Next year's minimum wage hike to boost other benefits as well

Money. Source: ERR

Estonia's national minimum monthly wage will increase nearly 11 percent to €725, up from the current €654. The size of several benefits but also fees will increase accordingly as well.

The Estonian Employers' Confederation (ETK) and Estonian Trade Union Confederation (EAKL) reached an agreement Monday to increase the national minimum monthly wage by 10.9 percent, or €71, bringing the new minimum wage to €725, ETV news broadcast "Aktuaalne kaamera" reported Tuesday.

ETK managing director Arto Aas said that minimum wage earners account for approximately 2-3 percent of Estonia's labor market. "Some 20,000 people," he said. "But the impact of the minimum wage goes beyond that. Its indirect impact on wage levels in general in Estonia absolutely exists, especially at lower wage levels."

According to Aas, the indirect impact can be seen in the fact that while other businesses who pay less than the average wage are not required to increase wages, many nonetheless do in order to remain competitive.

As the minimum wage goes up, so, too, will the size of benefits connected to it.

Ministry of Social Affairs Deputy Secretary General of Labor Ulla Saar said that, for example, parental benefits, the minimum of which is tied to the minimum wage, will go up.

"Childcare and care leave benefits will likewise go up," she continued. "Care leave [benefits] are what one receives for caring for a severely disabled person."

Saar added that if any local governments have pegged any of their support measures or benefits to the minimum wage, then those will go up as well.

But the increase will entail extra costs as well. For example, several local governments have also pegged kindergarten fees to the minimum wage. In Tallinn, the rate is 12.2 percent, which means that the monthly kindergarten fee will go up another €8.50 from the current €79.80.

Financial adviser Ron Luvištšuk said that the minimum wage could also spur hidden inflation.

"As the minimum wage is tied for example to kindergarten fees, fines, the government's salaries, officials' salaries, then we'll actually be seeing hidden inflation, which Estonia is currently trying to combat," Luvištšuk explained.

According to Aas, the minimum wage hike will require increased efficiency from businesses.

"I suppose this will force businesses to improve efficiency," he said. "Less profitable and less productive jobs should actually be cut. Whether you reorganize your work, make greater use of digitalization, automation — so that we don't do foolish, simple, cheap and low-value work."

At the same time, he acknowledged that no one should overdo it with raises either, as that could lead to job losses. "Businesses could go bankrupt, and our international competitiveness would likewise suffer," he warned.


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Editor: Aili Vahtla

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