Debate over minimum wage for 2005

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In the context of debate over the government's draft state budget for 2005, Poland's Tripartite Commission for Social and Economic Affairs has been debating the level of the national minimum wage. The government has proposed a 3% increase in 2005, which is supported by employers but opposed by trade unions, which want a larger rise. With no compromise reached by October 2004, it appears that the government's proposal will prevail.

The Tripartite Commission for Social and Economic Affairs (Komisja Trójstronna do Spraw Społeczno-Gospodarczych) (PL0210106F) began discussions of the main premises of the 2005 budget in July 2004. The government's draft provided for an increase in the statutory national minimum wage of 3% (PL0211109F). This proposal was vigorously supported by representatives of the Ministries of Finance and of the Economy. The Deputy Minister of Finance, Wiesław Szczuka, sought to convince the trade unions represented on the Tripartite Commission by arguing that, given the present condition of the economy, increases in the minimum wage may contribute to 'spiralling prices and pay', and that it would be better to shore up the purchasing power of the lowest-paid workers by means of effective social aid (though adding that welfare transfers should not substitute for work).

The general position taken by the government has been endorsed by the National Bank of Poland (Narodowy Bank Polski, NBP), whose representatives have made it clear that the Monetary Policy Council (Rada Polityki Pieniężnej, RPP) is determined to meet its inflation target (of up to 2.5%) and that, should wages begin to increase too quickly, it will not hesitate to react to the inflationary pressures thus generated by increasing interest rates. An increase in Polish interest rates, it is widely agreed, could stifle the beginnings of the economic recovery presently in evidence.

The Minister of the Economy, Jerzy Hausner, has argued that workers' 'excessive' expectations with respect to wage increases are based on premature anticipation of certain phenomena in the Polish economy which need not necessarily materialise. Minister Hausner also noted that the minimum wage is received by roughly 4.2% of all employees in Poland, ie by only a few hundred thousand people, and that it would be fairer to devote more attention to combating unemployment, a problem that affects some 3 million people. If unemployment is to be reduced in any meaningful way, he argued, the minimum wage should best be kept as it is.

At the of the 6 July budget debate in Tripartite Commission, the chair of the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) (PL0208105F), Jan Guz, stated that an increasing number of Poles are subsisting below the social minimum. He thus called for a discussion concerning an increase in the minimum wage index. The issue was duly broached on 20 July and on 9 September during sessions of the Commission proper, and it was also discussed by the Commission’s 'problem team' for budgetary, remuneration, and social benefits issues during its meeting on 31 August. In spite of these attempts, no compromise with respect to the minimum remuneration has been achieved by October, and the draft of the budget act will incorporate the proposal first made by the government and endorsed by the employers' organisations (see below), whereby the minimum remuneration will be increased by 3% in 2005.

Social partners' views

The employers' organisations and trade unions have taken widely divergent views concerning the increase, or otherwise, in the minimum wage. The employers have expressed unreserved approval of the government position whereby the minimum wage cannot be increased by more than 3%, while the unions are unhappy with this proposal.

Henryka Bochniarz of the Polish Confederation of Private Employers (Polska Konfederacja Pracodawców Polskich, PKPP) (PL0209104F) has emphasised that the economic growth now experienced by Poland should not be taken for granted and that, accordingly, it is more advisable to focus on sustaining this growth rather than to 'clear the plate', eating up the immediate benefits of an upturn which may stall any day. PKPP maintains that small and medium-sized enterprises have generally refrained from making large investments and from hiring new personnel, waiting for a time when the economic recovery seems more stable; this stability would certainly be compromised by the increase of interest rates which must inevitably follow if wages grow by too much, too fast. Representatives of other employers' organisations concur with this view. Jeremi Mordasewicz of the Employers' Union of the Business Centre Club (Business Centre Club - Związek Pracodawców, BCC - ZP) has added that, if one compares the minimum wage in Poland with that in other countries around the region (PL0312105F), it is higher, while productivity is lower. He also maintains that the improvement of the economic climate may encourage an increase in pay or an increase of new job creation and hiring, on an 'either/or' basis; both cannot be sustained at once.

Representatives of the trade unions, meanwhile, have joined in a chorus of criticism of the government proposals concerning the minimum wage. They have repeated on numerous occasions that there are many people who earn barely enough to make ends meet. The unions argue that people who work ought to be assured of remuneration at a level that guarantees a modicum of financial comfort, so that they do not have to fall back on social aid. The unions have also accused Prime Minister Marek Belka of not living up to previous declarations about how economic growth should bring tangible benefits to all of society, not just to the business community.

Since the beginning of the Tripartite Commission talks, the unions have steadfastly maintained that the minimum wage should be increased by 5.5% in 2005. The government and employers do not agree, and no compromise solution - something between the two extremes of 3.0% and 5.5% - has thus been reached.

Commentary

It appears that the failure to attain agreement within the Tripartite Commission will mean that the minimum wage will be increased in 2005 by the 3% originally proposed by the government, with the effect that the minimum monthly wage of a full-time worker in gross terms will be PLN 849 (up from PLN 824 in 2004). Such an outcome would meant that the arguments put forward on this issue by the unions have been entirely ignored. Thus, the net effect of the Commission's discussions would be nil, and the unions may hold a grudge - they have already accused the government of failing to take due account of the social partners.

Seeking somehow to address the expectations of employers' organisations (which do not want higher labour costs) as well as of the unions (which want an increase in the minimum wage), the Minister of the Economy, Jerzy Hausner, has proposed an 'activation' exemption. The idea would be to increase the tax-deductible expenses associated with the income of the lowest-paid workers, thus increasing their net earnings, while reducing deductible expenses for those earning more than the average remuneration. Under one variant, the monthly activation exemption for the lowest-paid workers would be PLN 270 and gradually decrease towards higher levels of the income scale, reaching nil for a worker earning PLN 3,480 a month.

The problem, however, is that the government formulated its proposal concerning the activation exemption somewhat late in the game, leaving the social partners with very little time to analyse it. The discussion, presumably, will be taken up after the social partners have considered the proposal and its ramifications.

The indubitable advantage of the activation benefit is that it entails absolutely no negative consequences for the state budget, so the government need have no qualms about propagating it. The question remains, however, whether all the social partners can be won over to it. (Piotr Sula, Institute of Public Affairs [Instytut Spraw Publicznych, ISP] and Wroclaw University [Uniwersytet Wrocławski])

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