Small minimum wage increase agreed

At the end of December 2011, Estonia’s social partners agreed to increase the monthly national minimum wage from €278 to €290 from 1 January 2012. This increase was surprising, as employers had rejected the idea in September, saying that the economy was still weak. Although the increase was well below the 15% demanded by union negotiators, it is being regarded as a step forward after three years of standstill, given that this is the first time the minimum wage has changed since 2008.

Three-year standstill

Before the December 2011 agreement to increase the minimum wage in Estonia, the last increase had been agreed in November 2007, when the social partners decided to raise the monthly minimum wage from €230 to €278 in 2008 (EE0712019I). This 21% minimum wage rise was one of the highest ever. By the end of 2008, however, it was clear that the economic situation would continue to deteriorate for some time and the employers’ representative, the Estonian Employers’ Confederation (ETTK), refused to increase the minimum wage for 2009 despite several negotiation rounds with the Estonian Trade Union Confederation (EAKL) (EE0902039I). In September 2009 EAKL proposed an increase for 2010, but ETTK again refused, saying that the economy was still fragile despite signs of improvement. In November 2010 ETTK announced it would be good to wait at least a year before considering any increase in the minimum wage.

The following May, arguing that preconditions set by the employers for any increase had been met, EAKL again pushed for a minimum wage increase starting from July 2011. The union confederation pointed out that with prices rising sharply, it was vital to increase the purchasing power of those on the minimum wage (EE1107019I). However, employers again rejected EAKL’s proposal and even suggested that the minimum wage in its current form should be abandoned.

Negotiations over the national minimum wage in 2012

At the end of September 2011, EAKL again proposed an increase from 1 January 2012, saying that the purchasing power of the 2008 minimum wage had decreased by almost 20%, and was possibly not enough to purchase basic goods. EAKL also argued that the economy, average wage and employment levels had all grown, while real wages had decreased for the tenth quarter in a row. Yet again ETTK said that the EAKL proposal to raise the minimum wage to €320, an increase of 15%, was not possible because of difficult economic circumstances. However, despite employers’ rigid opposition, the government announced on 14 December 2011 that the minimum wage would rise by around 4% from €278 to €290 starting on 1 January 2012.

Social partners are satisfied

The Chair of EAKL, Harri Taliga, said that although a €12 increase was not what the trade unions had requested, it was a positive step forward after three years of standstill. He also said the increase signalled that it was time to increase wages overall even though, despite some growth in business turnover, there was no certainty of what lay ahead.

The Chair of ETTK, Tarmo Kriis, said that this year’s negotiations were constructive and that, since employees’ representatives were ready to compromise, employers accepted the minimum wage had to be increased. He also hoped that despite difficult times ahead, the increase would not affect employers’ competitiveness. If the economy did not shrink again, he added, it was possible that the minimum wage might be increased again next year.

Commentary

The national minimum wage was fixed by a tripartite agreement from 1992 until 2002. Since then it has been negotiated between the social partners EAKL and ETTK. Based on their agreement, the government enacts legislation that puts the national minimum wage into effect. The Estonian national minimum wage remains one of the lowest in the EU, and in 2010 it represented 35% of the national average wage.

Liina Osila, PRAXIS Centre for Policy Studies