Discussing Budget-2007

Deputies Suggest Increasing Minimum Monthly Wages With No Additional Costs

In the course of discussions of the draft budget 2007 four deputies of the State Duma of the Russian Federation introduced a proposal to increase minimum monthly wages in Russia up to 2,000 roubles instead of current 1,100 roubles effective since May 2006 and 1,400 roubles proposed by the Government of the Russian Federation for 2007. As the proposal was introduced by such Duma members as the Chairman of the State Duma and heads of State Duma committees on labour and social policy, education and science and health protection, the draft law On Introduction of Amendments in the Federal Law ‘On Minimum Wages’ and other regulatory acts of the Russian Federation are likely to be adopted.

It should be noted that another initiative related to the increase of the minimum wages was proposed by Duma deputies previously. It was proposed to increase it up to 2,500 in 2007 and further increase up to 3,200 in 2008.

This kind of activity can be explained by a number of factors. First, the coming State Duma elections: deputies need to report on the promises made, including poverty reduction, observation of the norm of the Labour code of the RF on the minimum wages being not less than the subsistence level (in 2006 the subsistence level for a working citizen was 3,600 roubles, .i.e. 3 times higher than the minimum wages). Second, the influence of the situation in the CIS states that lag behind in this area (in Russia this indicator in September 2006 was US$41.5, while in Kazakhstan in January 2006 – US$ 69.1, in Belarus – US$72.8, in Ukraine – US$69.3). Third motivation is the task set by the president of the Russian Federation related to dealing with poverty among teachers, medical workers, museum staff and other professions paid from the budget. Fourth, we think that the initiative is in a way connected with the convention of the Federation of Independent Trade Unions of Russia scheduled for November 2006. At the convention the leaders will have to report on the issue and they surely would like to report positive results, etc.

Another important aspect is that increase of a minimum monthly wage is essential for observation of the generally recognized principle of equal payment for men and women, and therefore, for achievement of social equality (according to the data for October 2005, women earned 39% less). Unfortunately, the majority of low paid employees, those working in the public sectors with lower salaries than in other sectors (about 1/3 lower) are women. The situation in Russia, where gender discrimination is combined with professional segregation is contrary to the international practice.

Although the activity of legislators in this area is rather positive, the expert evaluation of the presented draft federal law On Introduction of Amendments in the Federal Law ‘On Minimum Wages’ and other regulatory acts demonstrates potential ambiguity of its consequences.

First, it is doubtful whether approval of the project will require additional funds from the federal budget. The conclusion is based on the planned incorporation of all kinds of subsidies and extra payments that normally vary from 40 to 120 percent of the tariff (monthly rate) in the amount of the minimum wages. What is the meaning of the increase without additional funding?

According to Rosstat (April 2006), monthly wages of 4.3% of employed, i.e. two million people, range from 1,400 roubles (minimum amount as per budget 2007) to 2,000 roubles (as per the draft law). First of all, these include employees of the budget funded sectors with a monthly payment of 1400-2000 roubles, including those working in education – 9%, healthcare and social services – 6.8%, culture – 7.9%. Certainly, funds will be necessary to increase the monthly minimum wages; however, employees of these sectors are not entitled for extra payments that could be taken into account as a source of the increase as proposed by the draft law authors. At the same time, it is practically impossible to obtain funds by reducing the amount of extra payments for other employees, as it is prohibited in the draft law. Lack of required funds in the federal budget for 2007 will further aggravate the already complex situation with payment of budget funded wages at the local level.

All those in need are from financially weak regions that will not be able to introduce the new minimum wages themselves. The only way out is to reduce the number of staff in the socio-cultural sectors, which will lead to a decline in medical care, education, child and elderly care, and as a result to increased unemployment and poverty, especially among women who constitute the majority of staff in these sectors. Not a very good prospect, especially if we think about single mothers, divorced women who do not receive child maintenance, etc.

In the course of the discussion of the draft law in the State Duma of the Russian Federation during the third reading of the budget 2007 it would be sensible to determine the respective federal financial obligations to the regions, as the minimum wages according to division of powers is a federal responsibility and lack of funding will lead to another unfunded national mandate, while the federal centre got rid of it in the notorious law FZ–122, which will signify movement of the budget policy in circle, rather than forward.

Second, the draft law stipulates inclusion in the wages of all types of subsidies and extra payments, compensatory and incentive payments. Previously they were not included in it (article 133 of the Labour code of the RF). As a result the adoption of a new definition of ‘minimum monthly wages’ in our opinion will lead to the collapse of the recognized principles of wages generation in Russia: wages are separate from extra payments that are paid in addition to the wages.

As it is known, the basic element of the payment generation is wages (rate). It is used for further calculation of subsidies, extra payments, etc. A person working in hard labour conditions will receive a special extra pay for working environment. The amount of payment is increased together with the basic wages. In the new definition the notion of basic wages is dropped together with the dependant role of the extra payments. Therefore, establishment of a streamlined remuneration system is impossible.

With the introduction of a new definition it becomes unclear how the differences in payment will be regulated. If a minimum amount is 2,000 roubles, while tariff rates are not reviewed, the correlation of skilled and unskilled labour will be 2.5 instead of 4.5.

At the same time it remains unclear how the rates and extra payment will be calculated for workers of different qualifications and professions, as it is planned to keep them. In practice, this means that this should be done on the basis of the minimum of 1,100 roubles established in May 2006. Thus, in fact we will have two minimum wages in labour relations: one for unskilled labour and the other for all other occupation groups.

Also, we should mention the social disappointment for many people with the introduction of a new minimum wages amount. Previously, when a new minimum was introduced, most people, especially in budget funded sectors, had a certain increase of wages. Many had increased extra payments that are calculated on the basis of the basic wages. If a new variant is adopted, only small part of employees will see some increase, while the majority will not.

Third, extra payments up to the minimum wages are a de-stimulating factor for many unskilled workers that are currently scarce. A lot of women who perform unskilled work combine two jobs, like a nurse and an assistant nurse in healthcare sector. In case the new minimum wage calculation procedure is adopted, why would, for instance, a nurse want to combine two jobs, while she will be able to get extra payment for her work in regular hours. Another example of loss of the right for increased wages for working in special conditions in budget funded healthcare: wages of tutor’s assistants working with mentally challenged children with central nervous system affliction, tuberculosis intoxication, blind, etc. are 15% higher than of tutor’s assistants in regular kindergartens. With the introduction of compensation up to 2,000 roubles to those who currently earn less, the payment for both above mentioned categories will be equal, which in fact will mean that no extra payment for hard labour conditions is provided. The same is true for differentiation of wages of low paid workers by type of work at night, overtime, weekends, holidays, etc.

Conclusion. Increase of the minimum wages is necessary. This is a very acute social issue for Russia in the framework of reducing poverty, especially among women (low paid teachers, medical workers, other budget funded professions), as stated by the president in the 2005 message. Until the minimum wages remain half as large as the subsistence level, it would be advisable to increase it as a basic rate for payment for all categories mentioned above.

It can be done urgently by introduction of extra payments as proposed in the reviewed draft law for 2007. However, this should be a one-time temporary measure combined with implementation of new effective forms and systems of payment. These measures should ensure decent remuneration for those working for the state, for the future of the country (in healthcare, education, science, culture), however, keep major principles of the payment organization as the incentive for work, as the issue of effectiveness remains unresolved. High wages are necessary, although they should be based on the assessment of every working person’s efforts.

That is why in the course of adoption of the draft law it is recommended to think over its consequences for the labour market, not to change the definitions established by the Labour code of the Russian Federation, taking into account the temporary nature of the proposed measure and the necessity to continue the process, not to include compensatory and incentive payments, as well as other extra payments, in determining the eligibility for the increase up to 2,000 roubles.