Social partners discuss how to raise minimum wage

Negotiations to raise the monthly minimum wage in Lithuania have been going on for nearly six months. The social partners have agreed it should be increased to LTL 900 (€261) from July 2011, with a further rise from January 2012. However, they cannot finalise the deal because they cannot agree over how much of the wage should be untaxed. The last rise was in January 2008. Studies have shown that, in the EU, Lithuania’s minimum rate is higher only than that of Romania and Bulgaria.

Minimum wage developments – background and reactions

Between 2004–2008, the minimum monthly wage was increased by almost 80% in Lithuania – from LTL 450 (€130) up to LTL 800 (€232). However, the last increase was in January 2008. Though trade unions would occasionally suggest an increase, the social partners were not prepared to begin negotiations during the economic crisis.

However, the question was raised again towards the end of 2010 when the social partners discussed the renewal of the National Agreement. Trade unions wanted to increase the rate to LTL 1,000 (€290) immediately, with a further rise to LTL 1,200 (€348) at a later stage (LT1011019I).

At the beginning of 2011 the social partners agreed an increase to LTL 900 (€261) with effect from July 2011 and a further rise to LTL 1,000 (€290) from January 2012. However, none of the parties could agree over how much of the wage should be untaxed (the tax exempt amount of income – TEAI).

The Confederation of Lithuanian Industrialists (LPK) disagree about increasing only the minimum wage, without also increasing the TEAI.

Conversely, government ministers of the Republic of Lithuania (LRV) are afraid of huge budget losses if the TEAI is increased.

Employers’ organisations representing SMEs oppose the increase altogether because they say their members have not yet recovered from the economic crisis and could not pay the higher rate.

Trade unions are to raise the issue at a special rally and further negotiations over the minimum wage are also planned at the Tripartite Council of the Republic of Lithuania (LRTT).

Different views regarding minimum wage increase

Recent assessments show that, as of the end of 2010, only Romania and Bulgaria have lower minimum wage rates than Lithuania. Today, the minimum monthly wage is about 40% of the country’s average monthly wage.

Representatives of the Lithuanian Free Market Institute (LLRI) criticise the proposal to raise the rate, which they say would burden small enterprises, particularly those which would have no resources to increase pay. In addition, they say, an increase in the minimum wage would reduce incentives to create new jobs.

However, trade unions maintain that such a low wage neither ensures adequate living standards for workers nor encourages them to work.

This opinion is supported by a government working party which recommended increasing the minimum wage (LT1012019I). According to the group, the current low rate does not encourage people on social benefits to enter the labour market.

Inga Blažiene, Institute of Labour and Social Research

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