EurWORK European Observatory of Working Life

Social partners reach agreement on minimum wage for 2008

About

Country: 
Estonia
Author: 
Marre Karu and Kirsti Nurmela
Institution: 
PRAXIS Centre for Policy Studies

In November 2007, the Estonian social partners concluded a national-level bipartite agreement which raised the monthly minimum wage for 2008 to EEK 4,350 (about €278) or an hourly rate of EEK 27 (€1.73). Compared with 2007, this represents an almost 21% increase in the minimum wage. Thus, the agreement paved the way for the biggest minimum wage increase in recent years. Nonetheless, the minimum wage still only represents 33% of the national average wage.

Minimum wage agreement

On 21 November 2007, a national-level bipartite minimum wage agreement was concluded between the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) and the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK). After reaching a compromise on the issue, the minimum wage for 2008 was increased by nearly 21% to a monthly amount of EEK 4,350 (about €278 as at 13 December 2007) compared with EEK 3,600 (€230) in 2007. This rate corresponds to an hourly minimum wage increase from the current EEK 21.50 (€1.37) to EEK 27 (€1.73) in 2008. This 21% minimum wage rise is the highest increase in recent years. (For more information on previous national minimum wage agreements, see EE0701029I, EE0601104F, EE0507101N, EE0501103N, EE0411102F, EE0409101N and EE0311101N.)

Compromises reached during negotiations

The minimum wage negotiations started in September 2007. During the negotiation process, both EAKL and ETTK had to make compromises in order to reach a final agreement. In September, EAKL applied for a minimum monthly wage increase of EEK 1,400 (€89) to reach a total of EEK 5,000 (€320), reflecting an hourly amount of EEK 29.75 (€1.90). Meanwhile, the employers proposed to increase the minimum monthly wage by EEK 400 (€26) up to EEK 4,000 (€256).

In the end, the period of negotiation was short, resulting in an agreement setting the minimum wage being reached as early as November 2007. This agreement paved the way for the largest minimum wage increase compared with previous years. As has been the case in the past, employees made a bigger compromise than employers.

Minimum wage in relation to average wage level

Although the increase in the minimum wage has never been as high as 21%, the level of the minimum wage still remains relatively low compared with the national average wage. In 2001, EAKL and ETTK concluded an agreement on the long-term principles establishing the increase in the minimum wage rate up to 2008 (EE0311101N). According to this agreement, the minimum wage should represent 41% of the national average wage by 2008. However, the European Union recommends that the minimum wage should be 60% of the national average wage.

The Ministry of Finance (Rahandusministeerium) expects the average monthly wage to increase to EEK 13,000 (€830) in 2008, which would require the minimum monthly wage to be EEK 5,320 (€340). However, even the initial proposal by ETTK was below that level and the final agreed minimum monthly wage represents only 33% of the expected average wage for 2008.

In addition, it is important to note that the high minimum wage increase is taking place against a background of a rapidly increasing average wage. According to Statistics Estonia (Statistikaamet), the average monthly gross wage in the third quarter of 2007 amounted to EEK 10,899 (€697) and the average hourly gross wage was EEK 66.78 (€4.27). Compared with the third quarter of 2006, this represents an increase of 20.2% for monthly wages and 22.7% for hourly wages. On the whole, during 2007, average gross wages have increased by 20% in every quarter compared with the relative period in 2006.

Commentary

The national minimum wage was first agreed in 1992 in a tripartite agreement. In the last six years, minimum wages have been subject to annual bipartite agreements as a result of negotiations between EAKL and ETTK. Based on the agreement, the government brings the new minimum wage level into effect by issuing a wage bill.

Estimations on how many workers receive an income at the level of the minimum wage vary significantly. EAKL proposes 70,000 workers, ETTK estimates 15,000 workers, Statistics Estonia calculates 40,000 workers and the Tax and Customs Board (Maksu- ja Tolliamet) data indicate that about 100,000 workers are being paid the minimum wage.

Marre Karu and Kirsti Nurmela, PRAXIS Centre for Policy Studies