Increase Minimum Wage from 55,000 Dram to 65,000 Dram: Draft Law

Members of the National Assembly from the "My Step" faction, Varazdat Karapetyan and Babken Tunyan, have introduced a draft law proposing amendments to the "Law on Minimum Monthly Wage," which suggests raising the minimum wage from 55,000 dram to 65,000 dram.

The legislators propose to set the minimum hourly rate for employees compensated by hour or wage as follows:

1) In case of a normal working schedule (40-hour workweek) – 390 dram.

2) In case of a reduced working schedule (36-hour workweek) – 435 dram.

3) In case of a reduced working schedule (24-hour workweek) – 650 dram.

Karapetyan and Tunyan explain that the current level of the minimum wage does not correspond to the consumer basket calculated in Armenia and the increase in the consumer price index. Thus, receiving a salary of 55,000 dram, a citizen is unable to meet their most basic needs. Considering that often only one family member is employed, the issue of survival arises.

Furthermore, there is another inexplicable issue in the Armenian labor market and the socio-economic sector; around 20 percent of those with jobs are poor.

According to information from the State Revenue Committee, as of March 2019, the number of full-time employees in the country earning up to 55,000 dram (after taxes) is 45,950, including 8,409 in the public sector and 6,017 in community organizations. If the draft is adopted, the salaries of these individuals will increase by an average of 7,800 dram, requiring an additional annual expenditure of about 1.1 billion dram from the state budget and 580 million dram from municipal budgets.

In total, the funds allocated for salaries in the private and public sectors will amount to approximately 4.86 billion dram.

The authors of the draft acknowledge that while these changes carry several potential risks – unregistered employment, rising consumer prices, increases in budget expenditures, and higher tax burdens on businesses – the expected positive shift is deemed more significant.

Specifically:

1. The minimum wage will surpass the value of the consumer basket, addressing a crucial social issue.
2. The increase in minimum wage will also raise the average wage.
3. Citizens earning the minimum wage will have greater purchasing power, leading to increased demand, which will, in turn, boost supply.
4. The wage gap between the private and public sectors will decrease.
5. Employers will have the opportunity to hire higher-skilled specialists if they are willing to pay more.
6. Competition will form among employers, who will strive for skilled personnel, resulting in higher wages.
7. The issue of the correspondence between the effort invested and the salary received will be resolved.

Several critical questions arise concerning this bill.

Currently, even those engaged in physical labor are compensated on average 5,000 dram per day. This is a unique indicator within the work-reward system developing in Armenia. It is believed that the minimum wage should gradually increase to 150,000 dram monthly over the next few years. This would also encourage motivation to work and responsibility.

Additionally, in the private sector, such low wages are mainly paid to employees in trade or other technical sectors. Part of the reported salary of 55,000 dram is often disclosed as a lower figure in documentation. In reality, a portion of the wages is provided under the table in cash form, and taxes are not paid. It is believed that this bill would facilitate bringing out the real wages of more than 30,000 individuals from the shadow economy.