Social partners agree further increase in minimum wage

Negotiations among the social partners in Latvia have been ongoing since the beginning of 2008 regarding the next minimum wage increase. In June, the social partners agreed that after 1 January 2009 the minimum monthly wage will be increased to €256, and the minimum hourly rate will rise to €1.54. This increment represents another step in the Ministry of Welfare’s plan to gradually increase the minimum wage until it reaches 50% of the national average.

The minimum wage in Latvia is determined by the Republic of Latvia Cabinet of Ministers (Ministru kabinets) on the basis of a proposal by the Ministry of Welfare (Labklājības Ministrija, LM). Efforts by the trade unions have ensured that a minimum wage increase has become an issue of top priority of social dialogue in Latvia (LV0707029I, LV0702019I).

National minimum wage concept

In 2003, the social partners agreed on the minimum wage concept proposed by LM. It provides for a gradual increase in the minimum wage until 2010 when it should reach 50% of the planned average gross monthly salary of employees in the preceding year. The Latvian government is trying to ensure implementation of the concept, with slight digressions. Since 2006, the minimum wage has been increased every year on 1 January.

The minimum monthly wage for 2008 amounts to €227, while the minimum hourly rate is set at €1.37. At present, the minimum wage is 40% of the average gross pay level of employees and 33.5% of the average gross pay of public sector workers in 2007. In 2007, some 73,300 people earned the minimum wage, comprising 9.2% of total employees. Of this group, 64,700 people were working in the private sector and 8,600 were public sector workers.

Ministry of Welfare proposes rapid increase in minimum wage

Negotiations on the next minimum wage increase in 2009 had already started in the spring of 2008. At the March 2008 meeting of the National Tripartite Cooperation Council (Nacionālās trīspusējās sadarbības padome, NTSP), participants assessed the proposal by LM to increase the minimum wage by 37.5% as of 1 January 2009. This would mean increasing the minimum wage to €313 a month or 49% of the planned average monthly salary received by employees in 2008. LM repeatedly emphasised that by approximating the minimum wage to 50% of employees’ wages in the previous year, its amount will come close to the standard level set out in the European Social Charter. The charter stipulates that the minimum income level of employees should be 66% of the national income per head of population or 68% of the national average wage.

Social partners agree to revised ministry proposal

However, a more modest proposal has been submitted to the government for examination on increasing the minimum monthly wage to €256 and the minimum hourly rate to €1.54 from 1 January 2009. The hourly rate for teenagers and employees subjected to increased risks at work – and therefore having shorter working hours – is to be set at €1.76. The decrease in the intended minimum wage rise is due to the lower pay forecast caused by the slowdown in economic development; therefore, the social partners did not object to it and reached an agreement on the matter at the beginning of June 2008.

The new minimum wage indicators have been submitted to the Cabinet of Ministers and will be adopted shortly before examination of the draft state budget for 2009.

Commentary

The minimum wage in Latvia is determined once a year or even less frequently, while average pay levels have rapidly grown since 2004 – by 16.5%, 23% and 31.5% annually – as a result of the positive economic situation. Therefore, the government finds it increasingly difficult to ensure that the minimum wage corresponds to 50% of the average gross pay level of the preceding year. On the other hand, increasing the minimum wage works as an incentive for higher pay demands by other employees and urges the government and social partners to once again review the minimum wage level. This wage spiral reflects the process of pay arrangements and will continue until funding is found for increasing remuneration.

Raita Karnite, Institute of Economics, Latvian Academy of Sciences

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