Slovak Massacre by Minimum Wage

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When I first heard a Smer-SD party representative talking about the intention to set the minimum wage level in Slovakia at EUR 600, I did not pay much attention to it. It seemed like a bad joke.

However, it quickly became a matter of interest for the media, necessary to address. This bad joke had to be sent where bad jokes belong – into oblivion.

First, we should explain the context of the proposed minimum wage. The 15% increase did not strike like a lightning, out of the blue. We have been experiencing a storm for five years now, during which the minimum wage has been increasing with twice the velocity compared to average wage. In contrast, the average wage is expected to increase by 6.3% this year.

The minimum wage became a tool of political marketing, which is pulled out every time when party preferences do not meet the desired level, which means every year.

Thus, the minimum wage reached the level that starts to imperil people (the young, the people without education, the long-term unemployed) and sectors (restaurants, construction, hotel industry, retail), not to mention the regions (Eastern Slovakia), and wider economy.

A Political One-Way Street

While talking about jeopardizing the economy, the picture is generally as follows: a huge factory and a capitalist smoking a cigar that becomes slightly concerned by the decreasing profitability. I would rather encourage you to imagine a financially challenged school canteen, a retirement home that is on the verge of survival, or financially unsustainable surgery management in health care system.

All of the abovementioned are setting the alarm bells with respect to the massacre by minimum wage, which the current government is planning.

For instance, the Association of Private Doctors has labelled this bill as “another nail to the coffin for the outpatients’ sector”.

Additionally, let us not forget that the minimum wage has several levels and its raise impacts the people with higher wages as well. To illustrate this phenomenon, if an employee comes into contact with cash, the second degree of minimum wage is applied automatically, meaning not EUR 600, but EUR 720.

In fact, it is EUR 973, and the sum represents the wage costs that will need to be paid by the employer of a small shop to the shop assistant in Rožňava.

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By the way, the level of unemployment there is still at the level exceeding 15% and, according to the latest numbers provided by the Central Office of Labor, it has increased even more month-to-month.

Nevertheless, it not only Rožňava that is facing difficulties. Layoffs have been announced by a number of employers. Hence, to introduce such a radical increase of the minimum wage in this environment is a manifestation of complete economic illiteracy.

Let’s remind the politicians of the situation during the last financial crisis, when the unemployment in Slovakia reached the level of sad 15%. This can come back easily. Will the politicians pursue lowering of the minimum wage in such circumstances? Hardly. The minimum wage is a political one-way street.

Tax Burden Is Increasing

The issue lies within the fact that irrespective of the level of the minimum wage the politicians pass, the real minimum wage in the economy will always be EUR 0. It is the wage acquired by a person that did not manage to obtain employment, for the politicians have been on the hunt for electoral preferences and crossed the line once again.

In fact, what happened is that they have disproportionately raised the threshold under which people are forbidden to work.

Furthermore, it is not the only unintended consequences of this populist policy. Even less is said about the artificial levelling of wages in companies. This implies that the differences between various executive employees in the company are becoming blurry.

Moreover, the opportunities to reward employees by financial means based on their attitude to work are worsening. The wage is raised equally and rapidly for everyone – irrespective of whether and for what they are striving.

If a politician feels that the country is doing well and he/she would indeed like to help the citizens who have the lowest wages, the solution is simple: reduce the high tax-levy burden on work, and/or to introduce a deductible item for social contributions, which will increase the net wages of people with low wages while reducing labor costs for small employers.

The excuse that there is no money in the budget will not stand, since over the course of past few years, the Slovak budget has been more than a billion in excess every year.

However, the ruling politicians are unfortunately going in the opposite direction. While a person working for a minimum wage in 2015 paid 29% in taxes and levies, with the planned minimum wage, they will pay more than 40% next year.


Translated by Diana Kráľová

Robert Chovanculiak
INESS