Race to the Bottom: The Battle over Minimum Wage in Bulgaria

Ten years after Bulgaria joined the European Union as its poorest member, its economy works at two speeds, deepening the income gap between poor low-skilled workers and a handful of well payed employees working in the country’s booming areas such as IT and auto parts. The following article was originally published in Serbo-Croatian by the online platform, Bilten. Its English version is published here with the site’s kind permission.

Minimum wages by country in the European Union. Courtesy to https://www.joe.co.uk

It is a truism that the wage is one of the most contested aspects in the relation between capitalists and workers. Nothing reveals better the fundamental incomprehensibility of class perspectives than capital’s drive to cut wages and the adjacent costs of social reproduction of the workforce and labor’s desire to limit exploitation. Recently, a debate about the “appropriate level” of the minimum wage flared up in Bulgaria after several employers’ associations waged an onslaught on the very raison d’etre of the national minimum. A potential victory for the employers poses grave dangers for the already embattled and weakened working class.

Let us see how the employers justify the abolition of the minimum wage.

On 17 May 2017 the Supreme administrative court repealed a decree with which the government raises the minimum salary from 420 BGN to 460 BGN (roughly 230 EUR; it is the lowest in the EU). This happened after four nationally representative employers’ organizations filed a law suit. These are the Association of Industrial Capital in Bulgaria, the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, and the Confederation of Employers and Industrialists in Bulgaria. (In contrast, organized labour has only two national representative unions – KNSB and Podkrepa). These employers’ organizations announced that the national minimum wage has to be abolished. The stated reason is that it is administratively determined and not market-based. Its level was an object of some controversy around the elections when the political parties tried to outbid each other by promising to ramp it up.

It is impossible to understand the minimum wage increase without a closer look into Bulgaria’s fiscal politics and taxation regime. Sporting one of the lowest corporate and income flat taxes across Europe, Bulgaria’s budget is disproportionally dependent on indirect taxation such as VAT and excise duties. In short, the tax burden that the working class bears by spending 75% of its disposable income (according to the latest estimates) on consumption and procurement of basic goods and services to ensure survival. It should be noted that even the minimum wages are levied taxes as the non-taxable minimum was abolished with the introduction of the flat tax in 2007.

This means that, after the working poor, the Bulgarian state is the first beneficiary of an increase in the minimum wage, and the corresponding readjustment of the average wage. The state is quite candid about this in its assessment of the impact of the proposed increase. It tied the decision for the increase with the assessment of the fiscal year of 2017 and then deemed the decision beneficial for the state budget. Moreover, the argument goes that while the employers’ payroll will increase solely by 1%, the impact on the poorest workers’ income is much higher – 9%, while the state budget will also benefit. When a state has consciously given up the option to fill its budget by taxing the rich, it has two remaining options: borrowing from them and taxing the poor. In that respect, the increase of the minimum salary is not done out of altruistic concern for the working poor but it appears as a necessity to a state whose budget is overwhelmingly dependent on indirect over direct taxation. In Bulgaria’s case, the percentage is 55.3% for indirect and 33.5% for direct taxation – the highest such ratio in the EU.

Armed with an unbreakable belief in neoliberal dogma, the state mobilizes sound – from the narrow class perspective of this dogma which privileges the rich and the propertied classes – and rational arguments: the increase of the minimum salary will bring about (modest) poverty alleviation and would help beef up the state coffers without putting too much weight on the shoulders of the employers. A win-win situation! The employers, however, beg to disagree. They do so even in moral terms. As the chairman of the Bulgarian Industrial Association Bozhidar Danev argued, raising the minimum salary erodes the moral foundations of society because 1) it disturbs the “natural hierarchies” – i.e. now a street sweeper on a minimum salary will get almost the same money as a school teacher; and 2) it will make people lazy and less willing to engage in self-improvement and “life-long learning”. Not to mention the burden on companies forced to pay even higher salaries and social security contributions. 

 

The last shall be the first

The heroes of the Confederation of Bulgarian Employers and Industrialists (KRIB). Courtesy to BNR.BG

One of the most intriguing aspects of the controversy is what elements the formula for calculating the minimum salary should include. Far from an exercise in neutral mathematical calculation, the minimum salary debate reveals the fundamentally political and incommensurable way of seeing the numbers. For example, the Association of the Industrial Capital in Bulgaria (AICB) argues that the productivity of labour in the country is only 15% the productivity of EU-28. Meanwhile, the medium salary in Bulgaria is 21% compared to that in EU-28. Therefore, the remuneration outpaces productivity with several percentage points, and presumably needs to be corrected down.

At 230 EUR monthly, Bulgaria has the lowest minimum wage in Europe in absolute terms. However, the AICB managed to turn this figure on its head and offered a new calculation, according to which Bulgarians enjoy the 5th highest minimum salary in the EU. The magic lies in comparing workers’ remuneration to the country’s GNI. From that perspective, even 240 EUR is too much given the supposedly low productivity of labour. The conclusion imposes itself: wages need to be corrected down.

 

Polemical calculus

Vania Georgieva. Courtesy to solidbul.eu

I interviewed Vania Grigorova from the “Podkrepa” union who energetically rebuked these figures. According to her, the calculation is fundamentally flawed. Firstly, the productivity of labour in Bulgaria is calculated by AICB in euro, and since the Bulgarian currency is pegged to the euro at the rate of 1 EUR = 1.95 BGN, this means that 15% productivity in EUR has to be (nearly) doubled to arrive at the BGN equivalent.

In other words, when calculated in BGN, our productivity is actually 30% the EU-28 level, not 15%! The upshot is that for 30% of European productivity, the Bulgarian workers receive only 21% of the average European wage in EUR. But if Bulgarian productivity is calculated in relation to purchasing power parity (PPP), it jumps to 44.5% of the European average, or three times more the 15% figure of the employers. Therefore, the minimum salary must reach at least this level to compensate adequately labor productivity in PPP. In contrast, the labor expenses of the employers in EUR amount to 17% of total expenditures. In other words, the minimum salary has to reach at least 1000 BGN, argues the unionist.

Another problem with the calculations of the employers, according to the trade-unionist, stems from their assigning responsibility for the levels of productivity to the workers. Tying the minimum salary with productivity, especially in the punitive way the employers do it, responsibilizes the workers for their output. In reality, output must be understood as a function of capital. No amount of “good will” and “work ethos” can compensate for outdated or obsolete machinery. If a copier can churn out only 20 pages per minute, I cannot increase my productivity by working faster out of my own good will. My employer will have to invest in a more recent copy machine if he wants a higher productivity from me.

Another argument the employers mobilize is that states without a minimum salary enjoy higher levels of remuneration than states with minimums set by administrative fiat. The examples quoted are Sweden, Denmark, Finland, Austria, Italy and Cyprus. However, the employers forget to mention that these are robust welfare states which still deploy collective work contracts and bargaining. This means that in practice there is a “guaranteed” minimum. Would the employers also like Bulgaria to roll back the austerity of the last decades and re-introduce comprehensive welfare programs and collective contracts, ask the unions? Unlikely. If anything, they want the further weakening of any collective class identity which the existence of a minimum salary indirectly guarantees.

An abstract minimum which obtains across occupations and relative status and income inequalities within the working class ensures some sort of leveling: whatever you get, you cannot get below this minimum. Moreover, it applies across the board: the state operates with an abstract image of “the working class” in mind and sets a level that applies to everyone within that category.

In contrast, the employers propose the substitution of this abstract and universal minimum with market-based and sector-specific determinations. This means two things: further individualization of the workers and transfer of power from them to the bosses. Because if the minimum salary is abolished, the various sector-bound minimums will be determined by the specific companies concerned and, given the sorry level of organization of the workers, the bosses will define the relevant conditions for the determination of the wage level. If this proposal is accepted, there is nothing that can guarantee that the bosses won’t try to set specific minimum salaries in the future which are lower than the current minimum of 460 BGN. Because it is true, as they claim, that there are regions and industries in Bulgaria which are much more impoverished than the standards people living and working in the capital city enjoy, for example.

This debate is therefore a clash between the “weak” universality lent on the workers by the existence of the minimum salary, defended by state and unions (albeit for different reasons), and the individuating, market-based particularity of the employers.

Also, as Grigorova admits, for the unions it is much easier to negotiate at once on behalf of everyone than have individual experts monitoring, covering and negotiating the diverse production and industrial fields that make up a national economy. It is simply not feasible given the size, capacity and funding of the trade unions in the country.

The polemical calculations are compounded by the fact that the methodology by which the ministry of Finance calculates the minimum salary is kept hidden from representatives of capital and labor alike. Grigorova had no explanation why this should be the case but the tension that this secrecy engenders is very productive. For example, the unions argue that the net minimum salary has to be 1.3 times the poverty line (314 BGN); in contrast, the employers consider the gross equivalent of this sum a fair amount. The unions argue that the current ratio of minimum to average salary of 42% is insultingly low, and want to raise it to 60%. Upon hearing this, the employers storm out of the negotiations room, recalls Grigorova. In their turn, the bosses claim that in some regions of Bulgaria, the ratio is even 70%, to be immediately rebuked by the unions that it means that the average salaries in these regions are low, rather than the minimum salary – high. AICB even calculates the ratio of minimum to average at 50,55% which is 7% more than the EU-average. But again, the EU average is calculated at 811 EUR minimum to 1870 EUR average salary which are figures nowhere near the painfully low rates Bulgarian workers “enjoy”. That is why the unions argue that first our minimum and average salaries have to catch up with the mid-European levels before they are locked in a range of 50-60%. Against that, the employers do not shy from mobilizing even racist arguments. As Vassil Velev, the chairman of AICB said, “we cannot have African productivity of labour and European salaries determined by governmental decree. It is not possible to declare everyone rich without working!”

 

The production of a worker race

Textile workers in Lovech. Foto: AFP / Nikolai Doichinov

AICB opens the case for the abolition of the minimum wage with a discussion about the dramatic reduction in the number of workers in Bulgaria. Between 2015 and 2016 alone, the number of employed has dropped by 73,000. Driven by the stagnant incomes and lack of opportunities, Bulgaria has been hemorrhaging workers to emigration since the fall of the Berlin wall and the EU accession has only accelerated this process. It is baffling then why the employers use emigration figures as a way to support their affront on the minimum wage, that is to say, to implement more of the same policies that drive Bulgarian workers away from the country. But to the employers it makes perfect sense: emigration is said to impede economic growth and since the minimum salary must be tied to productivity and growth, it has to be frozen.

Further, they want relaxation of immigration but only of racially pure one. Echoing nationalist parties and intellectuals’ ruminations about “Greater Bulgaria”, the employers want to bring over so-called “ethnic Bulgarians” from Macedonia, Moldova, Russia and the Ukraine to Bulgaria to make up for the loss of the “native” labour force. Invoking deep cultural ties and affinities, the employers claim to be caring for our “Bulgarian brothers” abroad. Do they care less for their Bulgarian co-nationals, forced to emigrate due to the insultingly low salaries and work conditions in the country, retorts Grigorova?

In addition, and connected to the abolition of the minimum salary and the importation of “ethnic Bulgarians” from abroad, the employers propose to close the possibilities for mobility for recent university graduates. This, however, does not prevent the employers from committing a contradiction by touting the freedom of the laborers to move around the country in search of a better minimum salary, should their proposal for economic sector-related determination of the minimums is implemented.

Concluding the interview, Grigorova explained the industrialists’ patriotic tirade about Bulgarians abroad: the importation of workers will remove the pressure to increase the wages, and this is the only reason why employers want to prevent Bulgarians from migrating while opening the borders for Bulgarians from Moldova and Ukraine.

 

Jana Tsoneva is a PhD student in Sociology and Social anthropology at CEU, Budapest. She researches the latest anti-government mobilizations in Bulgaria and is interested in theories of populism, ideology and civil society.