Government proposes new formula for calculating minimum wage

The Ministry of Labour and Social Policy’s proposal for a new formula for calculating the minimum wage is due to come into effect by 2007. Although the employers have largely welcomed the new proposals, the trade unions have expressed their reservations about the formula.

At the end of May 2006, after two years of discussions with the social partners, the Ministry of Labour and Social Policy (MLSP) proposed a new formula for calculating the minimum wage for employees on permanent contracts by 2007. In accordance with the proposed system, the gross wage is to be calculated on the basis of three main components: about 70%–80% of the payment would constitute the basic wage; 5% to 20% would correspond to additional remuneration for hazardous working conditions; and up to 10% would comprise a bonus for professional experience.

The scheme is being recommended for employees working in the private sector and is proposed as a mandatory stipulation for those working in the public sector. Employers and trade unions will negotiate bilaterally the wages of the different branches and companies within the framework of the percentages outlined above.

Through the introduction of this formula, the government aims to meet the requirements of the International Monetary Fund (IMF) to abolish the separate compensation of hazardous working conditions (BG0411101N) and of allowances for length of service (BG0410201N). These issues have been the subject of considerable controversy, particularly among the trade unions (BG0602103F, BG0501202F,BG0412203F).

Views of the social partners

According to the Confederation of Employers and Industrialists in Bulgaria (CEIBG) (BG0606019I), the formula proposed by the government represents a positive development, particularly as it does not impose rigid parameters. Overall, the initial reactions of the employer organisations underline the flexibility of the proposed formula, which will vary depending on the current economic situation. In their opinion, this means that if a particular sector or company has financial difficulties, it would not be obliged to strictly adhere to the percentages stipulated but could adhere to the economic logic instead.

Meanwhile, the trade unions believe that the new formula will significantly reduce the amount paid for dangerous working conditions and length of service. For example, at present, the amount paid for dangerous working conditions can be as much as 50% of the wage. Therefore, if the new formula is applied, some companies could benefit from having to pay less. Moreover, the trade unions do not accept the notion that the additional remuneration for length of service, which has been applied for more than 50 years, will be adequately replaced by the premium for ‘professional experience’.

Currently, the allowance for length of service is between 0.6% and 1% of the wage for each year of service starting after the first three years of experience. Under the new formula, the government is proposing an upper limit of 10% for 15 years of service, which is therefore considerably lower than the maximum amount for which workers are currently eligible

A number of months ago, the social partners stated that they would try to reach agreement on this issue by the end of May 2006, when they would have to sign, with the government, the Economic and Social Development Pact of Bulgaria (to run until 2009). However, towards the end of May, the Confederation of Independent Trade Unions in Bulgaria (CITUB) announced that it was refusing to sign the pact.

As the largest Bulgarian trade union, CITUB stated that the change of position was motivated by the commitment, made by the government to the IMF, to set a national minimum wage of BGN 170 (approximately €87) per month for 2007. According to trade union calculations, the rising cost of living shows that there are reasonable grounds for insisting on a national minimum wage of BGN 220 (about €112) per month.

In response, the employers outlined that the minimum income should not be increased artificially and through administrative measures. Their view is that disposable income should instead be increased through raising the tax-free allowance and through an ongoing policy of reducing taxes and the social and health insurance burden.

Commentary

It is not yet clear how the negotiations will end, as the trade unions still have major concerns about the proposals.

One of their concerns is that the government will relinquish its role in determining wage levels and allow the levels of additional remuneration to be decided through collective bargaining.

A possible explanation for this attitude on the part of the trade unions is the danger of overestimating the role of collective bargaining. Currently, according to official data of the trade unions, there are around 500,000 trade union members in Bulgaria out of a total of 3,000,000 workers and employees: this means that the level of trade union representation among the labour force has fallen to some 16%–18% of the entire workforce.

Balkan Institute for Labour and Social Policy (BILSP)