Ukraine doubles the minimum wage: qui bono?

Author : Andriy Korneyev

Source : 112 Ukraine

President Petro Poroshenko calls this step "the protection of the rights of workers"
14:28, 31 October 2016

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Ukraine’s Cabinet of Ministers proposed a revolutionary norm. "From January 1, every working Ukrainian should not be paid less than 3200 UAH. This applies not only to non-state, but also the public sector," said Prime Minister Groisman.

Related: MPs to increase themselves salaries as of November 1

The government seems to have taken such a decision in a hurry. For example, in the draft state budget for next year, registered in the Parliament in mid-September, there is no word about the two-fold increase in wages. On December 1 of this year, the minimum income is expected to grow from 1.45 thousand to 1.6 thousand UAH (this is displayed in the budget for the next year), with the May 1, 2017 to 1,684 thousand UAH and since December 1, 2017 - 1,762 thousand UAH per month.

The political motive

Raising the minimum wage twice turned an unpleasant surprise, about which the advisors and the international partners of Ukraine did not know, said co-chairman of the Strategic Advisors Group Leszek Balcerowicz. "An unpleasant surprise took place yesterday. I want to say that neither I, nor none of the international organizations were not aware of the fact that there would be an increase of 100% of the minimum wage. What is more important, we were not familiar with the calculation, on which the decision is based," he said.

Related: Groysman: Unshadowing of Ukraine’s economy will make salary raises possible

But, despite this, the chances of approval of the government's initiative are high. For example, President Petro Poroshenko calls this step "the protection of the rights of workers." "Together with the construction of the Armed Forces of Ukraine the first priority of the authorities (as soon as it would be possible) a fight against poverty because of the Russian Federation's aggression against our country is not an excuse to delay in the reforms that we do in war," said the head of state.

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This idea was supported by the majority of political forces and their leaders are trying to attribute the initiative itself. For example, the leader of the "Fatherland" Yulia Tymoshenko called it "our victory". Co-chairman of "Opposition bloc" Alexander Vilkul said that he had already registered a corresponding bill in the parliament and political forces will vote for the proposal of the Government.

Related: Poland Deputy PM: Doubling of minimum salary in Ukraine is unpleasant surprise

Why the Cabinet went to such a move? The main reason is high tariffs for public utilities, which under pressure from the IMF rose by about two to two and a half times during the last 1.5 years. In November, the Ukrainians will receive the first bills for the heating system, which will cost about 60% more compared to last year. Reasons for dissatisfaction with a lot, and the first prerequisites for this are observed now. October 28, outraged elderly people broke into the City Council of Vinnitsa, demanding a moratorium on raising fees for utility services.

Related: Salary of Ukrainian official must be at least 100,000 UAH

The government is trying to prevent the growth of the number of dissatisfied. That is why on the eve of the heating season Ukrainians were massively sent booklets with the explanation why it is necessary to raise prices, but also proposed to issue installments to pay for heating services. And simplified procedure of registration of subsidies. The news about the growth of the minimum wage can put out aggression in society.

Not everyone would benefit

Today about 4 million people receive fixed minimum of 1.45 thousand UAH per month. This is about 40% of the total number of employees in both public and private sector. Who would really feel the innovations?

Related: Groysman jacked up salaries of MPs by 3 times with his most recent order

"Raising the minimum wage will touch only the shadow business employers whose workers officially receive the minimum wage, and the rest of the money is given in an envelope. But it would not affect the legal business. The average salary in Ukraine on the proposals of employers of our site is 6768 UAH, and according to statistics of the State statistics - 5202 UAH. Both of these figures are much higher than the proposed minimum, and I feel that the vast majority of workers now earn more than the proposed minimum wage. That is why most employees would not feel change. Exception will be made only the low-paid workers in the countryside," says a leading expert of the labor market, the search site development director at Serhiy Marchenko. With regard to the transfer to part-time work, according to Marchenko, the theoretically employers could do that before.

Related: 2013 vs 2016: Amount of goods Ukrainians could buy for one salary - infographics

The sharp increase in the minimum wage is a gross error, insists the executive director of the International Fund blazer Oleg Ustenko. According to him, to raise standards the state needs 15 billion UAH, and the private sector - 10 billion UAH. "Strong growth in money supply will lead to an increase in consumption in the imported products and as a result - a deficit currency," he explained. The expert believes that in the next year Ukraine will need about $ 10 billion credit. But the government's decision may call into question their further cooperation with Ukraine, which in theory trigger a devaluation of the hryvnia.

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Related: Budget-2017: Ukrainian Government to raise minimum wages

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