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What should we know about the minimum wage?

Low wages and inadequate remuneration for work are crucial problems for the Georgian population. The severity of this issue has become particularly apparent both during the pandemic and in the conditions of the current inflation. Nevertheless, there is no effective instrument in Georgia that ensures fair pay for the labor of employees and protection of the most vulnerable share of the workforce from poverty.

Our comment

The state should ensure fair remuneration for labor in the country: 

  • The minimum wage legislation should be reviewed and the national minimum wage adjusted to the existing economic situation. 
  • Or, at the initial stage, the minimum wage should be established in critically important and/or especially low-wage sectors in the country.
  • Also, the already effective sectoral minimum wages (public servants, school teachers) should be reviewed. 

In numbers

  • According to the data of the second quarter of 2022, the unemployment rate in the country is 18%, which amounts to 281 thousand people. 
  • As of July 2022, the inflation rate in the country was 11.5%.
  • According to the data of July 2022, the subsistence minimum in Georgia is 245.3 GEL. 
  • According to the statistical data of July 2022, the monthly salary of up to 16,500 people in the country is less than 100 GEL, and the salary of up to 26,000 employees ranges from 100 to 200 GEL.  
  • Therefore, wages of 42,500 people are below the subsistence minimum. 

What is minimum wage?

See the article “How does the minimum wage protect workers?” 

In most cases, the minimum wage is established by the law, however it can also be determined by collective agreements. As a rule, trade unions and social services are actively involved in the development of such agreements. 

In most cases, the minimum wage refers only to the basic salary and does not include bonuses or other types of allowances. 

In 173 countries, regulations related to the minimum wage are established and function in one way or another. 

  • In 115 countris minimum wage is determined by the acts of the Government of  obligatory nature; 
  • In 17 countries - under the law adopted by the Parliament;
  • And in 15 countries -  by collective agreements;
  • 83 countries have only one universal minimum wage, and the remaining 90 countries have at least two minimum wages that vary by region, industry, profession, experience, or a combination of said factors. 

What purpose does the minimum wage serve?

The minimum wage is usually part of a broad, systemic social policy and is consistent with other social protection measures established in the country.  

Its primary purpose is:

  • Improving the economic condition of the lowest-paid workforce and eliminating poverty.
  • Empowering the employee by reducing economic inequality and power imbalance between employee and employer.

Moreover, the minimum wage can give additional motivation to seek a job for people on social benefits, and for those who are already employed - by contributing to increasing productivity. 

How is minimum wage calculated?

According to the Minimum Wage Fixing Convention (N131) adopted by the International Labor Organization in 1970, when determining the minimum wage, the following factors should be considered:

  1. The needs of workers and their families in the country, taking into account the general level of wages, cost of living, social security benefits, and the relative living standards of other social groups; 
  2. Economic factors, including the requirements for economic development, productivity levels and the desire to achieve, and maintain high levels of employment. 

On September 14, 2022, European Parliament adopted new rules on adequate minimum wages for all workers in the EU. According to the legislation member states must set minimum wages that actually ensure a decent life for the worker. For the adequacy assessment of their existing statutory minimum wages, member states may establish a basket of goods and services at real prices, or set it at 60% of the gross median wage and 50% of the gross average wage. 

What should we know?

A minimum wage that is too low will not adequately improve the economic situation of the low-paid workforce.

An excessively high minimum wage can lead to inflation, workforce shortages, the growth of the shadow economy, and the impoverishment of small and medium-sized enterprises. 

There is no suitable Formula for determining the Ideal minimum wage, however, it is recommended to use such statistical data as: average wage, a living wage, poverty line, etc. 

Furthermore, it is recommended that the minimum wage be revised periodically in order to be in full compliance with the economic situation of the country. 

History of minimum wage in Georgia

  • In 1999, the decree of the President of Georgia determined 20 GEL per month as the minimum salary. Even though today this decree no longer has any practical purpose, formally it is still in force as it was never declared void. 
  • In 2005, the decree of the President of Georgia established 135 GEL per month as the minimum salary for the employed in the executive branch of the g`overnment. 
  • According to the order of the Minister of Education adopted in 2015, the minimum salary of a teacher employed in public schools is 337 GEL. 
  • On August 1, 2022, the minimum wage was established in state clinics. The minimum hourly salary of a doctor is 9 GEL (monthly - 1620 GEL), and of a nurse - 5.75 GEL (monthly - 1035 GEL). 

There are currently three types of minimum sectoral wages in Georgia. However, the minimum salary of civil servants is significantly lower than the living wage, and the minimum wage for teachers does not adequately respond to the qualifications and skills required for persons working in the educational field. 

The recent step forward concerning fair remuneration for medical staff should be positively assessed, however, such obligation of introducing a minimum wage must extend to private clinics as well. 

As for the national minimum wage, there was an attempt to introduce it in 2020, however, the Parliament of Georgia rejected a legislative initiative that required 500 GEL to be determined as the minimum wage. 

Future perspective 

In Georgia, the discussion around the introduction of the national minimum wage has been ongoing for many years. In 2022, in the report prepared on Georgia the Commissioner for Human Rights of the Council of Europe noted that in order to properly protect labor rights in the country, it is necessary to ratify the International Labor Organization's Minimum Wage Fixing Convention (N131) and determine the minimum wage in line with international standards. 

According to opponents of introducing the minimum wage, such a regulation would leave the lowest-paid part of the workforce unemployed and contribute to the increase in the unemployment rate. 

However, research, including that of Nobel laureates David Card and Alan Krueger, argues that increasing the minimum wage does not always lead to a decline in jobs. The introduction of too high minimum wage might encourage the shadow economy and reduce the profits of small and medium-sized businesses, however, the minimum wage determined considering the economic indices of Georgia, the indices of the living wage and the average wage, could contribute to the improvement of the living standards of the most vulnerable workforce without causing significant changes in the labor market.  

 

 

The article was prepared with the support of Friedrich-Ebert-Stiftung. The views expressed in this publication are not necessarily those of the Friedrich-Ebert Stiftung. Commercial use of all media published by the Friedrich-Ebert-Stiftung (FES) is not permitted without the written consent of the FES.

Content Contributors
ზურაბ ქარჩავა
Zurab Karchava
Political Scientist
მერაბ ქართველიშვილი
Merab Kartvelishvili
Co-founder, Editor of Social Policy Direction