In Economics, wages are considered as price of labor. They should reflect worker’s productivity, i.e. what the worker produces or what is his/her value to the company. Wages are important as they largely affect the living standard of workers and their families, but are also a source of demand in the economy, and hence are important from policy perspective. Moreover, wage costs are also an important element of (price) competition between companies and nations. In its essence, it is productivity that determines the living standard of a worker, of a nation.
Wage comparisons among countries (especially in the Western Balkan region) are mainly constrained by a lack of data, different methodologies for data collection and calculation (for instance, net and gross basis) etc. Hence, a simple comparison of wages published by the national statistical offices can lead to incorrect conclusions.
These days, there is an increased public discussion in Macedonia about the low level of wages in the country, in relative terms to the Western Balkan countries and the EU. The minimum wage level is also focus on these discussions, especially in the last few years as the government is continuously increasing the level of the minimum wage, but the arguments for this are not really well elaborated. We would like to contribute to this discussion by providing a short analysis of “correct” data on wages, methodologically harmonized and hence directly comparable. These data are provided by the World Bank, and the Vienna Institute for International Economic Studies (WiiW).
Table 1 presents comparative data on wages across the WB countries and comparator EU countries, latest available data which are for 2017. Data refer to average monthly gross wages, expressed in EUR, using the prevailing exchange rate. Among the Western Balkan countries, Macedonia has a higher wage than Albania, Serbia, and Kosovo, whereas lower than Bosnia and Herzegovina and Montenegro. Within the broader comparison, gross wage in Macedonia is also higher than in Bulgaria, an EU Member State, but much lower than in the other three EU countries.
Table 1: Average Monthly Wages (Gross) at Exchange Rates in EUR
|Bosnia and Herzegovina||622||650||660||660||659||659||665||676|
From a citizen perspective, what matters the most when considering wage is its “purchasing power”. In other words, how much goods and services a worker can buy with his/her wage. Hence, economists use the concept of PPP (Purchasing Power Parity) to calculate or compare different nominal values (like wages) across countries. Table 2 shows that using this measurement, average monthly wage in Macedonia (in PPP) in 2017 was EUR 1,245. Among Western Balkan countries, Montenegro and Bosnia and Herzegovina have highest wages, also higher than in Macedonia. Compared to the EU countries, again, the average wage in Macedonia is higher than in Bulgaria, though lower than in Hungary (EUR 1,556), Croatia (EUR 1,681) and Austria (EUR 2,841).
Despite this relatively favorable comparisons for Macedonia, the wage level (in PPP) in Macedonia in 2017 is only 0.8% higher than in 2010. For comparison, average gross wages in Bulgaria, Albania and Hungary have grown by 53%, 34%, and 27% respectively. Therefore, the relative position of Macedonia in terms of wages deteriorated in the analyzed time period. Whereas in 2010 the average gross wage in Macedonia (in PPP) was about half the wage in Austria (the oldest EU Member State in this analysis), this ratio in 2017 was 43.8%, showing lack of convergence of wages and living standard.
Table 2: Wages at Purchasing Power Parities (PPP – EUR Based)
|Bosnia and Herzegovina||1271||1335||1381||1382||1383||1388||1371||1376|
What follows as a main message is that Macedonia has to implement further reforms (especially in the business environment), as to ensure faster progress of the country and convergence towards EU. The discussion around wage levels is closely related to the discussion about productivity. The public discussion and discourse about average and minimum wages should be focused on policies that support productivity growth, such as technological improvements, innovations and better work organization. But equally important is the political certainty which affects investments and investment decisions, the rule of law, corruption etc.
Macedonia2025 will follow up on this issue in its future policy briefs.