Minimum wage going to increase: what this means

Минимальную зарплату собираются повысить: чем это чревато

For the year, “minimum salary” will grow by almost 40%

In Ukraine will increase the minimum wage, the first increase is expected in September, and in 2021 “minimal” will increase twice. If the government’s plans are implemented, in a year the minimum salaries of Ukrainians will be 6500 UAH, which is almost 40% more than now. What caused this unprecedented generosity of the authorities, and whether there are risks associated with this initiative reports

In Ukraine will increase the minimum wage, what all informed Prime Minister Denis Shmyhal. And the peculiarity of the current government’s plans is that the “minimal” lift, without waiting for the new year. Thus in 2021 are scheduled as much as two increase.

We will remind, since January 1, “minimal” in Ukraine is the hryvnia 4723. But since September 1, if the Cabinet plans are implemented, it will increase to 5000 hryvnias (the growth amounted to 277 UAH, or 5,9%).

Starting 1 January 2021 the minimum wage of Ukrainians will rise from 1000 hryvnas or by 20% to 6000 hryvnia. From 1 July 2021 it is expected the increase of the minimal wage up to 6500 hryvnia (UAH 500 or 8.3%).

Thus, a little more than a year, the minimum wage in our country is expected to grow by 1777 hryvnia (37.6 per cent).

Social responsibility for elections

What is this unprecedented generosity of the authorities?

According to Denis Smagala, plans on increase of the minimal wage associated with the need to bring its size to a real living wage, which, according to government estimates, is “actually 4.9 thousand hryvnias” (while himself a living wage, yet, at least not increased since July 1, is located 2118 hryvnias, that is more than twice less than the actual).

According to analyst International centre for policy studies (ICPS) Yegor Kiyan, the question of the minimum wage in Ukraine is extremely painful. In conversation with “an Apostrophe” he noted that according to the UN in our country about 60% population are below the poverty line. The data of the national statistics also confirm this – more than half of the population receive a salary of about 5000 hryvnia less, that is, in fact, at the level of the minimal wage.

“Thus, the government like, wants to demonstrate social responsibility, but does it in the most simple and primitive method,” said Kiyan.

Do not forget that in October 2020 in the country must pass local elections, and raising living standards can be very useful for the authorities.

Earlier, the President set the task before the government to raise the minimum wage, and the Cabinet thus saluted, and then to report to the President on the job, said in an interview political analyst ICPS Igor Petrenko.

According to him, this step of the authorities, of course, will have a certain media effect. “It is a standard and very old approach,” said Petrenko. However, in addition to public relations, the considerable influence he will not have the expert added.

The budget has no money

Thus from an economic point of view, the increase in the minimum wage does not have any justification. “The economy is nothing going on to dramatically grow revenues, respectively, there is no reason other than populist,” – said in comments “Apostrophe” investment banker and financial analyst Sergey Fursa.

According to him, such a move will increase pressure on the state budget. “This money will need somewhere to take: either to print or to borrow. Both is a bad idea”, – said Sergey Fursa.

In addition, you should consider the fact that many private companies make their employees to “minimal”, and the rest paid in “envelopes”. This is done for optimization of taxes and duties, in particular, the single social contribution (ERU), which is 22% of the salary of each employee, his payment imposed on the employer. Accordingly, with the increase in minimum wage, increase the size of the ECB and of the tax to incomes of physical persons (personal income tax) who pays the employee.

On the one hand, the increase of the minimal wage will promote the “unshadowing” of wages, on the other, “when forced to “de-shadowing” occurs in the year of the crisis, this may not be very sensible,” says Sergey Fursa. “Wages in “envelopes” – it is evil, but the timing is not very appropriate”, he said.

The epidemic is coronavirus and introduced in connection with quarantine measures have already caused significant damage to the business (not only in Ukraine), and the planned increase of the minimal wage will only exacerbate the situation. And this is a risk that many companies will either go in the “shadow”, or simply closes. Accordingly, the positive effect of such actions of the authorities aimed at improving the welfare of citizens, simply disappears, said Yegor Kiyan.

This is not to mention the fact that such a significant increase in salaries could provoke the growth of prices (the government, however, denies this danger). “In fact, the main driver of inflation in recent years has been the growth of incomes. This year inflation has slowed down, because the income is not really grow up, but if we artificially throws (in the economy) money, then course, there are inflation risks,” – says Sergey Fursa.

The “leveling”, optimization and other “charms”

Of course, in Ukraine there are categories of citizens, for which an increase of the minimal wage is good news. “If we’re not talking about Kyiv and large cities, it is possible that in regions such increase will be”, – believes Igor Petrenko.

It is obvious that speech, primarily about public sector employees. But not everything by far.

First, there is a risk of the creeping egalitarianism. After all, if it increases the wages of low-wage workers the most, logically it should increase and those who are in status should get more. But it works well as budgetary organizations are limited in funds. “As a result, the lower part is lifted, the middle is not possible to raise”, – explained Egor Kiyan. That is, if you say, for example, the University or the clinic, the salary of a janitor and graduate will differ, at best, a few hundred hryvnia.

But that’s not all. Limited resources forced the budget of the organization to follow the path of so-called optimisation, which basically means the dismissal of some employees. “And such optimization may affect up to 40% of the state”, – said Yegor Kiyan. According to him, sometimes comes to the point of absurdity: in order to determine who to fire, people literally pulling match, and “the one with the shortest match, and fired.”

Against the rules

As mentioned above, the time for such a substantial increase in the minimum wage, despite the fact that the intention itself is quite good, was inappropriate.

“The most important rule: increase of the minimal wage should not happen in a crisis, and this rule is now broken,” – says Egor Kiyan.

If the government can ensure economic growth (and the power just really hope for it, expecting that the increase of the minimal wage will boost consumer demand), then such adverse events, such as the closure of companies and layoffs in the public sector, can be avoided. “But I doubt it. And because, relatively speaking, all of us will probably have to draw straws” – sums up the expert ICPS.

The government