Minimum wage increase in Latvia: experts' opinion

A double-edged sword and wrong timing - this is the general opinion of economists surveyed, regarding minimum wage increase from €430 to €500 per month, Latvian Radio reported November 26.

Currently, approximately 20% of employees in Latvia receive the minimum wage or less, and the majority works in the private sector. How are the expected changes to the minimum wage assessed by entrepreneurs?

The plan to increase the minimum wage in Latvia mainly affects those who receive small wages and businesses employing people who receive the minimum wage or less. The worker gets about €50 more on hand, but it will be an additional cost for the employer.  Imants Kelmers, spokesman for the retail network Citro, said that due to COVID-19, many companies are fighting for survival.

"Adopting this decision at the moment (..) means that an additional EUR 80 per employee must be paid by the employer. It is a big burden and - it is not the best moment right now, because the economic situation is not favorable," Kelmers said.

Citro employees receive more than the minimum wage, so this decision has no direct effect. However, according to data from the Central Statistical Bureau, 143 000 people in Latvia receive a minimum wage or even less. The majority works in the private sector. Kelmers conceded that these are mostly small-business employees who are already struggling for survival, and this additional burden may not bring the desired result.

“The increase is 18-19%, from 430 to 500. In the end, the entrepreneur may decide that it is difficult to pay it, and in the end, the worker does not even get it because the company does not have the funds,” the businessman said.

The fact that the minimum wage has to rise, but not at the moment when the economy is slowing down, is also emphasized by the Chairman of the board of the security company AS G4S Latvia, Edgars Zālītis. He focused on another hidden issue.

"I'm going to choose the most extreme case. Our client is the State Revenue Service (VID). Yes, it's all right, the competition is won. And it really is taken into account that tax-paying companies are participating in the competition. But this contract, which we have with the VID, does not foresee any price change if the minimum wage changes. This, for us as a company, is a big decline in profits, or even a loss.

There is no compensatory mechanism and the increase in the minimum wage remains on the shoulders of the entrepreneur," Zālītis said.

Imants Lipskis, director of Welfare Ministry's Department of Labor Market Policy, said that the minimum wage was last raised three years ago and was the high time to take that step again. In addition, it is important that the minimum wage in the country grows along with the average salary level, which currently stands at more than €1,000.

“We plan to propose a review of this system and an agreement next year from the Ministry of Welfare, about the indicators for which the minimum wage could be raised, so that it is adequate, reasonable, rational, and not that it is reviewed only once every three years. The general international practice is that the minimum wage must be 45%-50% of the average salary in the country,” Lipskis said.

He said that it should also be seen that wages are raised for those already receiving around €500 a month, so that there is no situation that people with better qualifications and skills receive a minimum wage.

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Economy
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