Minimum wage to stay unchanged

The Latvian government has decided it will determine wage levels according to the country’s economic situation, but has agreed with the social partners to leave the minimum wage unchanged in 2012, even though economic indicators show slow growth. In 2003, it was decided to increase the minimum wage gradually until it reached 50% of the average gross monthly salary in 2010. This target has not been reached, however, and many public sector employees are paid the minimum wage.

Background

Every year, before the adoption of the state budget, the social partners agree on the size of the minimum wage. Until 2011, the minimum wage was determined using a method adopted in 2003 (LV0808019Q, LV0307101N). This provided for the amount to be increased gradually until it reached, in 2010, 50% of the average gross monthly salary of employees in the preceding year (LV0809019I). However, this target was not met. On 16 October 2010, the Ministry for Welfare proposed three new possible methods of determining the minimum wage, on the basis of:

  • the national economic situation and other indicators;
  • changes in productivity in the year before the minimum wage is set;
  • increasing it so that in five years it matches the annual average value of the minimum subsistence basket of goods and services.

This last value is calculated by the Central Statistical Bureau of Latvia (CSP). In July, the cost of the subsistence basket was put at €248, while the net minimum monthly wage was €206. The Ministry of Welfare estimated that, if the first method was adopted, the gross minimum wage would be €293 in 2012, €302 in 2013, and €310 in 2014. In 2010, the gross minimum wage was €255, and €285 in 2011 (LV1101019I).

The proposals were discussed by the National Tripartite Cooperation Council (NTSP) on 3 February 2011.

The government issued a decree on 16 March 2011 announcing it would choose the first option, but that the minimum wage would still be reviewed once a year in consultations with social partners within the NTSP.

Minimum wage will not be increased

Discussions about the minimum wage for 2012 began on 17 May 2011. In July, when the government began detailed discussions to set the amount for 2012, it presented the social partners with two alternatives: to keep the minimum wage at the current monthly level of €285 or to increase it to €299 (a slight variation on its estimates of €293 for 2012 made one month earlier).

However, on 11 August 2011, when the NTSP discussed the issue, the social partners backed the Ministry of Welfare, the Ministry of Finance and the Ministry of Economics in deciding to leave the level at €285 per month.

The Prime Minister and the Minister for Finance rejected calls by the social partners to increase the minimum tax threshold in 2012. However, after discussions, the NTSP agreed that, by October 2011, the Ministry of Finance would prepare a schedule for equalising the minimum tax threshold throughout the Baltic States.

Commentary

The economic situation in Latvia will now be evaluated every year by analysing the macroeconomic forecasts prepared by the Ministry of Economics and by analysing changes in the economic situation during the previous year, according to 11 macroeconomic indicators. The monthly minimum wage must be precisely determined to the nearest lat (Latvian currency). Estimates will take into account any proposed changes in the monthly minimum wage, as well as any planned changes in tax thresholds in the neighbouring Baltic States of Estonia and Lithuania.

The state budget’s income, expenditures and deficit reduction will determine whether next year’s minimum monthly wage should remain the same. The minimum wage could, in fact, be reduced if forecasts predict a decline in the average gross income of 5% or more.

Since the economic development indicators used in these calculations show growth, it may be concluded that, in determining the minimum wage for 2012, the government was guided only by the goal to reduce the budget deficit. In light of the current uncertain situation, such a decision was justified.

Raita Karnite, EPC Ltd

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