Economic Policy Review ISSN 1313 - 0544

Who and What is No Longer Bound to the Trade Unions and the Minimum Wage

Author: Zornitsa Slavova / 08.12.2011
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This week there has been news as to the increase of the minimum wage (MW). Under pressure from the trade unions as of 1 September it was increased from BGN 240 to BGN 270 and the government started to worry how it is going to manage with the budget as a number of payments also have to be increased. According to calculations of the Minister of Finance only by the end of the year the increase of MW will cost the budget about BGN 20 mil. This is how we got to this week`s decision of the government to unbind from MW some of the payments bound to it.

Without us again explaining in detail how absurd the determination of minimum wage is, some of the payments bound to it are really strange:

  • Aid – aid to mothers-students for the raising of a child up to two years of age and for children with permanent damage to their health is social payment which has nothing to do with the labor market or remuneration. Despite the fact that from now on the government is going to determine the amount of the aid as a lump sum, it is also supposed to be determined entirely on the basis of income criteria, which is relevant for all types of social aid.
  • Fees – the fees for examination at the doctor`s and for staying in hospital were also bound to the amount of MW. Now they are going to be determined on the basis of the real price of the service. This is a good solution but most probably it is going to cause substantial unrest since the real price of our “free of charge” healthcare is not at all low.  
  • Prizes – until now scholarships for gifted children, different bonuses, insignias of honor and prizes were also connected with MW. In this case talent or the respective prize should not be evaluated as lump sum for everybody, which again has no relation to the benefits they bear. Even now a job well done is reflected in the remuneration and employers, including the state itself, know very well how to retain the good and talented employees.
  • Subsidies – I suppose there is no need for a comment as to whom and why has come up with the idea that party subsidies should also be bound to MW.

In any case, the unbinding of these payments from the minimum wage, determined in such an abstract way, is a step forward. The main benefit of this is still for the budget. Despite the fact that it had not happened for 10 years MW to be increased in midyear, this year`s pressure for an increase as of September came as an unpleasant surprise to Minister of Finance. Now, despite the fact that the budget is going to be burdened with additional payments for the minimal wage of the employed in the budget sphere and the remuneration of people in subsidized employment, the costs are not going to be that big. The question remains, though, whether the now easier increase of MW will not become a regular administrative event. The next step should be the complete abolishing of setting minimum wage so that the budget and the private sector but also the employed and unemployed are relieved of the populist ideas of all future governments.