Minimum wage increase suspended

In September 2004, the Lithuanian Ministry of Social Security and Labour 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 have been assessed.

The Labour Code (Lietuvos Respublikos darbo kodeksas) stipulates that national minimum hourly and monthly wages are to be laid down by the government upon submission of a proposal by Lithuania's top-level tripartite body - the Tripartite Council of the Republic of Lithuania (Lietuvos Respublikos Trišalė taryba, LRTT). Moreover, the Code stipulates that, on the recommendation of the LRTT, the government can specify different minimum hourly and minimum monthly wages for different economic sectors, regions or employee groups. The minimum wages stipulated in collective agreements can be higher than those specified by the government.

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 in 1 May 2004. About 18% of all wage earners and about 10% of full-time employees are paid at or below the minimum wage.

On 21 September 2004, on the initiative of the Ministry of Social Security and Labour (Lietuvos Respublikos Socialinės apsaugos ir darbo ministerija, SADM) the issue of minimum wage increases was considered by the LRTT. The Ministry stated that national macroeconomic indicators - ie the growth in gross domestic product (GDP) and labour productivity - observed over 2000-3 were considerably higher than the increase in both average and minimum wages and have, therefore, created favourable conditions for raising minimum wages. Over 2000-3, Lithuania's GDP increased by 22.4% and labour productivity by 20.3%, while the average wage rose by 8.7% and the minimum wage by 1.6% only. In spite of the relatively fast recent growth of the minimum wage - it went up from LTL 430 per month to LTL 450 in September 2003, and then to LTL 500 in May 2004 - the ratio of the minimum to the average wage has been declining since 1998. In 1997, the minimum wage accounted for 48.1% of the average wage, while in 2003 it accounted for only 41.4%. In the second quarter of 2004, despite the increase of the minimum wage to LTL 500, it still represented only 40.9% of the average wage.

Taking into consideration macroeconomic changes, the forecast rate of inflation, the growth of the average wage in 2005 and increasing labour emigration from Lithuania, the Ministry of Social Security and Labour proposed to the social partners that the monthly and hourly rates of the minimum wage be increased to LTL 600 (EUR 174) and LTL 3.54 (EUR 1.00) respectively, from 1 January 2005.

However, the opinions of the social partners and the government on this issue diverged. All trade union organisations, the Ministry of Social Security and Labour and representatives of the Ministry of the Economy (Lietuvos Respublikos Ūkio ministerija) were in favour of the proposed increase in the minimum wage from 1 January 2005, while employers' organisations and representatives of the Ministry of the Finance (Lietuvos Respublikos Finansų ministerija) were opposed. While all parties agree, in essence, that the minimum wage should be increased, business representatives are afraid of a disastrous impact on some small and medium-sized enterprises (SMEs), and want an assessment of the potential negative effect on the economy and especially on SMEs before a final decision on the minimum wage increase is made. The LRTT thus agreed to reconsider the issue when the potential negative consequences of a rise in the minimum wage have been assessed.

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