Government increases minimum wage by 10%

On 1 October 2006, the new Slovakian government increased the minimum monthly wage from SKK 6,900 to SKK 7,600 (€199 to €220). This represents a 10.1% rise. The new rate satisfies earlier trade union demands on the minimum wage increase while employers had hoped for a more moderate increase. Major changes in the rules governing the minimum wage are expected. The new government has declared its intention to introduce new legislation on the minimum wage, as well as adopting a new approach to wage increases.

Previous minimum wage

Up to the end of September 2006, the gross minimum hourly wage in Slovakia was SKK 39.70 (about €1.15 as of 22 December 2006) and the gross minimum monthly wage was SKK 6,900 (€199). These figures had been set by the previous government. The government Decree No. 428 of 14 September 2005 had increased the previous minimum monthly wage by SKK 400 (€11.58) (SK0511102F). This represented an increase of 6.2%; the gross minimum wage was thus SKK 1,438 higher than the gross subsistence minimum, which had been set at SKK 5,462 (€158) since 1 July 2005.

Increase in minimum wage

According to the Decree No. 540 of 28 September 2006, the gross minimum monthly wage was increased by SKK 700 (€20.26) to SKK 7,600 (€220) from 1 October 2006. The gross minimum hourly wage rose by SKK 4.00 (€0.12) to SKK 43.70 (€1.26), which represented an overall increase of 10.1%.

As in previous years, the government alone had to determine the level of the minimum wage, as it could not agree on a figure with the social partners by the deadline laid down by Act No. 90/1996 Coll. on Minimum Wage, as amended. The figures above correspond to an adjustment coefficient of the minimum wage level of 0.44 (44% of the gross average monthly wage in the economy SKK 17,274 (almost €500)). This shows that the adjustment coefficient remained the same as in the previous year (44% of SKK 15,825 (€458) in 2005). The current increase by SKK 700 is the second highest annual increase since 2000. At that time, the minimum wage increased in total by SKK 800 (€23.15) – by SKK 400 on 1 January 2000 and by a further SKK 400 on 1 October 2000.

Macroeconomic background

The government took several macroeconomic indicators available for 2006 into account when setting the current minimum wage level. These include: current prognoses of the growth index of the subsistence minimum for an adult (105.3%); the growth index of the average nominal wage in Slovakia (107.2%); gross domestic product GDP growth rate in current prices (109.3%) and in constant prices (105.4%); the growth index of labour productivity calculated from GDP per employee in constant prices (104.2%) and in current prices (109.3%); the growth index of the average number of people in employment (101.1%); the estimated unemployment rate (15.8% according to labour force survey methodology or 11.5% calculated from the unemployment register); and the expected growth index of consumer prices (13.5%).

The new gross monthly minimum wage is SKK 1,850 (€53.53) higher than the gross subsistence minimum valid since 1 July 2006. Moreover, the gross monthly minimum wage now represents 41.04% of the average monthly wage in Slovakia, which is forecast to be SKK 18,517 (€535.86) in 2006, compared with a proportion of 39.94% in 2005. The net minimum monthly wage of an adult without children stands at SKK 6,581 (€190.44), which represents 132% of the current subsistence minimum for an individual (SKK 4,980 equals about €144.11).

Tripartite concertation

The Minimum Wage Act (subsection 3, clause 6a) sets out the rules for tripartite social dialogue on increasing the minimum wage. Tripartite social dialogue on the minimum wage takes place between 15 June and 31 July each year. If the government and social partners cannot agree on the minimum wage level or on the adjustment coefficient by 31 July, the minimum wage is set by the government.

According to the law, the Slovakian Ministry of Labour, Social Affairs and Family (Ministerstvo práce, sociálnych vecí a rodiny Slovenskej republiky, MPSVR SR) submitted in June 2006 two adjustment coefficients to the tripartite Council of Economic and Social Partnership SR (Rada hospodárskeho a sociálneho partnerstva Slovenskej republiky, RHSP SR), namely 0.42 and 0.43. The former would have corresponded to a minimum monthly wage of SKK 7,260 (€210) and the latter to SKK 7,430 (€215). Despite the government’s proposal, the social partners and the government did not reach an agreement on the 2006 minimum wage level in the tripartite concertation held on 28 July 2006.

The Confederation of Trade Unions (Konfederácia odborových zväzov Slovenskej republiky, KOZ SR) was demanding a coefficient of 0.44, leading to a gross monthly minimum wage of SKK 7,600 (€220). The Federation of Employer Associations (Asociácia zamestnávatelských zväzov a združení Slovenskej republiky, AZZZ SR) proposed a coefficient of 0.43, whereas the National Union of Employers (Republiková únia zamestnávatelov Slovenskej republiky, RUZ SR) suggested that the minimum wage should be abolished outright. Prime Minister Robert Fico was also present at the tripartite concertation, and openly stated that he supported the position of the trade unions rather than that of the employers over the issue of the minimum wage. His statement was in line with the new government programme (SK0609019I) announcing a gradual increase in the minimum wage.

Nonetheless, the government promised to explore the possibility of changing the current mechanism for adjusting the minimum wage. It will also look at the fact that the minimum wage level is used as a reference value in an excessive amount of related legislation. Two working groups were set up at the tripartite concertation and should help to fulfil the government’s commitments. These groups began working on 13 November 2006.

Commentary

The tripartite concertation on the minimum wage has shown that the opinions of the social partners on the role and level of the minimum wage differ considerably. KOZ SR is demanding an increase up to 60% of the average gross monthly wage in Slovakia. Given the difficulties in fixing a level acceptable to all parties, however, and taking into account the current unemployment rate, this demand seems unrealistic. AZZZ SR accepts a moderate increase in the minimum wage, while RUZ SR wishes to abolish the minimum wage.

One of the reasons for these important differences in attitudes among the social partners is the lack of statistical data on both the numbers of people working for the minimum wage, and on the impact of an increase in minimum wages on labour costs and employment. According to some social partners, the lack of time available to tripartite social dialogue is a key factor hindering a greater increase in the minimum wage. Another complication is the fact that the minimum wage level is used as an index in a raft of other social legislation, affecting as many as 43 laws. Entrepreneurs, in particular, consider this an excessive burden. In several cases where the minimum wage is used as a reference value, it could be replaced by another indicator, for example, the average wage or subsistence minimum.

The findings of the tripartite working groups evaluating the current mechanism of fixing and increasing the minimum wage will be important for its future development. The working groups will also influence the formulation of draft bills on a new minimum wage act.

Margita Barošová, Institute for Labour and Family Research