Doubts raised over future minimum wage increases

In 2003, the Latvian government adopted a schedule for increasing the national minimum age over the period up to 2010, bringing it to 50% of the average gross monthly wage. So far, the government has observed the schedule, but in July 2004 it indicated that it may not be possible to implement the planned increase for 2005.

On 27 May 2003, the government adopted a schedule for increasing the statutory national minimum wage, after lengthy discussions between the social partners. This schedule provided for a gradual increase in the minimum wage to stand at 50% of the average gross monthly wage for the previous year in 2010 (LV0307101N). In accordance with the schedule, the monthly minimum wage was raised from EUR 90 to EUR 105 in 2003 and to EUR 120 from 1 January 2004 (LV0310101N). In 2004 the minimum wage represents 41.7% of the average gross monthly wage in 2003.

In mid-July 2004, the Prime Minister, Indulis Emsis, told the press that at present he did not see a possibility of continuing to increase the minimum wage in 2005 (despite rapid economic development and a positive public fiscal situation). According to the schedule, in 2005 the minimum wage is supposed to reach EUR 133 per month, almost 45% of the average gross monthly wage in the first quarter of 2004.

The Prime Minister argued that various measures are planned over 2004-5 to improve the social situation, and these will all require additional funds from the state budget. In 2004 it is planed to raise the minimum tax-free threshold, which is very low in Latvia at just EUR 31 a month (LV0406101N), while there will also be increases in pensions (by about EUR 6 a month) and teachers’ salaries (LV0406102F). In 2005, there will be an increase in social benefits paid to families after the birth of a child. These measures cannot be delayed and their implementation demands additional budgetary resources, said Mr Emsis, and therefore some other plans must be cancelled.

The Minister of Finance, Oskars Spurdziņš, has also announced that it will be impossible to find funds in the 2005 state budget for all anticipated needs. For example social benefits to families after the birth of a child (the 'child-raising benefit'), which may be set as 70% of the average wage of the parents, will cost at least EUR 30 million.

Statements made by senior officials have not made it clear what is to happen to the minimum wage in future. The schedule adopted in 2003 anticipated that the monthly minimum would be EUR 146 in 2006, EUR 160 in 2007, EUR 175 in 2008, EUR 192 in 2009 and EUR 210 in 2010. The predicted increase in the average gross monthly wage - 42% over a six-year period - accords with this trend. However, it is likely that, as measure to combat illegal employment intensify (LV0402101N), the increase in 'visible' wages could be more rapid.

There have been no proposals to slow the pace of increasing the minimum wage. Taking into account that it is already worth almost 42% of the average gross monthly pay, this approach is seen by some commentators as a good compromise between the fulfillment of the adopted law and maintaining budgetary stability. The schedule for raising the minimum wage provides for rapid increases in the initial years and a slower rate of increase in the latter part of the period up to 2010.

The current minimum monthly wage is equal to 81% of the monthly average value of the 'minimum basket' of consumer goods and services per capita, which stood at EUR 149.60 in May 2004.

According to recent Eurostat statistics, Latvia has the lowest minimum wage among those EU Member States that have such a mechanism. Furthermore, Latvia has the EU's highest proportion of workers receiving the minimum wage, at 15.4%. Experts ascribe this to the widespread prevalence of undeclared 'under the table' wages, but note that even in such cases the state-determined minimum wage provides a guarantee of sorts.

The social partners have not yet expressed any views on the government’s plans.