Wage compression calls for wage reform


Slovenia has had one of the lowest income inequalities in the world for quite some time, Robert Kaše from the Ljubljana Faculty of Economics said at a recent event organised by the Chamber of Commerce and Industry (GZS).

He pointed out that the latest changes would further reduce the small difference with wages just above the minimum wage and with the average monthly pay.

Statistics Office data shows the average monthly pay for October, the latest available, stood at around EUR 1,750 gross.

Kaše said it had risen nominally by 24% from 2008 to August 2019, whereas the average gross monthly minimum wage had been up 75%, the exclusion of bonuses excluded.

He said that "wage compression affects the motivation of workers in the long term since the difference in pay is no longer big enough to encourage them to work more, be more productive and develop their competences".

He believes this will make the workers whose wages will not increase dissatisfied, so they would probably start demanding higher pay.

Gorazd Kovačič from the Ljubljana Faculty of Arts believes this anomaly will also bring about the age-based stratification of low-income earners.

"So apart from leading to tensions among employees and employers and among unions and employer organisation, the wage compression will cause an inter-generational conflict."

However, all these tensions could be resolved by reforming the country's social dialogue and wage formation system, said Kovačič.

He admits this is a rather complex issue after pay systems in different industries and companies have diversified considerably since 2006 and after the latest changes to the minimum wage law have radicalised some of the employer organisations.

If there is no new pay model, Kovačič expects the stratification of population and brain drain in Slovenia to intensify.

Changes to the wage system have been talked about since 1997, trade unions have been more keen on changing it than employers.

However, the latest rises in the minimum wage – one implemented last year and the other this year – have somehow changed the attitude of the employers, who were strongly opposed to both rises.

Metka Penko Natlačen from the GZS said that "a certain change to the pay model will be a logical follow-up", and it should focus on bonuses.

Trade union leader Jakob Počivavšek believes introducing a new pay model will almost definitely entail changing the ratios between base pays and between how much a worker gets from various wage items, that is bonuses. He said this would call for major changes to the existing pay system and would definitely not be an easy task.