Minimum wage rise triggers mixed reactions

The Bulgarian government has announced that the minimum monthly wage will increase by 9.7% from the beginning of 2014. The decision, which will affect around 10% of all employees, follows debates over the 2014 draft budget in the National Council for Tripartite Cooperation. While trade unions have welcomed the decision, employers are critical, arguing that the rise will add to business costs and will encourage employers to move towards the informal economy or lay off personnel.

Background

Bulgaria’s statutory national minimum wage is determined by a decree of the Council of Ministers, in consultation with the social partners. However, collective agreements at sectoral or company level may set a minimum wage that is higher than the legal minimum. Against a background of economic crisis, austerity measures and frozen wages, there have been few increases to the minimum wage in recent years. It was BGN 240 (€122) in 2009 and was BGN 310 (€158) before this latest increase. Bulgaria remains the EU country with the lowest minimum wage level.

On 28 October 2013, the National Council for Tripartite Cooperation (NCTC) discussed the draft 2014 budget. The discussions covered the provisions of the Draft Decree (in Bulgarian), drawn up by the government in response to union demands made after the new government took office in 2013.

At the NCTC meeting were Zinaida Zlatanova, Deputy Prime Minister and Head of the NCTC, Financial Minister Peter Chobanov, Minister of Labour and Social Policy Hasan Ademov and representatives of the Confederation of Independent Trade Unions in Bulgaria (CITUB) and the Confederation of Labour Podkrepa (Podkrepa CL). On the employers’ side were representatives of the four employers’ associations: the Bulgarian Industrial Association (BIA), the Bulgarian Chamber of Commerce and Industry (BCCI), the Bulgarian Industrial Capital Association (BICA) and the Confederation of Employers and Industrialists in Bulgaria (CEIBG).

Government’s proposal

At the NCTC meeting, Labour Minister Hasan Ademov announced an increase in the national minimum wage which, he said, would raise the wages of 286,000 workers. According to official statistics, 6% of workers are currently paid the minimum wage. With the increase, this proportion will increase to 10%.

In 2014, the minimum wage will increase by 9.7% or BGN 340 (€173). This rate translates to an hourly minimum wage increase from the current BGN 1.85 (€0.94) to BGN 2 (€1.02).

Labour Minister Ademov said:

The decision to update the minimum wage comes from the need to guarantee and increase purchasing power and the very low level of real minimum wages, which is a little above the poverty line at BGN 251 (€128.3).

The increase will cost employers about BGN 7 million per month, which represents 0.06% of overall employer expenditure, and will not hamper the competitiveness of Bulgarian companies, he added. In the government’s view, the increase in the minimum wage will have a positive impact on internal consumption and on tax and social security revenues. Hasan Ademov also said that the minimum wage will increase further to BGN 420 (€ 214.7) by 2016.

Mixed reactions from unions

As expected, the proposal fuelled heated debate between employers and trade unions.

The CITUB and Podkrepa CL welcomed the increase they had been campaigning for. However, both confederations have insisted that more is needed, including a clear income policy, the introduction of a tax-free minimum wage and a 10% increase in public sector salaries. Podkrepa CL has demanded the adoption of a clear mechanism for the calculation of future increases in the minimum wage.

The CITUB has said that the minimum wage is still low at about 38.8% of the average monthly wage, and it insists that the target should be to increase it to 50% of the average wage. The CITUB has asked for a further minimum wage increase in July 2014.

Meanwhile, during the 2014 budget reading in parliament, Prime Minister Plamen Oresharski announced plans for a new income tax relief scheme for employees receiving the minimum wage, as a way to raise income levels further without increasing costs for businesses. The scheme will allow those who receive the minimum wage during 2014 to claim relief through a simplified tax return form at the start of 2015. The proposal has, however, been met with mixed reactions from the social partners.

Employers opposed to increase

Employers’ organisations have strongly opposed the minimum wage increase. They believe that the current difficult economic situation does not justify a minimum wage increase, arguing that it has increased by about 40% over the last few years. They believe that this rise will add to business costs and force employers to move towards the informal economy or to lay off personnel, and may also diminish employment prospects for the poorly qualified and the long-term unemployed.

The President of BICA, Vassil Velev, said that against a background of high unemployment levels and the loss of about 400,000 jobs, the rise could further aggravate the situation in the labour market and harm the financial situation of companies.

‘We must consider the differing situations in the regions and branches, most of which are not able to increase minimum wages,’ he argued. ‘It is impossible to make people richer with a decree from above. More work and higher productivity are needed.’

The President of the BIA, Bozhidar Danev, stressed that a minimum wage rise could only be justified after an impact assessment and a real increase in productivity.

The CEIBG’s response was that progress made in reducing the informal economy would be damaged by the increase.

Commentary

The government’s decision to increase minimum wages is very important given that various estimates suggest between 240,000 and 290,000 workers in Bulgaria are paid the minimum wage.

Although an increase of almost 10% seems high given the economic crisis, the minimum wage still remains relatively low compared with average wages in Bulgaria, and especially compared with the minimum wages in the other EU countries.

Nadezhda Daskalova, ISTUR

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