Minimum wage, maximum impact

On January 1, Poland's minimum wage grew from zł.936 to zł.1,126, before tax. This increase is the result of a deal struck in September last year between the former Law and Justice-led government and the Solidarity trade union. The new minimum wage amounts to around 36 percent of the average salary in Poland, which stood at zł.3,092 gross as of November 2007.

Only two to three percent of Poland's workforce earns the minimum wage, but the increase will have an impact on remuneration throughout the country, since the minimum wage is a reference point for setting other fees and benefits. The change will lead to an increase of hourly wages for night-shift work, compensation for violation of anti-discrimination regulations, compensation for harassment and compensation for mass layoffs, among other things. Social insurance fees will grow as well.

"Such decisions are clearly harmful and examples of this are widely known," said Andrzej Sadowski, the president of the Adam Smith Research Institute. He added that the most visible effect would be an increase in labor costs.

That increase will push the least-skilled employees out of the labor market and into the black economy, according to Sadowski. He also saw it as a blow to SMEs, as they will have an additional financial burden to bear.

"The step was intended to help the poorest people but the effect will be quite the opposite," he said.

More rigid

Raising the minimum wage makes the market more rigid, but Poland's recent economic growth will make the step more palatable, said Witold Orłowski, a chief economic adviser at PricewaterhouseCoopers Polska, noting the growth of the average salary and decreasing unemployment.

"In a time of crisis, the effect would be much more serious," Orłowski said.

The growth of the minimum wage threatens economic stability, especially since productivity in Poland is not growing at the same pace as salaries, the Polish Confederation of Private Employers (PKPP) Lewiatan said in a statement. PKPP Lewiatan also complained that the employers' side was ignored when the agreement was made.

The new Civic Platform-led government plans to increase salaries too. It has so far promised to raise teachers' wages by 15 percent and newly graduated doctors' by 30 percent.

These increases need to be accompanied by structural changes in both industries, Sadowski and Orłowski stressed.