Minimum wage: where the May Day increase is locked in - How much will average wages rise

The process for the determination of the minimum wage is entering the final stretch, as the CPE must deliver its conclusion based on the submissions of scientific and social stakeholders to the Minister of Labour Costis Hatzidakis by Friday 15 April.

The minister will propose the new minimum wage to the cabinet (probably on 22 April) in order to its implementation to start on 1 May 2022.

Mitsotakis calls on employers

Yesterday, from the floor of the Parliament, Prime Minister Kyriakos Mitsotakis spoke of a significant increase in the minimum wage, while he called on employers to give increases in sectoral wages.

Most employers' organisations propose a nominal increase of 4% in the minimum wage (in addition to the 2% increase effective from 1/1/2022), while consider it necessary to reduce insurance contributions by one and a half percentage points in order to further increase the disposable income of low-income earners. The GSEE proposes to restore the minimum wage to 751 euros.

At 6% - 8% the increase

The minimum wage increase is locked in at levels between 6% and 8% (beyond 2%) to cover the high inflation that is gnawing away at the incomes of low-wage earners. This means that the new minimum wage will be from a minimum of EUR 703 to a maximum of EUR 716 on May Day.

If the increase is 7%, then the new minimum wage will reach 710 euros. With a possible increase of 7% now plus 2% last January, the minimum wage will rise by a total of 9% in 2022 to cover the mammoth March inflation of 8.9%.

How high will average wages rise after the increase in the minimum wage?

The new minimum wage, which will exceed the level of 700 euros from 1 May 2022, will also push higher wages upwards. According to Bank of Greece estimates, for every percentage point increase in the minimum wage, the average wage per worker is increased by 0,44 of a percentage point.

In practice, according to market participants, the average wage will «reap» the 50% of the minimum wage increase. This means that if the April 22 cabinet gives the go-ahead for a 7% hike, the average salary will increase by 3.5%.

Increasing the pay of workers at higher wage levels is considered necessary to maintain wage differentials relative to the minimum wage as an incentive to productivity. At the same time, employers in dynamic sectors of the economy need to pay higher wages to attract workers.

What the EFKA data show

According to the data of the National Social Insurance Fund (EFKA) for January 2021, the average full-time wage increased from EUR 1,202.09 in January 2020 to EUR 1,243.53 in January 2021. Similarly, the average part-time wage increased in one year from €418.77 to €475.93, while the average wage rose from €977.30 to €987.30.

Of course the average is rising due to generous increases in a few sectors of the economy as there are still sectors of workers (cleaning, security services) with wages below the minimum wage.

Large companies are waiting for government announcements to proceed with wage increases through company contracts, knowing that they need to maintain the wage structure and the necessary «gap» to avoid losing skilled workers.

It is understandable that if the minimum wage exceeds 710 euros, a worker paid 720 euros will push for an increase in his or her pay.

According to ERGANI data, every year around 1 million workers with wages of EUR 750-1,000 move voluntarily seeking higher pay.

Especially in the courier, delivery, tourism and catering sectors, where competition is fierce, employers pay more than the minimum wage to keep a good worker, about 750-800 euros.

The BoE report

The BoE in its report has proposed a modest increase in minimum wages and wages so that the average wage per worker does not increase by more than 1,2%-1,5%.

Referring in particular to 2019 when the minimum wage increase amounted to 11%, the BoE estimated that the average full-time wage increased by 4.83%. Specifically, the data show that the diffusion of the minimum wage increase was 5% for jobs with a salary between 800 and 900 euros, 3% for jobs paid between 900 and 1,000 euros and 2% for jobs paid between 1,000 and 1,100 euros.

The observed increase in the average wage is due to the increase in the wages of those already employed but also in the entry of new recruits. This is logical either because companies want to hire people who they consider to have skills for which they should be paid more than the minimum wage or because in order to find workers who meet certain criteria they are now forced to pay a higher wage.

The BoE also stresses that the competitiveness of the economy must be preserved and avoid a negative spiral of wage increases and inflation. Otherwise, Greek businesses, the majority of which are small, will not be able to absorb the increased production costs resulting from both international energy and raw material prices and labour costs, increasing the risk of job losses or the conversion of full-time jobs into flexible forms of employment.

We remind you that all employers' organisations in addition to raising wages, they emphasise the further reduction of social security contributions for private sector employees in order to reduce labour costs and fight undeclared work.