Real Value of Raising Minimum Wage

Baku/11.02.19/Turan: From March 1, 2019 in Azerbaijan, the minimum wage will increase by 38%, below which the state and private employers are not entitled to pay any work for a month. The figure of 38% is unaccustomed to Azerbaijanis, since before raising wages, allowances and pensions occurred by 10%, which turned out to be lower or equal to inflationary losses in the family budget. In absolute terms, the minimum wage will increase from 130 manat to 180 manat, or 50 manat (38.4%). For the first time, the size of the minimum wage will be equal to the indicator of the conditional subsistence minimum (180 manat). The backlog of the "minimum salary" from the minimum subsistence level was one of the reasons for the criticism of the government by independent economists and opposition politicians.

Leaving the group of countries paying citizens less than $ 100 a month, Azerbaijan will improve its image indicator from March 1, since the real exchange rate is 1.7 manat per 1 dollar, which determines the minimum wage in the amount of 105 dollars (180 manat), the economist Natig Jafarli noted.

The minimum salary is a conditional indicator, since in practice in Azerbaijan a very small number of citizens receive such a salary every month. Among those who get 130 manat per month are the lower ranks in the medical field. Farmers pay shepherds at least 250 manat, also paying for food and small expenses hired on the farm. Cleaners work in 2-3 or more stores and other facilities, each receiving at least 200 manat per month. If they pay contributions to the Social Insurance Fund, they transfer money to the account of this organization in the amount of 20% of the minimum wage - that is, 26 manat until March 1. Since March, when the "minimum salary" will grow, they will transfer 36 manat each.

It should be noted that the amount of payments to the Social Insurance Fund is determined at the level of 20-50% depending on the type of activity of citizens. For example, a doctor at a private clinic in Baku signed a salary statement of 160 manat per month, of which he transferred 42 manat to the Social Insurance Fund (the owner of the clinic entrusted to the doctor some of the contributions that the state must pay itself). But most taxpayers deduct from the 20% rate.

Consequently, citizens working in extra-budgetary organizations and receiving all or part of their salary bypassing the bank will not benefit from raising the minimum salary, but lose in the amount of the difference that they will have to pay to the Social Insurance Fund - the extra 10 manat per month. Unfortunately, doctors and teachers will not receive an increase in salary, despite the fact that they work in budgetary and state organizations.

Moreover, various fines, calculated on the size of the minimum wage, may increase.

The largest "prize winner" from the introduction of the new minimum wage was the Social Insurance Fund, whose budget will receive more money every month than before March 1. With the right management, this Fund could earn money with its funds, switching to self-financing and investing its income in the growth of pension payments to the population. But President I.Aliyev, having signed a decree on raising the "minimum salary", freed the Fund from worries about replenishing its budget, withdrawing additional funds from the population in the form of increasing the amount of social insurance.

In general, single entrepreneurs and big businessmen who are forced to take over the social insurance of workers will suffer from the decree of I. Aliyev. Some will impose new costs on the shoulders of subordinates, economists say.

The official explanation of the decree states that raising the minimum wage means a corresponding increase in real wages, calculated according to the conditional minimum, that is, it will affect 600 thousand people (450 thousand public sector employees and 150 thousand in the private sector). There is a question to the compilers of this official information about working in the private sector, as it was explained above that businessmen did not pay 130 AZN per month for the workers they hired. Accordingly, the salary is not required to increase after March 1.

Undoubtedly, citizens working in the public sector (the same 450 thousand people) will receive a noticeable salary increase, since the amount of the monthly wage to public sector employees is calculated from the minimum wage multiplied by coefficients, which vary depending on position and length of service.

Due to the increase in the minimum wage, 400 million manat per year will be allocated from the state budget, and for 2019 (10 months) - an additional 335 million manat.

Let's compare the new Azerbaijani minimum wage with neighbors. In Georgia, few people receive the minimum wage. According to the 2019 data, in the private sector the minimum wage since 1999 is 20 lari (less than $ 1), while working in the civil service is 130 lari ($ 53). These figures are less than the subsistence minimum budget - 175 lari ($ 71). The net minimum wage in Armenia (after taxes) in 2019 will remain at the level of 55 thousand drams (about $ 115). From the beginning of 2019, the minimum wage in Russia should be 11,280 rubles, or $ 171.

Once again we recall that the minimum wage is a conventional concept, more necessary for economists, since the average real wage in the country is much higher. The last indicator of the average salary in Azerbaijan at the end of last year was 542 manat per month (318 dollars). In Armenia, there was 497 dollars. In Georgia, the average salary in October 2018 was more than $ 370. Up to two manat depreciations in 2015, when the manat fell by 47%, the average salary in Azerbaijan was higher than in Georgia and Armenia.