Economic crisis halts increase in national minimum wage

The current economic downturn has led to the postponement of the national minimum wage agreement in Estonia. Trade unions argue that the minimum wage should be increased to be in line with inflation. However, employers emphasise that the difficult economic situation makes further increases in minimum wages problematic. The minimum wage increase poses a real challenge for some sectors of the economy and for certain occupational groups.

National minimum wage negotiations

Since 2002, the minimum wage has been set in annual bipartite agreements between the Estonian Trade Union Confederation (Eesti Ametiühingute Keskliit, EAKL) and the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK), and then brought into effect by a government decree.

Trade union views

The 2009 minimum wage negotiations began on 2 October 2008, but to date no agreement has been reached. First, the trade unions requested a minimum monthly wage increase of EEK 900 (about €58 as at 20 February 2009) to reach a total of EEK 5,250 (€336) a month for full-time workers, corresponding to EEK 31.50 (€2) an hour. Compared with the current minimum wage, the trade unions’ demand represents a 21% increase, which is comparable to the rapid minimum wage increase in the past two years (EE0712019I, EE0701029I) and is ahead of the average pay increase in the economy in 2008. The trade unions argued that the rapidly increasing cost of living in Estonia has the highest impact on low-salaried employees. Indeed, according to Statistics Estonia (Statistikaamet), the consumer price index reached 10.4% in 2008, reflecting the highest percentage since 1997.

Employer perspective

However, the employer organisations found it difficult to accept the trade unions’ proposal due to the current economic decline. Employers argued that the worsening economic situation should be taken into account in the minimum wage negotiations as they expect the economic decline to be even more serious than currently forecast by the Ministry of Finance (Rahandusministeerium). According to recent data from Statistics Estonia, gross domestic product (GDP) declined steeply in the fourth quarter of 2008 by 9.4% compared with the same period in 2007. Moreover, a further decrease in GDP is expected in 2009 before the economy stabilises.

ETTK proposed to postpone the minimum wage negotiations until it becomes clear what developments will follow in the labour market and national economy. The employers recommended that the option of leaving the minimum wage at its current level should be discussed; an increase would present a problem in some sectors of the economy and for certain occupational groups. In this regard, they highlighted that the minimum wage increase has been more rapid than that of the average wage over the past few years, and the minimum wage will be getting closer to the national average due to the expected average wage decline.

No national minimum wage agreement

Although, in December 2008, EAKL made a compromise proposal to increase the monthly minimum wage to EEK 4,750 (€304), no final agreement was reached. Since 2001, the social partners have annually negotiated on the increase in the national minimum wage. Thus, 2009 is the first year that the minimum wage has not been increased from 1 January. In December 2008, EAKL decided not to take collective action and postponed the national minimum wage negotiations until further information is available on the latest labour market developments. They still expected to reach a decision during the first quarter of 2009 and that the new minimum wage agreement should take effect from 1 April 2009.

Sectoral minimum wage agreements also postponed

Several sectoral minimum wage agreements have also been postponed. For example, the Estonian Transport and Road Workers’ Trade Union (Eesti Transpordi- ja Teetöötajate Ametiühing, ETTA) has announced that it is renegotiating the sectoral collective agreement concluded in 2007 (EE0801019I). According to the agreement, the minimum wages in the sector should increase by about 37% in 2009. However, this will be difficult to uphold, especially for small enterprises in the sector, due to the current economic conditions. ETTA has offered to find a compromise with the aim of retaining jobs in the sector by renegotiating the sectoral wage agreement.

Meanwhile, pay negotiations between the Estonian Employees’ Unions’ Confederation (Teenistujate Ametiliitude Keskorganisatsioon, TALO) and the government ended without an agreement being reached on a pay increase – in this case, the minimum wages of highly educated workers in third-level education, science and culture remain at the same level as in 2008. Furthermore, in order to retain jobs, a minimum wage agreement maintaining a level similar to that in 2008 was concluded between the Confederation of Trade Unions of State and the Local Government Employees (Riigi- ja Omavalitsusasutuste Töötajate Ametiühingute Liit, ROTAL) and the Estonian Ministry of the Interior (Siseministeerium) for police, border guard and rescue service officials.

Kirsti Nurmela and Marre Karu, PRAXIS Centre for Policy Studies

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