade Union Research (ISTUR)

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