Jorge Lascar/CC by 2.0
BELGRADE (Serbia), November 30 (SeeNews) – Slow rise in labour productivity curbs real wage growth in Serbia and contributes to high unemployment and weak economic activity, the World Bank said in a report on Thursday.
The lack of wage growth, together with social assistance, have generated disincentives for potential low-wage and part-time earners to shift from inactivity or from informal to formal-sector jobs, the World Bank said in its report The Western Balkans : Revving Up the Engines of Growth and Prosperity.
At the same time, Serbia is challenged by a shrinking working-age population that, without significant changes in labour force participation rates, means a shrinking labour force, it added.
Real wage growth in Serbia dropped off significantly in response to the nominal public wage freeze introduced in 2009-2010 and a cap that was imposed on indexation of wages in the public sector in 2012-13. However, this trend has started to change in recent years as real wage growth was more than 1% between 2014 and 2016.
Despite recent reforms, high pension spending driven largely by early retirement and high benefits adds to fiscal pressures in the country, according to the report.
The state's outsized role and the sluggish court system further curb Serbia's growth, the World Bank also said.
"Operating behind protective walls, state-owned enterprises crowd out private initiative. They pay wages that are higher than
in the private sector, yet operate with lower productivity, distorting labor markets, rewarding subpar performance, and indirectly strengthening the region’s large informal economy," the World Bank said.
"But most important, the state needs to become a more efficient and reliable provider of services," it noted.
It will take as many as six decades for income levels in the Western Balkans to catch up with those of the European Union if economies in the region continue to grow at the average speed achieved between 1995 and 2015, the World Bank also said in the report, which covers Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia.
Reforms and macroeconomic stability that can enable average growth rates of 5% a year would allow the Western Balkans to converge with the EU in just two decades, instead of six, the report noted.
Increasing exports, investments, and employment are all priority areas for policymakers, according to the report. Stronger regional integration can help raise exports as a share of GDP, which would have to double in order to match those of other small transition economies that are now in the EU, while private investment in countries where the public sector is still the main driver of the economy will also need to increase. Low and slow-growing productivity levels in the Western Balkans call for improvements in the business environment that can attract private investment and spur enterprise growth.