Minimum wage in Georgia - pros and cons

In Georgia, there is an ongoing debate about whether the minimum wage should be set by law. According to the law, which was adopted in the late ’90s and has not been changed since then, the amount is 20 lari [about $7]. It is obvious that this is rather a symbolic number.

Leftist parties believe that the law should reflect a fairer minimum wage. In their opinion, this would ensure that workers are not taken advantage of by employers.

But economists are skeptical of the idea. They say that interference with wages would be counterproductive and increase the number of unemployed.

Arguments for and against minimum wage

The minimum wage is usually hourly and in many developed countries exceeds $10 an hour.

Even if the minimum wage in Georgia were set at 10 lari per hour [about $3], almost three times less, and with a 40-hour working week, that comes out to 1,730 lari per month [about $625]. Many employers, especially in the regions, are simply unable to pay this amount; and everyone agrees with this, including those who support the establishment of a minimum wage. For example, a bakery or a store would absolutely not be able to pay their employee that much.

Supporters of fixing the minimum wage could find a compromise — to oblige only the wealthier business-owners to pay the minimum. There are large companies in Georgia whose annual net income is in the nine figures, so even a significant increase in wages would not lead them to bankruptcy.

Take the banking sector. In 2021, banks ended the year with a net profit of two billion lari [$723.5 million], split between the two largest banks. If TBC Bank paid 1,000 lari [about $360] more per month for each employee, its net income would still be 815 million [about $295 million] and Bank of Georgia would have a net income of 735 million [about $266 million] .

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Another example is gas stations. According to a study by the Georgian Competition Agency, the profit margin of fuel imported from Russia to Georgia is 78 tetri [about 30 cents]. Even if we calculate the average, the net profit of oil importers this year will exceed 700 million lari [about $250 million]. Nevertheless, one of the lowest salaries in Georgia is at gas stations. A 24-hour shift every three days, or even once every four days, is estimated to be 350-500 lari [about $126-180] at the end of the month.

Setting a minimum wage cannot solve labor market problems, says Paata Sheshelidze, president of the New School of Economics. According to him, this is a bad idea even for large companies.

Both according to social surveys and official statistics, unemployment remains one of the main problems in the country.
Unemployment was 19.4 percent in the first quarter of 2022, 18.1 percent in the second.

The main reason for low wages in Georgia is the lack of an economy, Sheshelidze says.

“The unofficial minimum wage today can be considered 300-350 lari [about $109-126]. In the event of rapid economic growth, the situation will change, and it will become very difficult for an employer to find even low-skilled employees who are ready to work for less than 1,000 lari,” says Sheshelidze.

He explains that many in Georgia turn down job offers not because of pay, but because they have unreported income.

“For example, someone rents an apartment, trades in the market, or works as a “stayer” (helps drivers with parking).”

According to Sheshelidze, the problem of unemployment cannot be solved by artificial employment of recipients of social benefits. The salary is regulated by the market — when a company hires staff, it pays them the salary that is in demand in the market. Under Georgian law, businesses can freely hire citizens of foreign countries.

The average salary in Georgia as of the second quarter of 2022 is 1,210 lari [about $438]. Along with the average, Saxstat also released the median wage in October. It turned out that in 2021 the salary of most employees was 315 lari less than the average and amounted to 705 lari [about $255].

Irakli Petriashvili, chairman of the United Trade Unions of Georgia, offers different arguments. He considers the adoption of the minimum wage law necessary.

According to him, an adequate minimum wage will reduce unemployment and benefit the budget.

According to Petriashvili, because the minimum wage is not defined the budget is losing a lot of money. For example, 130,000 people in the country receive less than the official living wage, which is a fiction.

“In fact, this is a deal between the employer and the employee. The employee receives a small amount of accrual, and the rest is on hand. This income is not taxed, that is, the budget incurs losses,” says Petriashvili. According to his calculations, because people sign for one salary and receive another, the budget annually loses about 120-130 million lari [about $43.5-47 million].

What determines the wage amount?

The state determines wages only in the public sector. It isn’t easy to say how fair this is.

Who gets paid more, the school teacher or the mayor’s assistant? Bus driver or subway conductor? What should be considered more — the complexity of the work, the level of risk, or the cost of the work performed? One can argue about this endlessly.

In general, a large number of employees are dissatisfied with their wages, but can their problems be solved by voting in the parliament hall?

If we say that wages are determined by supply and demand, what influences supply and demand?

The salary of football stars exceeds 30-40 million dollars a year, which is 10,000 times more than that of a miner. Coal mining is no less profitable than football, but only a few can play like Messi or Ronaldo, and many can work in a mine, risking their health and lives.

What does a person need more — minerals or a sports spectacle? The answer to this question seems to be obvious. But the answer in this case does not affect the amount of wages. Although bread is more necessary for human existence than gold, five grams of gold is the price of bread for a whole year.

After taxes, Swiss citizens had in 2020 the highest average nominal monthly salary at $5,933, followed by Singapore ($4,245) and Australia ($4,073), according to the NUMBEO portal. In Nepal, Venezuela, Pakistan and Nigeria, the average salary is less than $200. Georgia was not included in the study. According to the state statistics service, in 2020 the average wage on hand was ₾935, which equaled $290 at the exchange rate of that time.