In early August, one of the most‑read articles in the business news sections of both Delfi and Postimees was the report on Estonia's low minimum‑wage purchasing power. Recent Eurostat data showed that Estonia's minimum‑wage purchasing power is the lowest in the European Union, falling just below Latvia's.

As negotiations soon begin between the Confederation of Trade Unions and the Employers' Confederation to reach an agreement on next year's minimum wage, it is worth recalling how Estonia's minimum‑wage purchasing power reached its current state.

Generally low purchasing power

Some readers reacted with disbelief: how is this possible, when Estonia's minimum wage in euros (€946 gross per month) is clearly above Latvia's (€780 per month)? The answer lies in the overview of price levels across EU countries.

Eurostat data show that Estonia's price level is by far the highest in Eastern Europe, ranking 11th among the 27 EU member states. In terms of food and non‑alcoholic beverage prices, Estonia is the sixth most expensive country in the EU.

It is therefore not surprising that actual individual consumption (which also accounts for purchasing‑power differences) is among the lowest in the EU: only Hungary, emerging from Viktor Orbán's 16‑year rule, performs worse, and Latvia's indicator matches Estonia's at 73 percent of the EU average.

Does this mean that minimum‑wage purchasing power is not worth worrying about, because overall consumer purchasing power in Estonia is weak, even though average and median earners receive more euros per month than in many Eastern EU countries? Unfortunately, that is not quite the case.

The minimum wage's ratio to the average wage is also poor

The minimum wage's ratio to both the average and median wage in Estonia is also among the lowest in the EU. While the EU's recommended target is for the minimum wage to equal about 60 percent of the median wage or 50 percent of the average wage, Estonia's figures are roughly 50 and 43 percent, respectively. Estonia and Latvia are the only EU countries where the minimum wage does not reach even half of the median wage.

This metric matters because it is not affected by purchasing‑power differences between countries: it measures how far the minimum wage lags behind the wage level typical in society. In other words, it reflects wage inequality, focusing on the lowest legal end of the wage scale.

The minimum‑wage directive adopted in 2022 states that the minimum wage must be sufficient for a decent life. As recommended benchmarks, it includes the previously mentioned targets: at least 60 percent of the median wage or 50 percent of the average wage. Unfortunately, although these figures were initially intended to be binding for member states, pressure from some countries and members of the European Parliament resulted in them becoming recommendations in the final text.

Before the most recent parliamentary elections, the Social Democrats added raising the minimum wage to the directive's recommended level to their platform. During coalition negotiations, SDE representatives publicly emphasized that without an accelerated minimum‑wage increase, no agreement could be reached on other major issues such as tax changes.

The good‑faith agreement for accelerating minimum‑wage increases

The pressure worked, and accelerated minimum‑wage increases were included in the coalition agreement. Based on that mandate, as well as trade‑union demands and the obligation to implement the directive, representatives of the government, the Confederation of Trade Unions, and the Employers' Confederation reached a good‑faith agreement in May 2023 stating that the minimum wage would gradually rise to 50 percent of the average wage by 2027.

Later, when negotiating the specific minimum‑wage levels for 2024 and 2025, the parties largely followed the good‑faith agreement. As a result, the minimum wage rose by 13.1 percent in January 2024 and by 8 percent in January 2025.

In March 2025, a change occurred that directly harmed minimum‑wage increases and the fulfillment of the good‑faith agreement. The prime minister announced a coalition restructuring, and instead of a three‑party coalition, Reform and Eesti 200 continued as a two‑party coalition.

The consequences appeared quickly. The new coalition agreement did not mention the minimum wage at all, and by late March, Minister of Economic Affairs Erkki Keldo (Reform Party) told trade unions that the government no longer considered the good‑faith agreement binding.

This decision significantly weakened trade unions' position in the 2026 minimum‑wage negotiations. The government abandoned its role as a party to the previous agreement and shifted to the role of indifferent observer.

The result? Agreement on the 2026 minimum‑wage figure was reached only by spring, the increase took effect in April instead of the usual January, and the 6.8‑percent rise was the lowest in five years, barely exceeding last year's inflation (4.8 percent). As a result, improving minimum‑wage purchasing power stalled this year, bringing us back to the starting point of the entire discussion.

To raise the minimum wage or not?

Should the good‑faith agreement to raise the minimum wage to half of the average wage be revived after the next elections? According to the University of Tartu's 2021 study on the socioeconomic impact of the minimum wage, such an increase would improve the well‑being of minimum‑wage earners and reduce both wage poverty and overall poverty indicators. The positive impact would extend not only to wage earners but also to child‑poverty indicators (report p. 92).

Opponents of minimum‑wage increases often claim that they harm employment. According to the University of Tartu study, however, the impact of minimum‑wage increases on the employment probability of minimum‑wage earners was statistically significantly negative in only one year between 2010 and 2019. In several years, the impact on employment probability was statistically significantly positive (pp. 37–38). Modeling 13‑percent and 30‑percent minimum‑wage increases, the authors concluded that employment could fall by 0.2 and 0.6 percent, respectively (pp. 93–94).

A simple but telling fact also suggests that concerns about negative employment effects are exaggerated: Estonia has one of the lowest shares of workers earning near the minimum wage (up to 105 percent of the minimum wage) in the EU, staying within three percent.

Both tax‑authority data and the University of Tartu study confirm this: the number of minimum‑wage earners in Estonia has remained stable at around 20,000 people, and in 2019, about 6,000 of them worked in single‑employee companies (p. 29). These cases likely involve paying oneself a minimum wage through a company and taking the rest of the income as dividends.

Setting aside value judgments about said practice — people may have various reasons for doing it — we must acknowledge that nearly one‑third of minimum‑wage earners are effectively self‑employed, for whom paying themselves the minimum wage is a way to obtain health insurance while legally optimizing their tax burden.

According to the University of Tartu study, such single‑employee minimum‑wage companies are disproportionately concentrated in Harju County, and their most common fields are construction, wholesale, legal services, and accounting. It is unlikely that a minimum‑wage increase would cause these individuals to lose their jobs.

However, a faster minimum‑wage increase is crucial for the remaining two‑thirds of minimum‑wage earners, who currently live in official wage poverty because their monthly net income falls below the relative poverty threshold. Raising the minimum wage is an especially attractive social‑policy measure because, unlike social benefits, it does not require additional state funding; in fact, minimum‑wage increases have a net‑positive impact on the state budget. In the current fiscal situation, that is a weighty argument.

For these reasons, the good‑faith agreement for a faster minimum‑wage increase deserves to be revived, because the benefits clearly outweigh the drawbacks.

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