What will the new minimum wage increase bring?

By Dimitris Katsaganis

A new increase of 5.3% is being considered by the government for the minimum wage in 2023, as confirmed by competent officials to Capital.gr.

The forecasts for the continuation of the energy crisis in the next year “impose” on the financial staff an additional significant upgrade of the minimum wages at the beginning of 2023, leading them to the pre-memorandum level of 751 euros (gross) against the 713 euros applicable this May. Net, that is, based on these scenarios, the minimum wage could rise to 644 euros compared to 611 euros that it is today.

As the Minister of Labor himself, Kostis Hatzidakis, said last week, in January the procedure to determine the increase in the minimum wage will start and will last 3-4 months. In other words, the relevant decisions instead of being taken in June 2023, will be taken by March 2023 in order to come into force by April-May 2023 at the latest.

Increasing by numbers

If this scenario is verified, the total increase in the minimum wage during the ND government, i.e. during the period 2019-2023, will have reached the threshold of 15% (or 151 euros). It is recalled that the first increase (under the current government) was given on January 1, 2022 (2%) and the second on May 1, 2022.

It should be noted that the minimum wage was unfrozen in February 2019 (under the previous government), as it increased by 11%.

A new increase (5.3%) will bring an additional 38 euros (gross) to those paid the minimum wage. Net, i.e. after deducting the contributions of the insured, this increase will bring an extra 32 euros into the pocket of the employees every month.

On an annual basis, taking into account the 14 salaries, the increase means an additional 448 euros for the employees.

The increase will be greater for those workers who have secured a three-year benefit in 2012. Thus, an employee who has secured a 30% allowance on the minimum wage ten years ago, will receive an increase of more than 41 euros/month and 582 euros annually.

However, it will also bring an increase in non-wage costs for businesses. For example, for an employee who is currently paid 713 euros (gross), his employer pays contributions of 257 euros. If the gross minimum wage reaches, e.g. in May 2023, the 751 euros, the contributions for him will rise to 271 euros. That is, they will increase by 20 euros/month.

The consequences

As analysts point out, although the gross wage will return (under the same scenarios) to the memorandum levels, the net wage will be higher than in 2012 (when the minimum wage was reduced and remained frozen until 2019), as they have intervened significant reductions in contributions, including those of the insured.

It is recalled that, only in the period 2019-2022, the contributions of the insured have been reduced by approximately 1.5 units (within the overall reduction of non-salary costs by 4.4 units), leading to a corresponding increase in net salaries.

On the other hand, however, as the same sources emphasize, the available “real” salary cannot be higher than that of 2012, as at that time the economy was on a deflationary trajectory due to the counter-memorandum measures (reduction of expenses, increase of tax revenues), while in the current period it is on an inflationary trajectory due in particular to the energy crisis.

This means that the continuous increases in the minimum wage during the last period are a “line of defense” against the continuous increases in the consumer price index, so that the latter do not “gnaw away” at the real earnings of the workers. Conversely, ten years ago, deflation, although due to the recession, prevented a further – real – reduction in the (nominally) reduced wages of workers, as analysts point out.

In fact, this crisis itself reduces the possibilities of businesses to cope with a new increase in the minimum wages of employees, despite the continuous tax and insurance relief measures taken by the government in order to support businesses first against the pandemic and then against the increased energy costs of their operation.

At the same time, a new increase in the minimum wage (in May, according to the existing scenarios) will lead to a corresponding increase in unemployment benefits and also in the wages of a large part of the subsidized unemployed – thus expanding their social protection net – who are included in employment programs of DYPA (formerly OAED), such as e.g. in the community service program, together with the related budget expenditure.

At the same time, according to the same analysts, the following change in the country’s wage chart should also be taken into account: The return of the gross minimum wage to 751 euros will be done in conditions where the average wage in 2022 is much lower compared to the average salary in January 2012 (ie one month before the 22% reduction). Specifically, the average gross salary in January 2012 was 1,273 euros, while according to the latest e-EFKA data, in October 2021, it was 954 euros. In other words, 751 euros represented 78% of the average salary in 2021, while in 2012 it represented only 58%.

This means that the specific weight of the minimum wage in the overall configuration of the average wage now becomes very important.

At the same time, the minimum wage, especially after its planned new increase, will pay almost 1 in 2 workers in the private sector, pushing on the one hand for new increases in the wages of those who are not paid the minimum (i.e. for the other 1/2 ), something that businesses can’t stand today, as employers estimate.