Minimum wage under debate

Slovenia has had a form of statutory minimum wage since 1995, with tripartite agreements on increases in the minimum wage subsequently implemented by law. The system has been criticised, as the minimum wage has become a central reference point for the whole pay structure, with tripartite negotiations largely taking the place of genuine pay bargaining between employers and trade unions. Furthermore, the statutory minimum wage is now higher than the first three or four lowest pay rates set out in sectoral collective agreements. This article examines the development of minimum wages, the perceived problems with the system, and attempts to address these issues in 2004.

A minimum wage existed in Slovenia before the Second World War, when it was part of the Kingdom of Yugoslavia (the following summary of the history of the minimum wage is largely based on 'Legal regulation of pay'[in Slovene], B Kresal, Bonex, Ljubljana, 2001). The issue was regulated by a 1937 Decree on determination of minimum wages, conclusion of collective agreements, settlement of disputes and arbitration. This decree covered all workers and laid down a cash figure for basic minimum pay. In addition it provided, that through consultation with the social partners, a special minimum pay rate could determined for specific regional administrative units, ranging between 90% and 150% of the national basic minimum pay

After the Second World War, a 'guaranteed personal income' was introduced by law in the former Yugoslavia, subsequently known in practice as 'guaranteed pay'. This differed conceptually from a minimum wage, in that its original main purpose was to regulate pay in loss-making companies. Such companies had to pay their workers only this guaranteed amount of pay, if they were making a loss that was not covered or had not adopted a reorganisation plan. The government used guaranteed pay as an instrument to reduce growth in inflation, so its real value dropped substantially.

In 1995, when a statutory minimum wage was introduced in the independent Slovenia, guaranteed pay lost its meaning, partly because it was much lower than the new minimum wage. Similar trends were witnessed in other central and eastern European countries in the early years of political and economic transition. An International Labour Organisation study found that over 1991-4 the minimum wage dropped far below the poverty threshold in the majority of these countries, and it recommended to separating the minimum wage from the social security system.

However the current law on guaranteed personal income (adopted in 1990 and most recently amended in 1994) is still in force. It provides that all workers are guaranteed an amount of guaranteed pay that ensures their material and social security. However, the payment of guaranteed pay is not enforced, and the main reason for its continued existence is that many laws in the field of social security (and some other laws too) refer to the guaranteed pay level for the purposes of calculating some social contributions or the criteria for entitlement to benefits. The real value of guaranteed pay has dropped substantially because of high inflation and because the government has not adjusted it regularly. In fact the government has used guaranteed pay as one of the instruments to brake growth in social transfers (whose real value also dropped substantially).

Minimum wage after 1995

The main reason for the introduction of a statutory minimum wage in 1995 was the extremely low level of guaranteed pay. The tripartite 'social agreement' for 1995 stated that it was necessary to determine the minimum wage by law. The law implementing the 1995 social agreement and pay policy agreement, and determining the highest and lowest actual pay rates, did not use the term minimum wage. It determined a cash figure for the lowest permissible monthly wage, with payment of a lower amount forbidden. Because the law was only an instrument that gave binding effect to the provisions of the social agreement, its period of validity was limited to that of the social agreement. Another law regulating the lowest permissible pay rate in a similar way was adopted in 1997.

The next law on the issue was adopted in 1999 following the conclusion of a pay policy agreement for 1999-2001. In addition to increasing the minimum wage by the same amount as pay generally, an extra increase was stipulated with the aim of gradually bringing the minimum wage up to 58% of the average wage in the manufacturing sector. The law determined that the percentage increase in the minimum was was to be determined by the tripartite Economic and Social Council of Slovenia (Ekonomsko socialni svet Slovenije, ESSS) (SI0207103F). The validity of the part of the law that regulated the minimum wage was not limited, as previously, by the duration of the social agreement. Thus a national minimum wage in a proper sense was regulated for the first time.

It is important to note that since 2000, like pay generally, the minimum pay has been adjusted in the light of forecast inflation and not past inflation, in order to prevent the transfer of past inflation into the future. The tripartite private sector pay policy agreement for 2002-4 concluded on 10 June 2002 (SI0206102F) determined that the minimum wage (as determined by the Law on the minimum wage, methods of pay adjustment and holiday allowances for 1999-2001) would be adjusted in line with forecast rises in consumer prices (excluding the prices of alcohol and tobacco products). Furthermore, each August during the period of the agreement the minimum wage rate would additionally be increased by the percentage growth in Slovenian gross domestic product in the previous year.

The minimum pay has most recently been determined by the tripartite private sector pay policy agreement for 2004-5, concluded on 28 April 2004 (SI0405103F). It sets the minimum monthly wage at:

  • SIT 117,500 (EUR 492) from August 2004; and
  • SIT 122,600 (EUR 513) from August 2005.

Commentary

Up until now, the minimum wage has been a central reference point for the whole pay structure. Tripartite negotiations between the government and the social partners have been concerned with limiting pay growth and have focused on the determination of minimum pay. Such tripartite negotiations have replaced genuine collective bargaining on pay between trade unions and employers’ organisations. Such bargaining has been virtually absent, even though all national social agreements and pay agreements include the statement that collective agreements are the central instrument for regulating pay. Minimum pay is increased in a different way and by more than pay generally (see 'The beginning and the development of collective agreements in Slovenia'[in Slovene], B Misic, ZSSS. Ljubljana, 2003). The consequence is that the minimum wage is higher than the first three or four lowest rates of basic 'starting pay' set out in sectoral collective agreements and that the difference is growing (all collective agreements for the private sector lay down pay rates for nine categories of jobs on the basis of their requirements, so that differences in pay relate to differences in job requirements - SI0401103F). This is unfair and has an adverse effect on the motivation of employees, because employees with different qualifications and job requirements get the same pay. The situation is exacerbated by the fact that the minimum wage is the basis for the whole of pay (basic pay plus various supplements such as that for overtime work).

From the beginning, the trade unions have been demanding that the minimum wage should be comprehensively regulated by a special law and determined according to criteria related to the needs of employees and their families (no such criteria are included in the current legislation). They claim that the present minimum wage is not compatible with human dignity and does not make it possible for workers and their families to meet their needs and lead a decent life. The employers agree that it is very difficult to survive on the existing minimum wage but say that firms in labour-intensive sectors, especially in textiles, have difficulties paying even this low amount. They argue that a higher minimum wage would endanger jobs in these sectors. Trade unions reply that some companies in these sectors will go bankrupt anyway, and that they do not want to be 'the prisoners of the textiles sector' any more. A typical example is the Prebold textiles factor, where workers took spontaneous strike action on 11 May 2004 after receiving only a small proportion of their February and March wages (on the previous day they were paid an EUR 42 down-payment on their March pay, while the company still owes them 65% of their February pay). Indeed, the most important cause of strikes in Slovenia over 1998-2002 was wage arrears (SI0403103F) and the high level of wages arrears cases raises the question of whether the labour and social courts are active and effective enough to help workers get the wages owed.

In this context, the tripartite private sector pay policy agreement for 2004-5 seeks to provide a solution to the problem of the relationship between the minimum wage and pay rises in general by increasing the role of sectoral collective agreements in pay determination (SI0404102N).

In the tripartite social agreement for 2003-5 (SI0307101F), the government and the social partners agreed that during the period of validity of the agreement they will prepare a proposal for a special law to regulate the minimum wage. This proposal has not yet been prepared and it is not likely that the present government will succeed in preparing it because of forthcoming general elections during 2004. (Stefan Skledar, Institute of Macroeconomic Analysis and Development, Government of the Republic of Slovenia)

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