Minimum wage at a standstill after another round of negotiations

Estonian employers have turned down a union proposal to raise the national minimum wage by 17% from 1 July 2011. The current minimum has not risen since 2008. The trade unions used significant price rises to justify their demand. However, employers said it was too soon to increase the minimum wage, as only around 10%–15% of employers are in a position to pay higher wages. While the minimum wage will not be raised for now, the social partners agreed to restart negotiations in September 2011.

Background

The minimum wage is settled between the Estonian Trade Union Confederation (EAKL) and Estonian Employers’ Confederation (Eesti Tööandjate Keskliit) during annual bipartite negotiations. The national minimum wage in Estonia has not changed since 2008, when it was increased by 21% (EE0712019I). When the economic recession began soon afterwards the minimum wage was frozen at this level. The minimum wage is low compared with the national average wage; in 2010 it stood at only 35% of the national average monthly wage of €792.31. The European Union has recommended that the minimum wage should stand at 60% of the national average wage.

Negotiations over new national minimum wage

The negotiations over a new national minimum wage have lasted since September 2008, but so far the parties have not reached an agreement. In September 2008, trade unions proposed that it be raised from €278 a month to €335 in 2009. EAKL argued that the minimum wage should be increased even in the adverse economic circumstances, as the cost of living is constantly increasing. However, the employers turned down the trade unions’ proposal, arguing that the situation in the labour market is very serious. They even proposed that the minimum wage be frozen until the situation improved. As the parties could not reach an agreement, the minimum wage was not increased for 2009.

One year later, in September 2009, trade unions proposed to increase the minimum wage to €320 from 1 January 2010. However, in November 2009, the employers decided that before negotiations on increasing the minimum wage could even begin, the economy should grow for at least four quarters in a row. The Employers’ Confederation stated that it was too soon to increase the minimum wage as the economy was still in a fragile state, although it was showing early signs of improvement.

In May 2011, trade unions made another attempt to increase the minimum wage, proposing that it be increased to €325 a month starting from 1 July 2011. EAKL stated that since prices have risen sharply in recent years, it is important to increase the purchasing power of those receiving the minimum wage. This was also the reason why they increased their demand from €320 to €325 during the previous negotiations. As preconditions set by the employers to observe economic growth over four consecutive quarters had been fulfilled and the unemployment rate was declining, the Employers’ Confederation decided to conduct a survey among its affiliates asking if they would be prepared to increase wages in the coming months. However, only 10%–15% of the employers answered that they were ready to do so and therefore the Employers’ Confederation declined the EAKL proposal to increase the minimum wage from 1 July 2011. As a result, the minimum wage remains unchanged.

Reactions from social partners

After the negotiations, the Chair of the Employers’ Confederation, Tarmo Kriis, proposed that the minimum wage in its current form should be abolished and another method used to calculate minimum income rates. He suggested that the minimum income could comprise different components and take into account such factors as benefits and the general economic situation. However, the chairman of the EAKL stated that the minimum wage exists in most countries in the European Union and that there is no need for any alternative. EAKL also stated that the employers’ decision not to increase the minimum wage highlighted employers’ low social responsibility. Despite differences in opinion, both sides agreed to start a new round of negotiations in September 2011.

Commentary

The national minimum wage in Estonia is currently one of the lowest in the EU, exceeding only the minimum wages in Latvia, Romania and Bulgaria. According to various estimates, around 15,000 to 100,000 workers in Estonia are on the minimum wage.

Liina Osila and Kirsti Nurmela, PRAXIS Centre for Policy Studies