Prime Minister Rama promised the day before to increase the minimum wage to 500 euros from the current 40,000 lekë, a decision that, according to him, will come into effect from January next year, if the Socialists win a fourth mandate in the May 11 elections. At first glance, it seems like good news, as it benefits those who are paid the minimum wage. But the “devil” is in the details.
How does the minimum wage increase translate into results and what are the effects on the economy?
The minimum wage is the lowest possible wage paid to workers and is determined by law. This means that, if Rama comes to power and keeps his promise, there will be no wages lower than 500 euros. The minimum wage has been increasing in recent years, from 34 thousand lek in 2022 to 40 thousand currently.
This decision is accompanied by increased costs for business, as the latter is forced to increase low wages. That is, the government makes a decision that affects business. It is mainly small private entities, such as neighborhood stores, that are affected, which, in addition to the many problems they have, must also face this cost increase, which will force some of them to either lay off workers or lower their shutters. This means that the army of unemployed will increase and the state will have to pay more to maintain them through unemployment payments.
It is worth noting that such an initiative, which directly affects the business and its finances, was not discussed with the latter, while the opposite should have happened. There should have been consultations and a confrontation of opinions and arguments, always if what they are interested in is the economy.
On the other hand, the increase in the minimum wage leads to an increase in income for those who receive the minimum wage and, automatically, this is accompanied by an increase in consumption. Always, if this increase goes into their pockets, as it may happen that, after having received the increased salary in the bank, they return the difference of the increase to the business finance, as are cases that we still, unfortunately, hear about frequently due to the high informality and deformation of the labor market.
But it is worth noting that the big beneficiary is the government, as the income for the social security scheme increases, which, as is already known, currently has serious financial problems, enabling the granting of promised bonuses to pensioners. This means that, in a carefree manner, we put our hand in the pocket of business and take the money to give to pensioners. Meanwhile, it is the government that, through the good management of the scheme and public finances as a whole, should take care of pensioners and provide them with a dignified pension.
Another element that seems not to have been studied in the electoral promise of increasing the minimum wage is the situation it creates with productivity. In the economy, wage increases are made for those employees who are productive, who produce more and with higher quality. So, it is a mechanism that is determined by the market and the supply-demand ratio, it is not done by order.
Instead of helping businesses increase productivity, giving them the opportunity to become financially healthy and naturally increase salaries for employees, the government does the opposite.
It is understandable that, before the elections, the parties also promise "the Moon", since the Democrats have previously proposed increasing the minimum wage, and, personally, I have held the same position.
But I believe that for initiatives that directly affect citizens and influence their well-being, it is good to be serious, consulted, and studied. This makes political parties serious and credible, and electoral campaigns based on alternatives and not on Facebook jokes.
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