Minimum wage increase and admission of poverty

The lowest floor of minimum wages in Azerbaijan since March 1 this year has been set up at the rate of 180 manats. Over the past 12 years (2006 - 20180) minimum wages grew on average by 10-15 manats a year. Based on the assumtion that average number of random indices embraced 3 different years, the following picture is beginning to emerge:

When adjusted for the fact that from 2006 onwards ($17) the minimum wage made up $61,7 and $76,4 in 2013 and 2018, it is obvious that the minimum wage averaged $51,7. In the meanwhile, it has wrongly been believed that the minimum wage rose from 130 manats in 2018 to 180 manats in 2019 (up 38,5%).

The erssential point to remember is that the increase in minimum wages is not identical to the growth of mojnthly income of ordinary citizens. The point is that a mninimum level of monthly wages of citizens whose official income (in line with an agreement between an employee and an employer) being the lowest, cannot be less than 180 manats. In fact, the question is about a lower limit of the minimum wage to be provided to a hired employee by the state and the private sector. As a matter of fact, we should rejoice at this increase which is ast the level of monthly expenses of an average Azerbaijani family for communal services.

Following bravura official statements it became obvious that the increase of the minimum wage will embrace 600, 000 of which 450, 000 are engaged in the statye sector and 150, 000 in the private one. Hence, exactly half (450, 000) of 900, 000 employees being financed by the budget received the minimum wage.

Noteworthy is the government bodies that stated about the increase of the minimum wage unwittingly admitted the real scale of poverty in Azerbaijan. It transpires that, in addition to unemployed, there are 600, 000 citizens with monthly incomes reaching 130 manats ($76) ! That is to say that a daily income of hundreds of thousands of citizens in the country made up $2,5.

For your reference: at present there are the two poorest countries worldwide: Democratic Republic of Congo and Madagascar with 77% of their populations earning less than $2 a day. A daily wage of those receiving the minimum wage is close to the critical poverty in these country. It"s a big ask.

Comparison chart

It has to be kept in mind that even after a recent increase the minimum wage in Azerbaijan (180 manats) in terms od dollar is $105 a month, or $4,3 a day (if divided into 24 - the number of working days), or $0,54 (if divided into 8 working hours).

Hence, every citizen of Azerbaijan with the minumum wage earns just $0,54 an hour. It is not to be compared not only with the current but even 2-year old level of hourly earning in the developed countries as follows:

Some people believe that the comparison with the developed EU member-countries is inappropriate. We are all aware of our status in terms of the develioped countries. The dealiest fact that we are dead last among the post-Soviet Republics.

For examoke, in 2018 the minimum wage in Estonia made up $613; in Latvia - $488; in Lithuania - $488; in Russia - $162; in Belarus - $152; in Moldova - $152; in Ukraine - $151; in Armenia -$113; in Kazakhstan - $111; in Azerbaijan - $76! In other words, Azerbaijan is not even in the same league with post-Soviet Republics, to say nothing of the East European countries!

Was it possible not to increas wages?

In my view, the increase of the minimum wage was inevitable for two reasons.

First, it was crucial to lift 600,000 out of the official poverty line. The point is that officiall poor in Azerbaijan are citizens with monthly income of, at least,168 manats. From this point of view, 600, 000 citizens were to be ranked as the poorest group of country"s population.

Second, this might not be evaded becuase of discrepancy between the subsistence minimum and the minimum wage. Thus, the subsistence minimum in the new budget year has been set up at the rate of 183 manats, so the minimum wage was to have been set up not at the rate of last year"s index but equal to it or even above, for instance, 170 manats. It was inevitable from standpoint of international conventions and social charter as recognized by Azerbaijan.

Probable consequences

It should be noted that a wage increase may result in changes over a number of directions. Thus, availability of minimum wages may lead to rise in payments on a clearing basis. The point is that companies that have earler paid low minimum wages to their employees will have to increase it which will have its impact on amount of non-cash payuments. On the other hand, the inverse process is possible as well.

For instance, a company paying a minimum wage to an employeen will have to reduce the number of emloyees to thus decrease a volume of payments or prefer to engage in financial transactions and, hence, encourage the shady.

On the back of this, it"d be appropriate to tighten control over conclusion of employment agreement by work-giver companies and legalize an real earnings. When this is the case, it may lead to the increase of income and social taxes from wages covertly paid by an emloyeer to a workman.