The IMF suggest Albania should reduce its minimum wage to improve competitiveness
TIRANA, Feb. 5 – Labor market weaknesses in the Western Balkans have structural roots: the institutional setup of the labor markets, labor cost factors, and especially the unfinished transition process, says an IMF working paper.
Labor markets in a number of South Eastern European countries are characterized by high levels of unemployment and low rates of job creation. Many of these economies face a unique set of challenges: labor market problems are especially severe among the emerging market economies which are not members of the European Union, namely, Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia, says the IMF.
Current redundancy costs in most of the Balkan economies appear to be in line with those in the more advanced emerging market economies, with the possible exception of Albania, whereas redundancy rules appear to be tight in Bosnia and Herzegovina and Serbia.
A key measure of labor competitiveness that captures movements in costs and productivity is the unit labor cost (ULC), calculated as the ratio of labor costs to real GDP. Changes in ULCs affect firms’ profitability and, therefore, their demand for labor. By comparison, among the Balkan countries, only Albania experienced a reduction in ULCs. Exchange rate regimes played an important role in relative wage competitiveness across countries. Despite continued increases in local currency wages, Albania improved and Serbia contained the deterioration of its wage competitiveness through currency depreciations.
Most of the Balkan countries suffer from deep-rooted structural problems related to the delayed transition, the poor investment climate, and the resulting low FDI inflows.FYR Macedonia and Albania, which have undertaken a series of reform efforts, do not seem to be in danger of significant future problems.
The need to reduce labor market rigidities and improve cost competitiveness indicates that wage bargaining should be moved closer to the company level in Bosnia and Herzegovina, Montenegro and Serbia; minimum wages should be reduced in Albania and Serbia; and the tax wedge should be reduced in Serbia. In addition, implementing policies that enhance the skills of the labor force would boost labor productivity, adds the IMF.
