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Minimum wage: What employees gain and what they lose

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Minimum wage: What employees gain and what they lose

The discussion-consultation for the introduction of the minimum wage in Cyprus from 2022 officially opened, in the study base of the International Labor Office (IEA), with the eyes of all involved focusing on two parameters: the amount of the minimum wage and whether it will be one is the minimum wage or whether there will be variations by sector of economic activity. The social partners (employers and unions) enter this dialogue with reservations. The unions fear a wage leveling of the minimum wage, dragging (and ultimately undermining) collective bargaining, and employers worry that wage costs will rise and eventually lead to layoffs.

“P” tries to give answers by talking to a specialist and drawing on the experience of introducing a minimum wage in other countries. The general conclusion is that there is no “golden” recipe for copying and that where a minimum wage was introduced the effect on the economy was positive.

In the examples of the United Kingdom and Germany, for which there has been extensive academic research, there was initially strong reluctance from employers and unions (with the same arguments we see today in Cyprus), but today the minimum wage is an integral part of labor relations. of the two countries.

In Germany, as we will see below, the minimum wage has been an opportunity to increase the capacity and efficiency of the workforce, resulting in increased business productivity. Businesses to make up for the extra costs incurred by the minimum wage have invested in getting better and increasing their revenue. At the same time, however, smaller businesses closed.

The balance

The question that “burns” is what will be the amount of the minimum wage. The Minister of Labor, Zeta Aimilianidou, described the search for a balance.

“There must be decent wages that can meet the needs of workers, but at the same time, without affecting companies to a degree where unemployment will now rise. “From 2019, we had carried out the necessary studies in order to adopt a national minimum wage in a rational way,” he said.

A scenario on the table predicts that the minimum wage will be set at 60% of the median wage in Cyprus. The median in 2020 was 1,573 euros, so the minimum wage is set at 943.80 euros.

Today in Cyprus 2/3 of low-paid employees are paid less than 60% of their median salary. In the eight professions (saleswoman, clerk, nursing assistant, babysitter assistant, babysitter assistant, school assistant, school caretaker, security guard, cleaner or cleaner) for which a minimum wage decree applies, it amounts to € 870 after 6-month continuous period of employment with the same employer, at € 924 gross.

Manos Matsaganis, head of the Hellenic & European Economy Observatory of ELIAMEP and a professor at the Technical University of Milan, who has been researching the minimum wage (in fact in September 2019 he had come to Cyprus to participate in a discussion organized by the European for the minimum wage in the country) speaking to “P” is in favor of a more conservative approach and the introduction of the minimum wage to start from lower levels and gradually rise.

“Every economy is different”, Mr. Matsaganis emphasizes and recommends caution. “An excessively high minimum wage would have a negative impact on employment. There are no recipes. It is not a science, it is an art to determine the minimum wage “, he mentions and recommends as a best practice, the gradual introduction. That is, a low minimum wage is introduced first, which does not frighten companies and does not please employees. Then the margins of resilience of the economy are assessed and gradually the bottom increases. This has happened in the United Kingdom and Germany.

He is also in favor of a general national minimum wage that will set a lower limit on both the functioning of the labor market and collective bargaining. That is, it will not be an obstacle to agreeing higher sectoral earnings. Regarding the unions' concern that the minimum wage will undermine the collective bargaining process, he comments that this has not happened in all the countries where regulation has been introduced.

“It simply came to our notice then. The unions that today draw members from the most favored categories of workers, will see that with the minimum wage they will win because they will penetrate into categories of workers in which they did not have much influence. Experience shows that unions are gaining influence and members “with the minimum wage being the incentive for concluding collective agreements.

Modernization mechanism

Mr. Matsaganis explains to “P” that the introduction of the minimum wage can lead to a process of consolidation of business activity.

“Relying on very low wages may appeal to entrepreneurs who pay them, but that means their business is of low added value. Therefore, the introduction of a minimum wage not only puts limits on the exploitation of the employee by the employer, but also puts the bar higher on companies to push them to intensify their efforts to reorganize their production and invest in productivity. A thriving economy is one that adds value. “I do not see the minimum wage as a zero-sum game, with companies losing and employees winning, but I see it as part of a regulation that pushes everyone to work harder and ultimately leads to greater profitability and healthy businesses.”

The experience of Germany

In January 2015, Germany introduced a single minimum wage of 8.50 euros (per hour). Many economists and the media predicted that this would have devastating consequences for the German economy and lead to significant job losses.

A recent study by Christian Dustmann (University College London) and colleagues (published in October 2021 which makes it extremely relevant) shows that, in fact, the introduction of the minimum wage has increased the wages of low-wage workers without diminishing prospects. their employment. Employment in Germany increased.

It also caused a redeployment of staff to more productive businesses. The companies themselves made investments and in some cases there were expansions or mergers in order to take advantage of the economies of scale and no redundancies were observed.

Overall, the minimum wage has helped reduce wage inequalities while improving the quality of businesses operating in the economy.

According to the same study at the individual level, after the introduction of the minimum wage, low-wage workers – but not high-wage workers – are more likely to be promoted to companies that pay higher wages on average, offer more full-time and more stable relationships. labor relations.

The study's findings show that many economists' concerns that the introduction of the minimum wage in Germany in 2015 would cause significant job losses were unfounded. In contrast, the introduction of the minimum wage increased the wages of low-wage workers, did not reduce employment and caused a redistribution to more productive facilities. As a result, the minimum wage has helped to reduce wage inequality among workers. These results, the researchers note, do not mean that no company or employee has lost since the introduction of the minimum wage. The minimum wage has pushed some small businesses with less than three employees to leave the market, signaling a shift of employees towards higher-paying companies.

In addition, the redistribution of low-wage workers to higher-paying companies may have left some workers in a worse position despite earning higher wages.

“While there may have been some losers from the minimum wage policy, we conclude that the overall well-being of low-wage workers probably increased in response to the introduction of the minimum wage,” the study said.

The United Kingdom

Mr. Matsaganis in his research work (History and politics of the minimum wage), among other things, describes the example of the United Kingdom.

Tony Blair's Labor victory in 1997 paved the way for the introduction of a minimum wage. The issue had been raised since the early 1980s. Conservatives argued that a national minimum wage (set at two-thirds of the average male income, the highest in the developed world) would be disastrous for employment, leading to the loss of 750,000 up to 2,000,000 jobs.

Labor's sweeping victory in the 1997 general election paved the way for the National Minimum Wage Act, which entered into force on 31 July 1998, implementing a national minimum wage from 1 April 1999. It had previously been supported by the Confederation of British Industry. (CBI). It was not until 1995 that the CBI argued that “even a low minimum wage would reduce employment opportunities and create significant problems in wage structures in a wide range of businesses.” In 1997, he changed his mind, arguing that “the proper and achievable purpose of the minimum wage is to create a 'threshold' in the labor market.” The CBI's position is that the minimum wage is the foundation of a well-functioning labor market.

The initial minimum wage was set at an average of 60 3.60 per hour – about 40% of average hourly earnings, reflecting the feeling that it was better to start low and evaluate results rather than risk setting too high. .

In April 2020, the National Living Wage (as the minimum is called) was 72 8.72 (€ 10.20) per hour, which is about 60% of average earnings.

Source: politis.com.cy

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