LFMI’s Position Paper on Draft Amendments to the Labour Code

LFMI examined draft amendments to the Labour Code of the Republic of Lithuania which proposed linking the minimum and average wages and setting the minimum wage at no less than 50 percent of the average wage.

In its position paper LFMI noted that linking the minimum wage to the average wage would programme continuous and unjustified increases in both. Currently the average wage is calculated based on the country’s minimum wage, therefore an increase in in the minimum wage would automatically boost the other.

What is more, the proposed ratio between the minimum and average wages is unjustifiably high. To compare, the most recent Eurostat data show that in the European Union minimum wages account for around 40 percent of the average wage, whereas in 2013 Lithuania‘s minimum wage was as high as 47 percent of the average wage, one of the highest in the EU.

Finally, a higher minimum wage means a heavier tax burden on the employer and increased expenditures on wages. This would result in fewer jobs, reduced incentives to create legitimate jobs, illegal employment and a shift towards the shadow economy.