The salary trap

2024-09-15 19:36:02, Ekonomi CNA

Illustrative photo

The acceleration of wage growth rates in the last year, especially of those requiring low work skills, is undoubtedly good news for the economy. Their low level had been one of the main factors that encouraged mass immigration, especially of young people, creating a real stalemate in the labor market.

INSTAT data show that at the end of the first quarter, the average gross monthly salary in the economy reached 73.6 thousand ALL, with an increase of 13% on an annual basis.

These are the highest rates at least since 2014, when INSTAT reports the data in its time series. Even in the first quarter of 2023, the expansion had been 9.2%, compared to other periods when the maximum reached 5.7%, or it had been negative or close to zero (TI 2016 and TI 2017).

Although at first glance, this is a positive development, there are some "hidden" factors that do not make us very optimistic.

The salary trap

First, wage growth has been constrained by labor shortages and has not been pulled by structural improvements in the economy, risking a boomerang. This is also shown by the trend of the tourism sector.

The latter is obliged to pay employees such as waiters or cleaners, at levels that are at least twice the minimum wage. While this increase solved the problem of employees, on the other hand it increased the costs of the activity.

The increase in costs was transferred to prices, impeding tourists who perceive Albania as a low cost destination and are not ready to pay dearly.

Combined with the fall of the Euro, tour operators' revenues are stagnant, calling into question whether they will be able to sustain these high salaries for long.

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The same thing has happened in other sectors, such as construction or agro-industry, where the increase in wages without improvements in productivity has made costs more expensive, putting future performance into question.

Second, there is a high increase in wages for occupations that require less skills, in an indication that the economy is not being oriented by sectors with high added value. Experts of employment agencies claim that there is no entry of large companies looking for high-level professionals.

The demand for employees is mainly driven by tourism and construction. While tourism is a sector that will always be a priority, construction is cyclical and the data shows that it has entered the maturity phase.

Experts have warned of high demand in elementary professions and stagnation at high levels of management, distorting the labor market and discouraging professionals, who may once again see fleeing abroad as an alternative.

The latest data from the European Institute of Statistics, Eurostat, proved that the tight increase in wages does not bring qualitative improvements in the economy. His latest data on the minimum wage in nominal value and by purchasing power was significant in two ways. First, without real economic development, wage competition with the region is a failure.

The salary trap

It is true that the minimum wage and other levels (mostly low-skilled jobs) have increased faster than in the past, but regionally, the surge has been stronger.

In Serbia and Montenegro, it is 35% higher than in Albania.

During this time, Serbia has attracted foreign investments with high added value, such as the production of vehicle parts, while Albania has remained in the assembly of electrical parts, a process with customer material, which in reality is almost failing due to devaluation of the Euro and the lack of manpower, just like with the fashion sector.

Second, artificial pressure may have caused workers to actually receive more money, but purchasing power has fallen, as the economy has not driven it.

The salary trap

Eurostat ranks Albania last again in Europe for the minimum wage measured according to purchasing power, although in terms of value, the country has surpassed North Macedonia. This indicator is compiled by adjusting the minimum gross wages applicable on July 1, 2024, to price differences between countries.

Economic history has shown that wages reflect both productivity and market size. Decoupled wage growth is one of the lessons taught against wage-driven (pulled) inflation.

On the other hand, as long as there is no regulation in the direction of the services offered through the income collected from taxes and taxes, and improvement in the quality of life (order, judiciary, infrastructure, etc.) no matter how much the salary increases, it will always be insufficient and will lose the positive effect in competition with other markets, encouraging emigration again./ Monitor.al