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Why Ukraine Needs Minimum Wage?

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CASE Ukraine senior economist Volodymyr Dubrovsky commented to the ‘Holos’ media outlet on the low minimum wage in Ukraine (compared to European countries) and its raising feasibility.

The minimum wage is not a marker, but a standardized value. Moreover, it does not have to be.

Salary is determined by arrangements between the worker and the business person who created a workplace for him. The state does not have to intervene into these agreements. Except for the case where the employer is a monopoly and may abuse this status quo and exploit someone. However, this is rather a rare case.

In fact, whether it is possible to live for this money or not, this is also an obscure question. For Kyiv, this is really a little money. However, in many small towns, people are often happy when they receive at least this money, having a household, additional ‘shadow’ earnings. They work for less money. There is a relevant price level there, not the same as in Kyiv. In addition, increasing the minimum wage implemented by the government led to closing small businesses in these regions. People are forced to look for another job.

In general, the expert goes on, two things set the level of salary in the country: it is the productivity of the economy and competition between employers. That is, if there are many different businesses in the country and employers compete for labor, then wages go up. In Ukraine, we observed this situation in the mid-2000s, before the 2008 crisis.

On the contrary, many studies conducted many years ago in different countries have shown that increasing the minimum wage increases poverty, as more people lose their jobs forever. This does not lead to any increase in incomes. Some segments of the low-paid workers experience raising the salary. However, those who own a higher qualification are not paid more. It leads to a certain ‘leveling’ in the labor market. People with bigger salaries actually lose.

The minimum wage lifting requirements are a typical tool for populists. People are slaves of an illusion that the government sets them a salary and protects them from those who… created jobs for them, from the employers themselves.

From an economic point of view, it is harmful. Nevertheless, in most countries, there is a minimum wage, because it seems to people (this illusion is spread not only in Ukraine), that it improves in some way their life. In fact, this is not true.

Our budget wages were tied to a minimum one. Not everyone has heard about it, but after raising the salary to UAH 3200, the budget sector`s wage scale was untied from the minimum wage. Therefore, this does not automatically increase wages for everyone else.

To truly improve the position of hired workers, it is imperative to increase competition between employers by all possible means.

It is worth to set up the most favorable conditions for job creation. It is not about the payment of some subsidies at the expense of other people or entrepreneurs. This means to reduce the tax burden on the labor force. This should be our answer to Poland, which aggressively engages our workforce, and the problems we have mentioned.

July 4, 2017