Minimum Wage Will Not Increase: Government Rejects Proposal

The government did not approve the proposal to amend the law on the "Minimum Monthly Wage" during its meeting on January 20, which suggested raising the minimum monthly wage in Armenia from 68,000 AMD to 100,000 AMD.

The justification provided for the government’s decision states: "According to the decision No. 1363-A of the Armenian government adopted on August 18, 2021, the government will take steps to set the minimum wage at 85,000 AMD by 2026 as part of the government program for 2021-2026. Continuous increases in the minimum monthly wage will be ensured based on the macroeconomic indicators of the country." In other words, any increase in the minimum wage must necessarily be accompanied by corresponding economic capacities, serving as a source and basis for financing this additional expenditure. However, it remains unclear which changes in macroeconomic indicators have justified the proposal in question.

If the project had been approved, the minimum wage in Armenia would have constituted about 50% of the average wage, which we believe is sufficiently high and could have a counterproductive effect on economic development, especially considering the current high unemployment rate among youth and the less experienced (low-skilled) segments of society. This is also corroborated by the joint analysis results from the World Bank, IMF, and other financial institutions, indicating that the optimal level of minimum wage should be in the range of 25-35% of the average wage.

A significant increase in the minimum wage could be accompanied by an actual increase in recorded working hours. Given that the project did not address the minimum hourly rate for employees paid hourly, the adoption of the proposal could also lead to an increase in the number of part-time workers.

In developing countries where exports are based on labor-intensive sectors, a sharp rise in the minimum wage can lead to decreased economic competitiveness and reduced export volumes. In the case of Armenia, this is particularly important for the manufacturing sector, as a majority of minimum wage earners are employed in this field.

Significant changes in the minimum wage, especially in large amounts, carry substantial inflationary risks. According to various analyses, each 10% increase in the minimum wage could lead to an additional increase of 0.3-0.7 percentage points in inflation. Under these conditions, the adoption of the proposal is deemed inappropriate.