Social partners sign minimum wage agreement for 2006

At the end of December 2005, the Estonian social partners signed a national minimum wage agreement for 2006, which will result in an increase of 11.5%. The first attempts to start negotiations were made by trade unions in May, but employers froze the talks several times on various grounds.

On 19 December 2005, the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) (EE0310102F) and the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) (EE0308101F) signed an agreement on the national minimum wage rate for 2006. This agreement raises the monthly minimum wage by about 11.5% to EEK 3,000 (up from EEK 2,690 in 2005). The minimum hourly wage will increase to EEK 17.80 from EEK 15.90. According to the Wages Act, 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. Pursuant to the Collective Agreements Act (EE0309102F), the national minimum wage is compulsory for all employees working in Estonia and to all employers as defined in the Employment Contracts Act (EE0309101N).

In recent years, the growth rate of the minimum wage has been in line with the growth rate of the national average wage. A wage survey conducted by the Statistical Office of Estonia (Statistikaamet, ESA) indicates that in the first three quarters of 2005 average wages rose by almost 11% compared with the first three quarters of 2004 (the annual figure will be higher, as increases are generally greater in the fourth quarter). The increase in average wages in 2004 was 8.4%, while the growth rate of the minimum wage was 8.5%. In 2001, EAKL and ETTK 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 in the national average wage, so that the minimum wage reaches 41% of the national average wage in 2008. In 2004, the minimum wage represented only 34% of the national average wage.

Negotiations

The start of the negotiations over the national minimum wage for 2006 was problematic. In May 2005, EAKL declared that the monthly minimum wage in 2006 should be EEK 3,100, claiming that this figure took into account the principles agreed in 2001 between EAKL and ETTK, the level of the minimum wage in 2005 and a rise in pensions to EEK 3,000 per month. Harri Taliga, the chair of EAKL, argued that the income of full-time employed people receiving the minimum wage should not be lower than the average old-age pension of a non-working pensioner.

In June, EAKL invited ETTK to begin negotiations, but the employers' organisation refused. The council of ETTK announced that it would start the negotiations only after it had become clear how the problem of the budget deficit of the Estonian Health Insurance Fund (Eesti Haigekassa) would be resolved and the state had decided to increase the obligatory minimum wage base for social security tax (EE0410102N and EE0507101N). EAKL opposed strongly ETTK's position, which it saw as trying to link the negotiations over the national minimum wage with unrelated issues, and accused ETTK of being in violation of a tripartite agreement signed in September 1999, which states that the minimum wage negotiations should not be linked to other topics.

In July, EAKL announced that it would seek a higher monthly minimum wage rate than its initial demand of EEK 3,100, as there has been a fast growth in both the economy and average wages. It promised to give an exact figure in August, after the Ministry of Finance had issued its economic forecast for 2006. In September, EAKL announced that it would demand a national minimum wage rate for 2006 of EEK 3,300.

At the same time, ETTK announced that it would postpone the negotiations until after the October local elections, to avoid linking the topic of minimum wage with the election campaign. On 29 September, EAKL organised a picket at the gates of the employers’ headquarters, as ETTK did not attend the negotiations on minimum wages at the time set by the trade unions. The unions saw delaying the minimum wages talks because of the local elections as merely an excuse to avoid the negotiations. In October, EAKL organised several public campaigns to promote its demands related to the minimum wage, distributing leaflets and explained the arguments for its demands. On 23 October, the Trade Union of Estonian Railway Workers (Eesti Raudteelaste Ametiühing, ERAÜ) organised two pickets to support EAKL's demand for a monthly minimum wage of EEK 3,300.

Actual negotiations finally started in October 2005, with ETTK proposing an 8% rise in the minimum wage rate to EEK 2,900 per month for full-time workers. Enn Veskimägi, the head of the ETTK council, stated that rises in the minimum wage inevitably influence other wage levels and should thus be carefully considered. ETTK also proposed introducing different levels of minimum wage in different parts of Estonia. Tarmo Kriis, the chair of ETTK, argued that the average wage in the capital, Tallinn, and in the surrounding Harju county is higher than in the rest of country and that the minimum wage could thus be higher there than in the rest of the country.

At the end of November, both parties made corrections to their previous positions. EAKL decreased its demand to EEK 3,250 and ETTK increased its offer to EEK 2,960. Finally, in the middle of December, both parties agreed that the minimum wage rate for 2006 will be EEK 3,000. In addition to agreement on the minimum wage rate for 2006, the social partners also agreed to cooperate in formulating joint positions on state-commissioned vocational education training and increasing the relevant funding (EE0510103F), raising the minimum social tax liability to the level of national minimum wage by 2008, changing the registration and operating principles for the self-employed, and introducing a sector-based minimum social tax liability for bidders in public procurement competitions.

Commentary

Estonia has experienced fast economic growth in recent years and the outlook is also relatively favourable. Productivity, household income and corporate profitability have been growing fast and this trend is projected to continue in the medium term. According to the autumn forecast by the Bank of Estonia (Eesti Pank, EP), economic growth will be 8% in 2005 and slightly below 7% in 2006 and 2007. Demand conditions will continue to be favourable as they rely on rapid income growth, high credit supply and optimistic expectations.

According to EP, employment growth has been accelerating since 2005 - demand for labour as a production input has considerably grown against the background of increased economic activity. As a result, wage growth has been speeding up since the beginning of 2005 and employment is predicted to have grown 1.4% in 2005. However, employment growth is expected to gradually slow down, reaching 1.1% and 0.4% in 2006 and 2007 respectively.

The unemployment rate declined from 9% in the first quarter of 2005 to 7% in the second quarter of 2005. This has caused a labour shortage in some sectors where wages are growing faster than the average (for example, in construction and transport). The labour market is showing more and more signs of turning into an 'employer market', as the demand for labour is outpacing the supply and pressures for wage growth surpassing labour productivity growth are increasing. It is important also to link productivity and wage growth in future wage negotiations in order to ensure a more efficient allocation of production resources.

Such growth with a relatively high increase in average wages gave trade unions good grounds for demanding a minimum wage increase. Both economic growth and wage increases are expected to continue in 2006, which will give unions a better position also in the next round of minimum wage negotiations. However, achieving a rise in the minimum wage to 41% of the average wage by 2008 is questionable. (Raul Eamets and Kaia Philips, University of Tartu)

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