Government increases minimum wage

In September 2003, the Latvian government increased the national minimum wage by 14.3%, in line with a seven-year plan to double the minimum wage adopted in May. The government also approved an indexation-linked increase in pensions.

According to Latvian labour law, the minimum wage paid may not be lower than the minimum set by the government. The national minimum wage is not linked to any specific economically-based income indicator, with the cabinet determining the minimum wage for 'normal-time' employees and the minimum hourly rate on the basis of fiscal and social considerations. On 27 May 2003, the government announced that it planned to double the national minimum wage over a period of seven years (LV0307101N). The current monthly minimum of LVL 70 (EUR 106) for full-time employees will be increased to LVL 318 (EUR 210) - ie 50% of the average gross wage - by 2010. In 2004, the minimum wage will be increased by 14.3% to LVL 80 (EUR 121) a month. In subsequent years, the rate of growth will be slower, at an annual average of 9.4%-10.2%. These increases in the minimum wage are possible due to rapid economic growth and efforts to combat the undeclared payment of wages.

In line with this plan, on 22 September 2003 the government adopted a regulation providing that from 1 January 2004 the minimum monthly wage for normal working hours will be LVL 80 (EUR 121), while the minimum hourly rate will be LVL 0.474 (EUR 0.72). The minimum hourly rate for teenagers, and for employees subject to specific risks with normal working hours of seven hours a day and 35 hours a week, will be LVL 0.542 (EUR 0.82).

The socio-economic role of the minimum wage is not very significant. It sets a protective framework for the income of employees, and serves as a basis for determining non-taxable income (bonuses and other payments granted by employers). Furthermore, the teachers’ pay scheme is linked to the minimum wage and the pay levels of civil servants are measured against it. The minimum wage is also extensively used as the basis for determining the amount of administrative penalties.

In previous years, attempts to coordinate the different interests of trade unions, employers’ associations, municipalities and the government with regard to increases in the minimum wage have strained the social dialogue. However, on this occasion the government's proposal was almost not discussed at all. There may be two reasons for this. First, the minimum wage increase adopted in September corresponded to the decisions on the progress of the minimum wage already taken in May, which had been discussed beforehand. Employers stress that the precise implementation of this plan means that the government’s actions are predictable and businesses have enough time to adjust to the new rates. Second, the decision on the minimum wage increase was adopted in a context where the government's stability was under threat, and any unnecessary protest might have brought unforeseen consequences.

In addition, the level of minimum wage amount is not particularly high - it currently equals 85% of the monthly 'complete minimum consumer basket of goods and services', which stood at LVL 94.14 (EUR 142.4) in June 2003. This 'basket' consists of the amount of goods and services which is regarded as providing the minimum level of living standards accepted by society. The content of the basket was set by Decision No.95 adopted by the cabinet in April 1991. The value of the basket is calculated by the Central Statistical Bureau (LR Centrālā Statistikas pārvalde, CSB) on a monthly basis.

The minimum wage increase might have significantly influenced employment in municipal and public institutions if it was not taken into account during budgeting. Nevertheless, at present the consequences of the minimum wage increase in this area have not not debated.

The government has also applied the state pension indexation stipulated by the Pension Act, which had hitherto been implemented irregularly. From 1 October 2003, pensions will increase by LVL 2.4 (EUR 3.63) per month on average. Pensions worth up to LVL 90 (EUR 136) per month - which are received by 568,000 pensioners - will increase by LVL 2.37 (EUR 3.58) on average, while those worth from LVL 90.01 (EUR 136) to LVL 150 (EUR 227) - received by 27,000 pensioners - by LVL 3.91 (EUR 5.92) on average. The previous pension indexation took place in 2002 when the pension was increased by LVL 1.3 (1.97) on average from 1 October 2002. Pensions worth up to LVL 90 a month are indexed on the basis of the inflation increase and 25% of average increase in actual wages, while higher pensions are indexed only on the basis of the inflation increase.