Council head warns against ‘hasty’ minimum wage hike in Cyprus

The intention to revise the minimum wage is legitimate and reflects the pressures faced by households, according to Fiscal Council president Michalis Persianis.

He also warned that any decision should be taken with extreme caution to avoid collateral effects from a hasty move.

As mentioned in Politis, Persianis said that “extremely careful judgment and prior analysis” were required, stressing that decisions taken without sufficient preparation could have negative repercussions across the economy.

In that context, he said several economic parameters should be taken into account.

First, he noted that average and median salaries calculated on the basis of gross domestic product differ significantly from estimates based on gross national product.

“The latter more correctly reflects the per capita income in Cyprus and is more relevant to reality,” he said, adding that analysis based on GDP is misleading because the data are “contaminated, and driven, by a small number of sectors of the economy”.

At the same time, despite conditions of full employment, Persianis pointed to persistently high unemployment among young people and new entrants, currently at 12.7 per cent.

Their employment prospects, he said, are subject to additional pressure from Cyprus’ new development model and the rapid adoption of new technologies.

He also referred to the Beveridge curve of the Cypriot economy, which shows the relationship between job vacancies and unemployment.

According to Persianis, the curve has shifted significantly over the past three years, indicating that economic pressures stem largely from skills mismatches, making it even more difficult for young people to enter the labour market.

In parallel, he stressed the need to protect small and medium-sized enterprises, particularly very small companies with fewer than 10 employees.

These businesses, he said, employ almost 40 per cent of the workforce, are largely family-owned and record high gross income.

“In general, decisions made with large enterprises in mind disproportionately affect small enterprises, especially very small ones,” he said, noting that micro-enterprises account for 94.8 per cent of all businesses in Cyprus.

A hasty decision, he warned, could jeopardise employment in these firms and undermine the overall economic outlook.

Turning to competitiveness, Persianis said that the terms of trade of the Cypriot economy continue to deteriorate when high-tech companies, which are largely foreign-controlled, are excluded from the data.

Preserving competitiveness, he said, is essential for maintaining growth and employment, particularly for permanent residents and young people.

He cautioned that the current strength of macroeconomic indicators should not be interpreted as a reliable guide to future performance.

“We must bear in mind that the current picture of the macroscopic indicators of the economy is not an indication of its course in the coming years,” he said.

Decisions taken today, he added, would also apply in periods of slower growth, higher unemployment and rising structural inflation, and therefore should not be shaped by short-term considerations alone.

“The Cypriot economy generally records competitiveness indicators that are gradually declining,” Persianis said.

He added that “elevated levels of uncertainty, both domestic and external, make policy choices particularly critical for future employment and household disposable income”.

Decisions, he said, should be taken through the prism of their long-term impact rather than immediate impressions.

Referring to the Fiscal Council’s Final Report for 2025, he said the economic outlook remains positive and is expected to show satisfactory resilience to the pressures anticipated in 2026.

However, he noted that uncertainty remains high and that there has been no horizontal wage increase across all sectors.

As a result, Persianis said, “we identify significant and increasing discrepancies in earnings between sectors of the economy”.