Minimum wage increased without tripartite consensus

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The Bulgarian government increased the statutory national minimum wage by 25% from January 2005. The government imposed this increase despite the opposition of employers' organisations during tripartite talks on the issue.

On 21 January 2005 the cabinet issued decree No. 12, approving an increase in the statutory national minimum wage (BG0406103F) to BGN 150 per month. The decree was published in the Official Gazette issue 10 on 28 January 2005 and has retrospective effect from 1 January 2005.

The new minimum wage rate was subject to dispute during 2004. Before the state budget estimates for the 2005-7 period, the monthly minimum wage was planned to increase by BGN 10 annually. During the preparation of the 2005 budget, the government announced new plans to raise the minimum wage by 25% for 2005 and thereafter to apply a planned gradual increase (BG0407201N). The minimum wage was one of the main issues on which two consecutive missions of theInternational Monetary Fund (IMF) to Bulgaria could not agree with the government (BG0410201N). Parliament developed and approved the 2005 budget with estimates and parameters based on a minimum wage of BGN 150.

In December 2004, the government organised a specific campaign defending this level of the minimum wage. The Ministry of Labour and Social Policy was especially active, presenting 20 reasons for the higher minimum wage, which included the following:

• the minimum wage is the only sure instrument for influencing low and average wages;

• the minimum wage also has social functions and, being the price of the most unskilled labour, cannot be a hindrance to foreign investors;

• the competitiveness of the Bulgarian economy can no longer be based on price advantages due to low labour costs; and

• the income situation of the more than 23% of workers who at the end of 2004 received a basic monthly wage of between BGN 120 and BGN 150 will notably improve.

Before the cabinet approved the decree on the new minimum wage rate, the usual tripartite consultations took place in the National Council for Tripartite Partnership (NCTP). The government’s plan was forcefully opposed by some employers’ associations and trade unions, mainly due to the delayed and formal consultation on the BGN 150 rate, which had already been approved by parliament. Three main employers’ associations - the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry and the Bulgarian Employers Union (BG0310103F) - expressed a negative view on the proposed minimum wage rate, using the following arguments:

• the minimum wage rate is being determined by an administrative act without argument or consideration of objective economic processes;

• the growth rate of the minimum wage is much higher than the actual and estimated growth rate of the average wage; and

• for many economic activities, the new rate is unachievable and creates new problems for wage differentials.

All social partners expressed their discontent with the lack of an instrument to determine the minimum wage that corresponds with International Labour Organisation Conventions and Recommendations and the examples of many other countries in Europe and beyond. The government has again committed itself to proposing a draft mechanism of this type, which would take into account objective parameters, eg productivity, the average wage, the poverty threshold and the inflation rate.

The new monthly national minimum wage of BGN 150 exceeds the tax-free monthly income (BGN 130). Due to increased personal social security contributions (a total of 12.45% of pay for 2005) and with the existing taxation scale for 2005, the net disposable income of people receiving the minimum wage will be BGN 131.20 a month. In 2004, at the same wage level of BGN 150, the net amount was a little higher at BGN 132.50. According to critics, the substantial gross increase in the minimum wage will hardly improve the living standard of the 'working poor'.