Minimum wage possible next year

4 mins read

With some resistance, the Cyprus government, trade unions, and employers are getting down to the nitty-gritty of the thorny issue of introducing a national minimum wage.

The Labour Ministry is determined to introduce a minimum wage despite concerns from both employers and unions, with officials confirming to the Financial Mirror that the target is 2022.

A Labour Advisory Body was tasked with introducing a minimum wage by the end of 2021, made up by the social partners and representatives of the Labour Ministry.

The adoption of the minimum wage was initially scheduled for 2020, but the government postponed the project due to the Covid crisis, with social partners picking up the discussion in October this year.

Addressing concerns, Labour Minister Zeta Emilianidou said: “Decent wages that can meet the needs of workers, but at the same time, not affect companies to a degree where unemployment will rise need to be secured”.

Although partaking in the discussions for the introduction of a minimum wage across the board, employers still feel it’s against the economy’s best interest.

The Federation of Employers and Industrialists (OEB) insists that a minimum wage should not be introduced by law.

It makes things harder for markets to respond to periods of crisis and could push up unemployment.

In comments to the Financial Mirror, Lena Panayiotou, head of OEB’s Industrial Relations & Social Policy Department, argued that minimum wages should be the product of consultations between social partners, considering prevailing conditions at a given time.

“Just like each national economy has its specifics, each sector and each company also have their own specific characteristics and challenges that need to be taken into account,” said Panayiotou.

She argued the introduction of a minimum wage has proven counter-productive in times of recession.

“Where a national minimum wage was in place at times of crisis, it was harder for markets to become more flexible to adapt to new economic conditions prevailing.”

Political decision

Acknowledging that introducing a minimum wage will be a political decision, she said businesses must be able to maintain high levels of employment.

Panayiotou explained that if minimum wages are too high, employers cannot afford to hire to the maximum, pushing unemployment levels.

“Furthermore, there would have to be a transition period before hitting the final minimum wage, to give businesses and the market time to adapt.”

She said some subcategories such as domestic workers and farm labourers should be excluded as they are also compensated in kind with food and accommodation.

“We would need to decide on what sort of mechanism to regulate and readjust a national minimum wage when conditions change.

“It is important to maintain flexibility so that the ripple effect of a minimum wage does not turn into an impediment to further growth.”

Trade unions have been campaigning for some years now to end the exploitation of workers.

Talking to the Financial Mirror, AKEL-affiliated union PEO official and former Labour Minister Sotiroula Charalambous said the introduction of a minimum wage is essential to protect workers.

“There is a sizable percentage of the workforce, especially unskilled workers, who are being forced to sign personal contracts with salaries as low as €500,” said Charalambous.

“We have come so close to seeing a national minimum wage imposed mostly due to the hard work and pressure unions have been applying on authorities.”

However, Charalambous noted, unions are concerned that a national minimum wage could be misused by employers, especially in sectors already covered by a ministry decree or have collective agreements in place.

Personal contracts

A ministry decree regulates the minimum wage for nine occupations: sales staff, clerical workers, auxiliary healthcare staff (personal care), childcare in nursery schools, crèches and schools, security guards, caretakers, and cleaners.

“Legislators should introduce a provision regarding the minimum wage, that where collective agreements are in place, they are to be respected by employers.

“But we do need a minimum wage to protect workers, as in some cases, employers have bypassed collective agreements, drawing up personal contracts for wages below the agreed sum.”

Asked what PEO felt about a potentially high minimum wage increasing unemployment, Charalambous argued that International Labour Organisation (ILO) studies had proven the opposite.

Louis Christofides, Professor of Economics at Cyprus University, said that studies have shown that a minimum wage can encourage employment.

“Empirical work carried out by David Card (Nobel 2021) almost 30 years ago questioned the expectation of significant dis-employment impacts.

“A minimum wage can actually increase employment by encouraging more labour supply,” said Christofides.

He said most empirical investigations concern small increases in existing MW arrangements for low-paid workers in specific contexts rather than a national minimum wage.

“We know less about the introduction of a national MW.

“The momentum for the latter has more to do with the emerging feeling that extreme income inequality is not desirable on economic as well as social grounds.

€870 starting point

“The European Pillar of Social Rights supports MWs if member states can implement such policies cautiously and without incurring adverse economic effects”.

Christofides added that if it is politically deemed necessary to introduce a minimum wage, this should be done by carefully considering the local social support systems and labour market situation.

“For example, the ILO reports that a level of 55% of median monthly income is often used internationally.

“In Cyprus, it would translate to somewhere around €850 per month.

“Coincidentally, the starting MW currently applied in the non-union sector is €870, and the lowest monthly salary in the 2020 tripartite Hotel Agreement is also €870 pm.

“It has the advantage that it has been ‘digested’ by the labour market since it has existed for some years.”

He said this amount would be higher than what is earned by some full-time employees. Data suggests that around two-thirds earn around €870 a month.

“Whether this can be implemented without dis-employment effects depends on many factors, including whether employers are price takers or whether they can pass on to their customers at least some of the implied wage increase, and whether their production process can be shifted towards the use of other factors of production”.

Currently, employers are experiencing recruiting difficulties, limiting the possible dis-employment effects from a national MW.

The UCy Economics professor said that most employers pay more than a reasonable national minimum wage level and will not be immediately affected.