Increase in Minimum Wage Will Further Endanger at Least One-Fifth of the Real Sector

It would be interesting to see the reaction of the Plodinec family, which manages the Sisak company Mlin i pekare, when Prime Minister Andrej Plenković announced from the parliament that the current minimum wage would be raised from 3750 to 4220 kuna (net). It is quite possible that at the same time, the CEO of Lonia trgovina, Dražen Baškarad, was calling his boss Michał Seńczuk, and that Zvonko Ceranja and Ivan Ninković from Atalian Global Services Croatia, which deals with building maintenance, were calling their principal. Bosiljko Stanić from Vinkovci’s Bosa, director and co-owner of Zagreb’s Gavranović, Milka Gavranović, and the head of Zabok’s Trgostil, Darko Bratković, likely reacted similarly…

They are, in fact, the largest employers who had an average salary lower than the announced new minimum wage last year. The difference between the current and announced minimum wage will cost 587 kuna per month for each employee currently earning a salary of 3750 kuna. Annually, this represents an additional cost of over 7000 kuna per person.

Retailers are particularly anxious, as the Prime Minister threatened to ban Sunday work (except for 16 Sundays a year) in the same package, fearing a drop in revenue. It is even harder for managers at Varteks or Borovo, who are also among the largest employers with low average salaries, and have been struggling for survival for years, ending 2021 with losses. Now they face an additional cost.

Mlin i pekare has 1641 employees, Lonia trgovina 1376, Atalian GSC 1264… While not all employees in these companies are below the new minimum wage today, the law of large numbers is unforgiving. For an assumed 500 employees on minimum wage, the company would incur a cost of 3.5 million kuna, which is more than, for example, Varteks’s loss in 2021.

Of course, increasing the minimum wage is certainly a move that is hard to criticize, as even with 3750 kuna a month, and even with 4220 kuna, people are in the category of poverty. On the other hand, the casual justification for raising the minimum wage is that employers simply need to reduce profits and that a smaller number of companies will be affected.

However, last year, less than 4220 kuna was paid by as many as 40,447 companies with 202,847 employees, including 11,928 companies with 38,199 employees that ended the year in loss. The real sector in question encompasses about one hundred thousand companies and employs a total of less than a million people. Therefore, increasing the minimum wage will further endanger the operations of one-fifth of the real sector, noting that there are also employees on minimum wage in other companies.

It should be taken into account the current negotiations of the Government with the unions of public and state services, which are demanding an eight percent salary increase immediately and another five percent next year. The Government is currently offering a model of ‘4% + 2%’.

Meanwhile, Plenković has set a new goal – an increase in the average salary from 7576 to 8200 kuna. Along with this, a new minimum wage and new negotiations with the unions will certainly follow. The Prime Minister boasted about salaries, which he raised by 34 percent during his term. He omitted to mention that 20 percent of that was eaten up by inflation. He also did not say that the median (the salary that is the maximum income for the poorer half of employees and the minimum for the other, richer half) has grown less – by 30 percent during that time. However, salaries in public administration and defense have already increased by 36.7 percent.

Regardless, self-praise for raising salaries in a time of galloping inflation (greater than ten percent) will certainly provide a new impetus for price increases. Each of the approximately 40 thousand companies that will feel the rise in the minimum wage will try to offset the additional cost with more expensive products and services.

And then Santa Claus in the form of Plenković will again raise the minimum wage, reduce VAT on some items, freeze some prices; in short, he will continue to take populist moves to please the critical number of voters necessary to secure a new mandate in 2024 (or, if it suits him – even earlier).

Meanwhile, Plenković would not want to offend Brussels, so he is waiting for the European model for regulating energy prices. Therefore, he leaves domestic entrepreneurs in the lurch. They will not be happy even after the latest proposal from the EU, which is finally on the table. Without a special Croatian decision, entrepreneurs will continue to struggle, paying the highest energy prices compared to citizens. After all, who is to blame for entrepreneurs not being Plenković’s target group with only one hundred thousand members?

Two years ago, HDZ gained control over the Parliament with only 16.7 percent of the total electorate. It needed just over 600 thousand votes for that. Meanwhile, the base of state and public servants is multiple times larger than the imagined entrepreneurial party. This shows that unions are in a significantly better position in negotiations than entrepreneurs with their daily lamentations.