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A little prehistoric
In Lithuania in 2017 it was agreed to depoliticize the MMA environment, essentially through the cold-blooded application of a mathematical formula that determines the next year’s MMA as follows: the current year’s average salary (as predicted by the Ministry of Finance ) and multiplied by a quarter of the maximum ratio of MMA to VMU average of the countries of the European Union.
It was this calculation methodology that was applied in the Tripartite Council in 2017 and 2018, although the Bank of Lithuania (LAC) was struggling with it, because politicians (I mean both the Government and the social partners) deviated from the formula proposed by LAC. Thus, the Tripartite Council developed its own formula and followed it for two years in a row.
In 2019, the unions did not participate in discussions with economists and they may not have realized that the representatives of the Bank of Lithuania, when asked to present the proposed amount for the next year (i.e. 2020), decided ignore the methodology of the Tripartite Council and change its model. This model was favorable for entrepreneurs, since the MMA grew around € 6 less in 2020 than it would have had if the methodology used by the Tripartite Council had been followed for two consecutive years.
And here is the unfortunate 2020s, and the Bank of Lithuania is breaking its formula again.
And here is the unfortunate 2020s, and the Bank of Lithuania is breaking its formula again. Former Deputy Minister of Social Security and Labor Elgė Radišauskienė defended this formula, as the Government supposedly always applies it, but when asked by the Ministry of Social Security and Labor, I received the following response:
“Yes, the Government in 2017-2018, when proposing the MMA for 2018 and 2019, based its calculations on the VMU of the current year (with supplements and bonuses), which is published in the Economic Development Scenario”. used by the Bank of Lithuania (the original of the letter can be found here)
It is very interesting why the Government does not want a precise formula, although I myself have made a series of suggestions on how to translate the formula in detail so as not to provoke unnecessary disputes, after all, the objective was to depoliticize, right?
SADM responds: “We note that the formula is not precise and does not specify which VMU is used. We believe that if the formula is correct, there will be no opportunity for the social partners to negotiate and no space for social dialogue.”
Interesting depoliticizing politicization? Somehow, strangely, the Ministry of Social Affairs arbitrarily decides how much and where social dialogue should take place in the Tripartite Council, even though the Tripartite Council has agreed otherwise …
Surprisingly, the Ministry of Social Affairs arbitrarily decides how much and where social dialogue should take place in the Tripartite Council.
2021 MMA – 682 euros according to the formula
Calculating the average of the 5 countries in the European Union with the highest proportion of MMA and VMU, the coefficient is 0.481. Therefore, in the top 5 countries with the highest ratio of MMA to VMU, MMA averages 48.1 percent. VMU. Multiplying this estimate by the updated average salary forecast of the Ministry of Finance for this year, which foresees that the Vytautas Magnus University will reach 1,417.4 euros this year, we obtain that the MMA for next year should reach: 0.481 x 1417.4 = 681.8 euros, and rounded – 682 euros.
According to the September forecasts of the Ministry of Finance, the estimated MMA was € 664, as I presented to the Tripartite Council in autumn. However, after the Ministry of Finance significantly increased the country’s VMU forecast for this year, from 1,380 euros to 1,417 euros, the calculated MMA increases accordingly from 664 to 682 euros.
But but …
But still, COVID has already caught up with everyone … And here’s the bad news for union representatives: VMU is no longer VMU, so there are very reasonable doubts as to whether the Tripartite Council formula can continue. Let me explain: we can interpret the average salary as the income that an employee receives, or we can interpret this amount as the amount that employers pay for their work. In normal times these are different sides of the same coin, but the times are not common now, now they are COVID times.
In the wake of the coronavirus pandemic, the government took action and, in order to maintain an ongoing employment relationship between workers and employers and facilitate economic recovery, began subsidizing employers’ wage costs for displaced workers, as well as state subsidies for unemployed and retired workers. for a period of six months. At the end of October, this amount of state subsidies amounted to about 478 million euros. So there is a dilemma here: this money is included in the calculated amount of VMU.
If we look through the prism of worker income, then these subsidies should be included because they are helping companies maintain jobs. When the quarantine restrictions end and life returns to normal cancer, the workers will receive their old pay. Thus, if we exclude from the VMU calculation the subsidies that are currently paid by the state, we would basically harm employees “tomorrow”, when when they return to normal, some of them would receive an artificially reduced MMA due to state support to companies.
The bad news for union representatives is that VMU is no longer VMU, so there are very reasonable doubts about whether the Tripartite Council formula can be continued.
If we assess the ability of employers to pay wages in 2020, then it should be agreed that state subsidies should be removed from the VMU calculation to see the actual ability of employers to pay wages this year. At this point, however, there is once again reasonable doubt as to whether the comparability of companies that have stopped operations during a pandemic due to quarantine restrictions is comparable to establishing an MMA in the current year, when I hope to manage a coronavirus pandemic and even come back. to a certain normality.
Especially since employers who send workers to downtime can now pay them MMA, no matter what their pre-quarantine salary was. Therefore, the current wages paid to employees affected by downtime also do not fully reflect the ability of employers to pay wages outside of the crisis.
I dare to calculate that if we still try to estimate next year’s MMA, excluding this year’s expected public spending on labor subsidies, we would get around 1,369 euros in VMU this year and consequently 655 euros in MMA next year.
Employers who send workers to downtime can now pay them MMA, no matter what their pre-quarantine salary was.
Why would € 682 be the correct size?
On the one hand, it is obvious that when forecasting the current VMU, state subsidies save companies and ensure continuity of income for employees in downtime. Thus, the representatives of the employers would be right to argue that the VMU now published does not reflect their ability to pay wages this year, when a large number of activities are restricted or suspended due to quarantine. On the other hand, if VMU were applied in determining MMA without state subsidies, we would basically assume that next year, after the end of the quarantine restrictions, employers will only be able to pay 10%. the balance of MMA, which is now paid for themselves. That would be a very wrong assumption.
In addition, there are other arguments to increase the MMA to € 682. Currently, the net income of an employee in downtime receiving MMA is € 447 and the cost of such work for an employer is € 61, since the state covers € 547. Raising the MMA to € 682 next year would increase the employee’s net income by € 45 and increase the employer’s costs by just € 8, as the state grant would increase by € 68. Therefore, the government should increase the MMA to € 682 to meet at least the minimum standards of the “welfare state”.
For companies that are not affected by the coronavirus, increasing MMA is a natural annual procedure, and MMA increases along with rising wages and average consumption in the country.
For companies that are affected by quarantine restrictions, 90 percent. MMA (and its increase) will continue to be covered in solidarity by all of us taxpayers. These businesses will also receive subsidies for another 6 months after the end of the quarantine, which will help avoid crashes, especially in businesses that will likely continue to have certain security restrictions, such as the catering business.
At the end
Employers and the Ministry of Social Security and Labor, which represents business interests, took in this year by robbing workers € 6 per head, € 72 per year and € 144 each if there are two MMA beneficiaries in the household, who are They went into the pockets of employers rather than those of employees. .
A significant part of the country’s population still migrates to earn money abroad, and employers await third-country workers with open arms.
That must end.
We cannot expect employers to be interested in increasing productive investment in a country where the cost of unskilled labor is not rising adequately for economic development.
A significant proportion of the country’s population continues to migrate to work abroad, and employers are waiting with outstretched hands for third-country workers, for whom even a lower MMA remains satisfactory.
If we all care that there is more social justice in Lithuania after the coronavirus quarantine restrictions, if we want to reduce the emigration of poor workers from our country abroad, we must increase the MMA to 682 euros.
Justas Mundeikis is a lecturer and economist.
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