Minimum wage will rise to €654 next year - an increase of €70 - and the hourly wage will rise to €3.86, unions and the Employers' Confederation agreed on Tuesday.
Under the agreement, the minimum wage will rise by 12 percent to 39.5 percent of the average wage estimate by the central bank for 2022.
The agreement was signed by the Estonian Employers' Confederation and the Estonian Trade Union Confederation (EAKL).
Employers and unions are also proposing that increases in the minimum wage should not be arbitrarily linked to other benefit changes, such as kindergarten fees or salaries of municipality leaders.
"Where last year we decided to freeze the minimum wage due to the crisis, thanks to a faster-than-expected recovery of the economy, we can plan a rise in the minimum wage again in 2022. Faster-than-usual wage growth next year will compensate for this year's minimum wage freeze, and it also reflects our social responsibility and the tense situation in the labor market," Arto Aas, manager of the Estonian Employers' Confederation, said in a statement.
He added that even though the number of minimum wage earners in the working-age population is not large, the minimum wage has a wider impact on the economy.
"We believe that the compromise we have reached is manageable for employers," Aas said.
"Unless there will be major setbacks in the economy, it is likely the minimum wage in 2023 will again equal 40 percent of the average wage, which was the level before the crisis. This year we were not ready for that yet," he added.
Peep Peterson, chairman of EAKL, said the increase in the minimum wage will compensate for the increase in the cost of living over the last two years and try to keep pace with the increase in the average wage.
"A recent study confirms that the impact of the minimum wage is passed on to wages below the mid-point of the wage market. It is certainly a mission of trade unions to address separately wages also in the top half of the labor market, where the majority of our members are active," Peterson added.
The basis for the negotiations on the minimum wage was the autumn 2021 forecast by the Bank of Estonia, which estimates the economy to grow 3.5 percent and the average wage to grow 7.4 percent in Estonia in 2022.
Based on the minimum wage agreement, the government also approves national minimum rates of pay at the same level. The current minimum wage of €584 a month has been valid since 2020.
Editor: Helen Wright