No agreement yet on minimum wage for 2005

In November 2004, the Estonian social partners have still not concluded a collective agreement on the national minimum wage for 2005, and their positions remain relatively far apart. The main issue in the negotiations has been what wage rate would fulfil an agreement signed by the social partners in 2001 on the long-term development of the minimum wage.

According to the Wage Law, the national minimum wage is determined annually by government decree after the central organisations of trade unions and employers have reached consensus about its level for the next year. The negotiations over the national minimum wage for 2005 have been lengthier and much more intense than the negotiations in 2003 over the minimum wage for 2004. Though their positions have become a little more similar in some points, the overall views of the social partners still differ quite considerably. The main issue has been whether the demands made by the trade union and employers' central organisations have been in accordance with a long-term agreement concluded in 2001. In 2001, the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) (EE0310102F) and the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) (EE0308101F) signed a bipartite agreement on the principles for establishing the minimum wage in the period up until 2008 (EE0311101N). According to this agreement, the rise in the minimum wage should be more rapid than the rise of the national average wage, so that the minimum wage reaches 41% of the national average wage in 2008. The agreement also determined the formula and principles for calculating the minimum wage and changed the basis of the minimum wage negotiations from tripartite to bipartite. The last-named change was proposed by ETTK.

Negotiations

The negotiations over the minimum wage for 2005 began in March 2004, when both parties presented their positions. EAKL proposed that, considering economic forecasts and the long-term agreement, the monthly minimum wage should be EEK 2,800 (in 2004 it stands a EEK 2,480). For its part, ETTK stated that the annual increase in the minimum wage should not exceed the increase in labour productivity.

During the next bilateral negotiations over minimum wage between EAKL and ETTK at the beginning of July 2004, it was agreed that the employers would submit their suggestions regarding the principles for changing the minimum wage by 20 August 2004. The employers also made a proposal that the principles for changing the minimum wage should take greater account of the present-day situation. Both sides agreed on the necessity to elaborate a mutually satisfactory system of branch-level collective agreements.

On 25 August 2004, ETTK made several proposals concerning the principles for setting the minimum wage (EE0409101N). ETTK proposed that: negotiations over the national minimum wage should in future be conducted on a tripartite basis, involving the government in the negotiations again; the national minimum wage model should be more flexible and different minimum wage rates should apply to less competitive groups on the labour market; and the level of national minimum wage should not be linked to the national average wage, but to the national median wage. These proposals appeared to conflict with the agreement concluded between ETTK and EAKL in 2001. EAKL alleged that the employers were backing off from the long-term agreement on the minimum wage and accused them in prolonging the negotiations, as the talks over the national minimum wage for 2005 had already been going on for almost half a year.

At the next bilateral negotiations held in early October, ETTK made its first proposal on the actual minimum wage rate for 2005. ETTK noted that its proposed monthly minimum wage of EEK 2,600 was calculated considering the economic forecasts made by the Ministry of Finance, which predict a 5.2% labour productivity rise in 2005. EAKL strongly disagreed with this proposed minimum wage rate, arguing that there are no accurate measures to forecast labour productivity and it is thus not possible to calculate the minimum wage increase, and that at present productivity is relevant among qualified labour. No agreement was again reached at this meeting and EAKL subsequently warned that it would organise protest actions, even strikes, if necessary. It declared that the monthly minimum wage must be EEK 2,800 in 2005, on the grounds that:

  • the whole Estonian economy would gain, because undeclared wages (EE0312101N) would become rarer;
  • it would diminish unfair competition - enterprises would not be interested in paying undeclared wages any more and thus would not be able to offer a cheaper service by using illegal measures;
  • it would fulfil a social and political role, because it would motivate discouraged workers to enter the labour market; and
  • it would be fair for workers too to gain from economic growth (currently about 6% a year) and receive compensation for the rise in living expenses (about 3.3% a year).

During the talks in early November, though both social partners toned down their positions, no agreement was again concluded. The new proposal for the national minimum wage made by ETTK was EEK 2,640 a month. ETTK claimed that this was a fair proposal as it was EEK 160 more than the current minimum wage and EEK 160 less than the rate demanded by EAKL. It stated that taking into account the fact that the income tax rate will be reduced in 2005, the proposed minimum wage rate should provide a real pay rise of about 10% to workers who receive it. ETTK argued that the pay rise of 10% would also fulfil the agreement concluded by ETTK and EAKL, according to which the minimum wage rise should compensate for increases in the cost of living and ensure that every worker gains from economic growth.

EAKL reduced its demand to EEK 2,780 a month, asserting that the new figure was absolutely in accordance with the long-term agreement of 2001. Considering the offer of ETTK unsatisfactory, EAKL decided to turn to the public conciliator to start a conciliation process (EE0402102F). EAKL has also stated that a compromise might lie in branch-level agreements (as was proposed by ETTK several times during the negotiations in 2004). In this scenario, branch-level employers’ organisations and trade unions would conclude a collective agreement on minimum wages that would take into account the particular situation of the sector. However, in November, ETTK argued that, while branch-level minimum wages would be possible in the future, at present branch-level agreements exist only in road transport (EE0408102F) and healthcare sector (EE0410102N).

Commentary

In November 2003, the Bank of Estonia (Eesti Pank) published a study, in which the effects of the minimum wage on employment and wages in Estonia over 1995-2000 were examined (EE0401101N). The main findings of the study were that: a minimum wage increase led to a reduction in employment among the group of workers who were directly affected by this change; and as the real value of the minimum wage rose, the proportion of workers with earnings below the legal minimum level increased as well.

The nominal level of the statutory minimum wage in Estonia has been steadily increasing since the beginning of the 1990s. In the first half of the 1990s, the increase in the minimum wage was slower than the average wage increase, which led to a fall in the ratio of the minimum wage to the average wage. However, since 1996, the minimum wage has been increasing faster than the average wage. Despite this rapid increase, the ratio of the minimum wage to the average wage in Estonia in 2003, at 32%, was the lowest among the countries acceding to the EU in May 2004. Latest developments indicate that ETTK is less inclined to support the approach whereby the minimum wage is strictly linked to productivity increase, while trade unions are trying to promote the agreement concluded in 2001 whose target was that the minimum wage should be 41% of the national average wage in 2008. (Kaia Philips and Raul Eamets, University of Tartu)

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