The growth of the lower border of incomes of citizens will entail first of all a jump in prices for the most necessary food products, as well as clothes and footwear of domestic production. 

The minimum wage, which is used not only to pay wages but also to calculate taxes and various social benefits, against the background of rising prices and tariffs for housing and communal services is one of the most discussed topics in the society. Last year, it was doubled to 3,200 UAH, and since January 1, 2018, it is 3,723 UAH in Ukraine.

However, this is not the limit – it is said the Government. And the vice-premier Pavlo Rozenko promises that by the end of this year there will be another increase – this time to 4,200 UAH. And economic experts, taking into account the processes in the country’s economy, are warning that people will feel the effect of this step for no more than a quarter, and then it will be leveled primarily by the rise of the price of the most necessary food products.

Promises and reality

Ukrainians note in social networks that raising the minimum wage is a plus for the purses of people who get less, but it can simultaneously provoke inflation. However, Pavlo Rozenko argues that the Cabinet of Ministers “will not play populism” and it is not worth waiting for inflation, according to the vice-premier, they will not print “candy wrappers of the National Bank, as former leaders did, who raised salaries before the elections, and then this turned into inflation”. Such confidence of officials is based on the economic growth, recorded in the first quarter of this year.

The Government says about another increase of the “minimum” for a long time – at first was the intention to take the standard of 4,100 UAH in the first half of the year. This sum was underscored by the President of Ukraine Petro Poroshenko in December of last year. The Minister of Social Policy, Andrii Reva, also supported the position of the head of state, he said that the size of the minimum wage can be viewed already in the first quarter of 2018.

But it turned out to be an unbearable task. Prime Minister Volodymyr Groysman promised to return to the solution of the issue if there would be at least a “small opportunity” – and the extension period was postponed to the second half of the year. Not least because the former Minister of Finance Oleksandr Danylyuk did not see the economic prerequisites for the first six months of the year to raise the minimum salary. The Ministry of Finance then recalled that in January-March, the state budget was not fulfilled with 6,2 billion UAH.

Oleksandr Danylyuk operated with figures, noting that if they had decided to raise the “minimum salary” from April, they would have to look for an additional minimum of 13 billion in the state budget. Later the situation improved somewhat, and in the first half of the year, the issue remained unresolved. Although Acting Finance Minister Oksana Markarova believes that raising the “minimum salary” is quite realistic. “The budget is being implemented, – said the current head of the Ministry of Finance, – so we hope that in the case of further implementation, and even better – achievement above target, we can also approach the issue of raising the minimum wage”.

What should Ukrainians expect?

Specialists also agree with this position. Thus, according to financial expert Andrii Blinov, there is no doubt that the “minimum” will grow by the end of the year. The reason, the financier asserts, is the beginning of the election campaign, therefore “all power will go on this increase”. By the way, the level of the minimum wage in Ukraine, if you compare it with the “minimum” in European countries, are real tears. Legally, the “minimum” salaries have 22 EU countries out of 28. By its level, it is divided into three groups: up to 500 euros (Eastern Europe), 1,100 euros (southern EU countries) and 2,000 euros (west and north of the EU). The lowest minimum wage is in Bulgaria (235 euros), the highest is in Luxembourg (1,999 euros).

And the definition of this level in our country is the prerogative of the Ministry of Social Policy, whose specialists, first of all, calculate the size of the real living wage. It is precisely in view of this year’s April prices, it turned out to be 4,200 UAH. If a person earns less than this amount, he or she is below the poverty line, because one cannot afford the most necessary things.

If the minimum wage is raised this year, as the Government announced, then what should ordinary people wait, for whom such an increase is of great importance? According to the leading researcher of the Institute of Demography and Social Research named after M.V. Ptukha of the National Academy of Sciences of Ukraine, the economist Lidiya Tkachenko, which she expressed in a commentary for Opinion, this is most likely to be felt by wage earners, whose salary level is close to the minimum. According to the State Statistics Service of Ukraine, in March of this year, 7.9% of full-time employees of enterprises had the salary not higher than the minimum (and this is 3,723 UAH), 17.7% of employees received salaries in the range from 3,723 to 4,000 UAH.

“If the minimum wage is raised to 4,200 UAH, – Lidiya Tkachenko explains – this will affect more than 2 million full-time employees of enterprises, as well as nearly 1,500,000 people, employed by microenterprises and private entrepreneurs, whose official salary is usually at the minimum level. The impact on the dynamics of the average wage will not be so direct since the minimum wage does not fulfill the role of system-forming values even in the budget sector. The formation of wages above the minimum can occur under the influence of various factors, including personal or accidental circumstances, after the abolition of the mandatory tariff system”.

According to the expert, raising of the minimum wage will unequivocally ensure an increase in the income of the single social contribution (SSC), since about one-third of payers pay contributions not exceeding the minimum amount, including individuals, entrepreneurs and persons, for whom the state is paying (and these are military of emergency service, persons in childcare leave, some other categories). However, one can hardly expect an extraordinary increase in pensions, rather, these additional SSCs will allow the state budget to allocate less money to cover the deficit of the solidarity system. Therefore, pensioners and other recipients of social benefits are likely to have to wait for increases closer to the elections.

Cannot do without rising of food prices

The ordinary citizens, on the one hand, expect the Cabinet to increase the “minimum” because it is an additional means to the family budget. On the other hand, they are rightly feared that such a step on the part of the Government will turn for them in rising in price of those things, without which it is impossible to live. First of all, we are talking about rising food prices and, of course, raising tariffs on housing and communal services, which is a Damocles sword permanently hanging over Ukrainians.

“Prices for food are formed more freely, they are influenced by objective factors: seasonality, productivity, etc., that is, they have a market nature, although the role and corporate collusion of major producers also play a part, – the economist notes. – But the general pattern is that rising food prices are more than provoked by rising incomes of low-income groups of the population, who spend the majority of their money on food. The number of employees with a minimum wage is substantially less than the number of pensioners and recipients of social payments and the increase of social payments is not expected. Therefore, it can be assumed that raising the minimum wage will not greatly affect the prices of ordinary food”. However, let’s notice that economic expert Yurii Gavrylechko believes that in case of raising the minimum wage to 4,200 UAH, the price of products will still increase by 12%.

Oleksii Doroshenko, General Director of the Ukrainian Association of Suppliers of Trading Networks, believes that prices will necessarily increase. But, as he notes in a commentary for Opinion, this increase will not be as significant as last year, when the minimum wage doubled. “This time it will be no more than 13%, – convinced the expert, – and above all, the increase will affect the cheapest goods: food, especially bread, as well as a production of clothing and footwear. This is because in Ukraine (as opposed to Poland, where this figure is about 14.5%), about 27% of people receive the minimum wage, that is, almost a third of the population. Where do they bring this money? Pay for the communal and buy the products themselves. And if the wages are rose for one-third of the population, this will definitely lead to an increase in value in many sectors of the economy”.

At the same time, the increase in tariffs for housing and communal services, according to Lidiya Tkachenko, is sanctioned by the Government, therefore, it is difficult to say something here in general. Obviously, the agreement with the IMF, regarding gas prices and other agreements of a politically corporate nature will be more affected. An important plus, Oleksii Doroshenko notes, is that people will feel a real improvement in their lives during the first three months after raising the “minimum”, with the fourth – this will be offset by the prices that will increase so much that those, who receive little, will make the ends meet.

Inflation anyway?

Regarding the inflationary processes, which, logically, always accompany this process in our country, the National Bank says that the next increase of the “minimum”, if at the same time not taking measures to increase labor productivity, will lead to inflationary pressures. Economic experts also say this. The same Andrii Blinov points out that the increase will take place against the backdrop of high inflation. But Volodymyr Sidenko, an expert of the Razumkov Center’s economic programs, reminds us that the payment of debt obligations is still waiting for Ukraine, and it does not add optimism, as these amounts only grow. Therefore, in his opinion, under such conditions, raising the minimum wage throughout the country can lead to destabilization of the state treasury.

At the same time, experts of the International Labor Organization declare that the “minimum” should be 60% of the average salary. If we take into account that the average salary in Ukraine is approaching 8.5 thousand UAH, the minimum should be at the level of 5000. However, according to Oleksii Doroshenko, attempts to reach this indicator, with those economic conditions that Ukraine has – will hardly benefit anyone. “It turns out that our country has one of the lowest in Europe difference between the minimum wage and the average wage, – he notes in a commentary for Opinion, – and at the beginning of the year, it was somewhere at 35-38%. In rich countries that can afford to have a small difference between the minimum and the average salary, this difference is somewhere between 43-46%. That is, taking into account this indicator, Ukraine is approaching the rich countries, but it is not so”.

According to the expert, it can provoke a decrease in people’s interest in finding more highly paid work. “If you still get a small difference, but at the same time should work for several hours longer and have a greater responsibility, – explains the expert, – will you want to look for a nervous job, where you will receive 6,000 UAH, or will you find the simplest one, for which you will have 4,200 UAH? The answer, in my opinion, is obvious.”

In addition, the economist notes, under such conditions, the incentive for entrepreneurship will be lost, as the entrepreneur will be forced to pay not less than “minimum” to the workers, even if he or she does not earn this money. “In order not to exacerbate the situation and not to provoke a negative one, – says Oleksii Doroshenko, – “minimum” should be raised, but we must act sensibly: for example, do not do it twice a year, but, as in the countries of Europe, from January 1. In addition, they have a different periodicity of such increases: in countries, where economic processes occur faster, they can afford a twofold increase. An example here is Germany. We better stick to a one-time increase”.

At the same time, in the context of the political processes that are currently taking place in the country, society is also interested in the question: what is more in the announced by the Government increase of the minimum wage – populism, or the real opportunity to do so. So far, says Lidiya Tkachenko, the Government makes rather restrained statements: “Minimum” will be raised, if economic and financial opportunities allow it. Until recently, the former Finance Minister Danylyuk asserted that there were no such opportunities. Having received a new leader, the Finance Ministry is no longer so categorical, but no final decision has yet been made.

Experts note that it is impossible to do without populism in such matters, especially when the election races have almost started. “None of the politicians, – emphasizes Lidiya Tkachenko, – want to lose his points, rather try to assign all the laurels to oneself. The initiative came from the President; the Government should make a decision and prepare a bill on changes in the Law on the State Budget for 2018, and then parliamentarians will compete further for their glory”. If it is a question of specific terms for increasing the minimum wage to the announced 4,200 UAH, then it is likely that this should be expected by the end of the year – from October or even from December, and this figure will go to the next year. As for the rise in prices, provoked by the next growth of the “minimum”, then, economists say, it should be expected a few months later.

Text: Larysa Vyshynska

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