Huge rise in minimum wage signals end of freeze

Lithuania’s minimum monthly wage has increased after being frozen for almost five years in the wake of the global economic crisis. When the economy started to recover in 2010, trade unions repeatedly requested an increase at the Tripartite Council. In October 2012, a 6.25% increase was finally agreed, followed by a second increase of nearly 18% in January 2013. It was feared some companies would struggle to cope with this sudden increase, but so far there has been no evidence of this.

Minimum wage freeze

Lithuania’s minimum monthly wage (MMW) was increased at the beginning of 2008, just before the onset of the global economic crisis, and it was then set at LTL 800 (€232 as at 28 March 2013). For almost five years, the MMW stayed at the same level despite regular trade union requests for a rise and debates on the issue among social partners.

Finally, in August 2012, the MMW was increased by 6.25%, to LTL 850 (€246).

Over the whole five-year period, the MMW stood at around 38–40% of the average gross wage which, after tax deductions, was below the absolute poverty line in Lithuania.

When the national economy started to recover in 2010, trade unions made repeated requests for an MMW increase at the sittings of the Tripartite Council of the Republic of Lithuania (LRTT). Unions organised a number of protest campaigns (LT1010019I, LT1105029I, LT1104019I, LT1102019I, LT1111019I).

The situation changed at the end of 2012 after the elections to the Parliament of the Republic of Lithuania (LRS) in October. The Social Democratic Party of Lithuania (LSDP) won the election, and promised a considerable increase in the MMW.

The first steps towards implementing its electoral promises were made at the end of 2012. The social partners, on the initiative of the new Government of the Republic of Lithuania (LRV), agreed to a further increase in the MMW by almost 18%, to LTL 1,000 (€290) with effect from January 2013.

Effects of MMW increases

Such a drastic increase of MMW within three months aroused fears that the burden would be too heavy for some enterprises. A working group was set up to decide whether some companies should be exempt from paying the increased MMW, or should be allowed to pay a lower minimum rate than the legal minimum. It was sheduled to come up with recommendations in January 2013, though this deadline was later extended to 1 April 2013.

However, it appears that fears about businesses facing problems meeting the new levels of the MMW were unfounded. It now seems that the group is more likely to perform the function of observer, rather than looking for ways to reduce the already approved and implemented MMW.

Employers move to dodge MMW rise

A number of media reports and opinions aired by interested parties seemed to show that some employers were independently looking for ways to avoid paying the increased MMW. At the end of January and the beginning of February, the State Labour Inspectorate (VDI) received information that employees had been forced to write applications or rewrite employment contracts in such a way that they would officially be classified as part-time workers. The MMW laws do not apply to part-time work, and this would make is possible for employers to evade their obligation to pay the increased rate.

The VDI said it would to impose ‘administrative measures’ on employers who avoid payment of the MMW fixed by agreement between the social partners.

Trade unions have described another method by which, they say, some employers evade the MMW. In some sectors it is common for employers not to declare some of the pay given to workers. Since the MMW has increased, some employers have increased the official proportion of workers’ pay, and cut the proportion of ‘shadow earnings’. The result for many workers has been no increase in total earnings and, for some, even a cut in pay since more tax has to be paid on the ‘visible’ share of their earnings.

However, in the absence of any research in this field, it is difficult to evaluate the effects of the MMW rise on the Lithuanian labour market.

Inga Blaziene, Institute of Labour, Lithuanian Social Research Centre

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