Tug-of-war over minimum wage continues (The Slovak Spectator)

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daňovo-odvodové zaťaženie práce a pomôcť tak trhu práce – najmä nezamestnaným a
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18.8. 2008 Richard Ďurana z INESS.

Tug-of-war over minimum wage continues (The Slovak Spectator)

THE ERA of hard-line
social policies that Prime Minister Robert Fico heralded for the second half of
his rule seems to finally be materialising. Fico, the Labour Ministry and the
country’s trade unions are pushing to raise the minimum wage from the current
Sk8,100 (€268.87) a month to at least Sk8,900 (€295.43), starting next year.
Employers have shown little sympathy for the requested hike and said that such
an increase might force many businesses to close shop.

The Finance Ministry
has also contributed to the government’s social crusade by proposing a special
annual bonus of Sk2,500 (€82.98) for the lowest income group. While employer
representatives find this idea appealing, trade unions and the Labour Ministry
have said that it only motivates businesses to create low-paying jobs and
freezes the minimum wage.

A tug-of-war has
been going on between the ‘social partners’ – the government, trade unions and
employers – over the country’s legal minimum wage. Representatives of the
social partners failed to reach an agreement on the issue for the second time
during talks on August 12.

Regardless of the
result of the talks, the country’s legislation stipulates that the minimum wage
should increase by 7.2 percent to Sk8,690 (€288.46) at the beginning of January
2009. However, the Labour Ministry said there is room for a heftier raise and
proposed increasing the minimum wage to Sk9,000 (€298.75).

“We also suggested a
compromise of Sk8,900 while the trade unions proposed €300, however, they were
also willing to discuss a lower sum,“ said Labour Ministry State Secretary
Emília Kršíková during a press conference on August 12.

However, the
employers have rejected the proposals and said that many firms are already
under financial pressure due to the strong Slovak currency, which decreases
profits for exporters.

Meanwhile, Fico has
insisted on the minimum wage being increased to either Sk8,900 or Sk9,000,
adding that if the social partners fail to come to an agreement, the government
will use the powers available to it to get the numbers he wants.

Martin Hošták of the
National Association of Employers (RÚZ) said that the employers have voted for
a Sk590 (€19.58) increase, which, after all, is in harmony with the rules for
setting the minimum wage that all members of the tripartite agreed to.

“The hike to Sk8,690
is really borderline,” Hošták told The Slovak Spectator. “If the minimum wage
climbs higher it might really threaten small and medium sized businesses and
the self-employed in areas like the shoemaking, textile and clothing

According to Hošták,
these are industries that face sharp price competition from Eastern Asia and
pay rates in these sectors hover very closely to the minimum wage.

Producers would not
be able to compete by raising their prices, but would have to compensate for
their increased costs by laying people off, Hošták said.

The Confederation of
Trade Unions (KOZ) insists that Sk8,690 neither satisfies its members’ wishes,
nor reflects Slovakia’s recent economic development.

Ľubomír Čierny,
spokesman of the KOZ, said that the growing productivity of labour supports the
union’s argument for a Sk9,000 wage increase.

“We are certain that
Slovakia’s economy can handle a higher minimum wage,” Čierny told The Slovak

According to
Vladimír Mojš, vice-president of KOZ, the minimum wage in Slovakia is one of
the lowest in the whole European Union.

“In an international
comparison of the minimum wage relative to the purchase power parity in
Slovakia, the Slovak minimum wage is not even 50 percent of the minimum wages
of some EU countries such as Belgium, the Netherlands, France, Malta, Ireland,
Greece and Spain,” Mojš told The Slovak Spectator.

According to Mojš,
the minimum wage does not secure a dignified standard of living for employees,
and yet Slovakia is obliged to keep the European Social Charter, whose Article
4 defines the right for dignified wage conditions.

The real growth of
GDP is expected to stand at 8 percent for 2008, which makes the unions’ demands
realistic and in line with the current condition of the country’s economy, said

As for the
possibility of compromise, Mojš said that, at the August 12 tripartite meeting,
the unions did not see much openness on the part of the RÚZ and the Association
of Employment Unions of Slovakia, who insisted on the Sk8,690 increase.

Mojš said he does
not deny that the hike might have an adverse effect on some companies, but he
does not think that the impact would be as dramatic as the employers have

Proposed bonus fails to impress unions,
labour ministry

Trade unions and
employers have also been intensively discussing the idea of a yearly bonus. The
Finance Ministry hopes that an annual Sk2,500 bonus paid to employees on
regular work contracts with salaries close to the minimum wage will motivate
employers to create low-income jobs, and the unemployed to take them.

The bonus is
intended to ease the tax burden on labour, especially for vulnerable low-income
groups, says the Finance Ministry’s Finance Policy Institute, which also hopes
the bonus will help curb long-term unemployment.

Čierny of the KOZ
said that the bonus actually goes against some of the primary goals that the
unions pursue.

“The Alfa and Omega
of the unions’ work is to push up the price of labour,” Čierny said. “The
employee bonus in fact does the opposite. Its implementation might push the
price of the labour down.”

According to Mojš,
the employee bonus in fact supports the creation of lower to minimum wage jobs,
which also creates room for freezing the minimum wage.

“The economic
essence of the employment bonus is, according to KOZ calculations, to save on
the price of labour through lower wages, which in fact is financial support for
the employer from public finances,” Mojš told The Slovak Spectator.

Mojš also said that
the employment bonus puts employees at a disadvantage in the social security
system. Though the actual income of these employees will increase, the bonus
will not be included when their social security payments are calculated, which
might mean lower pensions and social security payments for those employees than
they would have received if their actual salary had increased by the same
amount as the proposed employment bonus, he said.

Though the trade
unions have rejected the idea from the beginning, Fico has not written the
proposal off completely.

“If it turns out
that the move to institute the employment bonus is a good one, that is the path
we will walk,” Fico said, as quoted by the Sme daily.

However, he has also
emphasised several times that the priority is to increase the minimum wage.

The employers see
the bonus as a friendly tool that is actually part of a plan entitled
'Modernisation Programme Slovakia 21', which aims to get the country into shape
for euro adoption and ready it for the post-adoption era.

“We propose to widen
the employee bonus to also apply in the social sphere so that a payroll tax
bonus will also be created,” Hošták told The Slovak Spectator. “This would mean
that all social benefits would be replaced by one payroll bonus. This would
bring huge savings for the state; it would be targeted at those in the lowest
income bracket and would simplify the complicated bureaucratic structure of
different social subsidy funds.”

The ministry also
hopes that the employment bonus will help curb long-term unemployment.
According to a memo by the Finance Policy Institute, the employment bonus is
targeted at the unemployed, people outside the labour market and people on
maternity or paternity leave.

The most urgent
problems in the labour market, according to the Finance Policy Institute, are
the payroll tax burden, specifically for the relatively highly-taxed low income
positions, and the low motivation of people to take up jobs. The Finance Policy
Institute argues in its document that the employment bonus is narrowly targeted
since “it helps only the low-income groups”.

“Payments from the state are not the most
fortunate solution,” said Richard Ďurana of the Institute of Economic and
Social Studies (INESS) in an earlier interview with The Slovak Spectator. “The
ministry is trying to help low-income groups, and this measure can partially
help, yet there is of course a better and more systematic solution, which is
cutting payroll taxes.”

Ďurana said that now is an ideal time for
cutting payroll taxes.

“I cannot imagine when else, if not in this
time of record growth in our economy and tax incomes, it would be less painful
for the state to cut the payroll tax burden on labour and thus help the labour
market, mainly low-income families,” Ďurana told The Slovak Spectator.

As for the low motivation of the long-term
unemployed to take up jobs, Ďurana said that this situation is caused by the
incorrect tuning of the social benefits system, combined with the high payroll
tax burden and minimum wage, because these kill the motivation of low-qualified
people to work, and also limit employers in creating low-income jobs.

“Briefly, the unemployment trap means there
is low financial motivation on the part of the citizen to return to work,
thanks to the low or even negative difference between unemployment benefits
they get and the net income they would receive after their return to work,”
said Ďurana. “A monthly Sk200 bonus, which moreover will be paid as a one-time
annual payment, is very small motivation to get a job.”

Slovak Spectator, 18 Aug 2008, Beata Balogová

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