Today, the Council of Ministers passed an increase of gross minimum wage to 1850 in 2016. – Lowering the taxation of employment would be a better way to raise the income for those with the lowest wages. Today, employers pay the lowest-earning employees over 2100 PLN a month in total. The problem is that due to income tax, as well as social security and healthcare contributions, only as little as ca. 60 percent of this sum goes to the employee – comments Łukasz Kozłowski, expert of Employers of Poland.
The government will surely benefit from raising the minimum wage by 100 PLN as the income from contribution can increase by 0.5 bln PLN a year. Paradoxically, the impact of this decision on the employees would not be as positive. Some of them would be exposed to long-term removal from the labour market or – in a best case scenario – left with no chance for a contract of employment.
Excessively high minimum wage hurts first and foremost those it is supposed to help, namely the people whose skills are least prized and those who come from the poorest regions. In their case, there is a risk that employing them could cause the employers to incur losses. Should that be the case, reductions will be inevitable. Even those sectors of the economy which do not face much foreign competition and where it is not possible to substitute human labour with machinery, wage growth caused by non-economic factors translates to an increase in prices paid by consumers.
It is worth noting that the net wage received by people on the minimum wage is so low largely because of high tax and contributions burdens on wages in Poland. For an employee to receive a net wage of 1350 PLN net (1850 PLN gross), the employers has to face a total cost of 2231 PLN a month, meaning that such a person’s actual wages are reduced by a bit less than 40 percent in relation to the total costs for employers.
One should also keep in mind that the minimum wage also has an impact a.o. on social security contributions which have to paid by persons conducting businesses in the first two year of activity. What is more, the minimum wage is identical all over the country, so it is necessary to consider its impact on those regions, where the economy is particularly weak.
Łukasz Kozłowski, economic expert of Employers of Poland