TIRANA, Dec. 27 – Albania hiked its minimum wage this week, in an increase that still leaves it among the lowest in the Western Balkans.
The ruling Socialist government decided this week the minimum wage will be hiked by 2,000 lek (€16.2) to 26,000 lek (€211) starting Jan. 2019, in a move that positively affects government finances following a series of tax incentives and wage increases for the public administration, but negatively affects some key sectors of the Albanian economy relying on cheap labor costs, such as garment and footwear producers, at a time when the euro’s free fall is already having a negative effect on them.
The hike is larger than the 1,000 lek (€8.1) increase the government had initially envisaged in its 2019 fiscal package where it expected a positive effect of some 1 billion lek (€8.1 mln) and comes after a series of concessions that the government made following student protest, approving a cut in tuition fees.
Due the high informality in Albania’s labor market, the hike mostly benefits the government that will collect more in social security and health contributions to cover the huge gap in the country’s pension system.
Social security contributions currently stand at 24.5 percent, of which 15 percent is paid by employers and 9.5 percent by employees. Meanwhile, health insurance contributions are at 3.4 percent, shared by 1.7 percent between employers and employees.
Albania currently excludes wages of up to 30,000 lek a month from personal income tax but applies progressive taxation of progressive taxation of up to 23 percent on personal income for monthly wages of more than 150,000 lek (€1,217), in a system that triggers huge tax evasion in the private sector where workers are commonly declared with tax authorities as receiving minimum wages to avoid paying taxes and get the rest in ‘envelope wages.’
Albania last increased the minimum wage by 2,000 lek (€16) in mid-2017 ahead of the country’s general elections following a three-year freeze. The new hike also comes ahead of the upcoming June 30 local elections.
At around €211 a month, Albania’s minimum wage still remains the region’s lowest and is only higher compared to Kosovo, which applies a two-tier system of €130 for workers aged below 35 and €170 for elder workers.
Albania’s net average wages are at around €350 to €400 with the public administration often competing the private sector with better wages and working conditions.
