No agreement reached on minimum wage increase

In December 2004, the Tripartite Council of the Republic of Lithuania debated an increase in the national minimum wage, but the social partners and government were unable to reach agreement on the rise.

At present, the national minimum wage in Lithuania is LTL 500 (EUR 145) per month and LTL 2.95 (EUR 0.85) per hour. These minimum wage rates were established after Lithuania joined the EU on 1 May 2004. In September 2004, the Ministry of Social Security and Labour (Socialinės apsaugos ir darbo ministerija, SADM) proposed to the social partners a 20% increase in the national minimum wage. However, it was decided to suspend debate on the issue until any potential negative consequences of such a rise had been assessed (LT0410101N).

On November 2004, SADM was given a report on 'research into the preconditions for and consequences of the increase of the minimum wage' conducted by the Institute of Labour and Social Research. The report concludes that the research shows the existence of all the preconditions for an increase of the monthly minimum wage up to LTL 600 (EUR 174) (it is also maintains that LTL 600 is too low and the rate should therefore not be differentiated by economic activities, regions or groups of employees). According to the research, in the light of rapid economic growth, such an increase should not have a substantial negative effect on the national economy. Over 2000-3: gross domestic product increased by 24%; labour productivity by 20%; and the profit of non-financial undertakings by 520%. However, over this period the average wage increased by only 9% and the minimum wage by 5%.

On the other hand, in order to protect companies that cannot afford to pay the increased minimum wage rate, the authors of the research proposed a mechanism that would enable such companies to exercise defer paying the increase - the consent of the employees of each company concerned would be a part of such a mechanism.

As Lithuania has generally low wages and a relatively high labour tax burden, the mentioned research finds that, in the event of a LTL 100 (EUR 29) increase in the monthly minimum wage, employers’ increased costs would be distributed as follows: 48.9% would go directly to the employee; and 51.1% would be shared by the State Social Insurance Fund and the state budget. This calculation serves as a basis for a recommendation in the research's conclusions that the increase in the minimum wage should be accompanied by a simultaneous reduction of the tax burden falling on the lowest-earning employees.

Though the government and social partners agreed with the conclusions of the report in principle, when the issue of the increase in the minimum wage was discussed at the Tripartite Council of the Republic of Lithuania (Lietuvos Respublikos Trišalė taryba, LRTT) on 7 December 2004, it was only the representatives of trade unions that unambiguously supported the idea of increasing the minimum wage. Representatives of employers and the government opposed the increase, though without indicating any substantive arguments. Taking into consideration that the sitting of the LRTT was held when a new government was still in the process of formation after recent parliamentary elections, the parties resolved to defer discussion of the minimum wage increase to the next session of the LRTT, the fourth time the Council will have debated the issue in six months.