Minimum wage to be raised next election but without economic justification

“By the end of the year, the minimum wage will have been increased to 35,000 dinars, i.e. to around 300 euros, while the average salary will exceed 600 euros in January,” Serbia’s President Aleksandar Vučić said a few days ago, explaining that that statement reflects the assessment of Serbian economic growth that the IMF changed from 5 to 6 percent two days ago, as expected by the Serbian authorities.

“After Lithuania, we are the second-best country in Europe,” Vučić said and explained that higher GDP growth leads to higher wages and pensions and that the IMF claims that the public debt will still not exceed 60.3% of GDP, “despite the huge investments in infrastructural works and the army.”

Economists are not so sure about how will the economy sustain such an increase in wages, but they have no doubt that the announced increases will happen. One of the reasons is that the decision on the minimum wage is made y the Economic and Social Council, but since the trade unions and employers in the Council usually cannot reach an agreement, the government is the one that makes the ultimate decision.

An additional factor is that elections will be held in the spring of next year, so Vučić has already instilled in voters the hope that everything will be better in Serbia. If the minimum wage is raised, it is logical that average salaries in the public sector will go up too.

Economist Jelena Zarkovic Rakic, director of FREN, says for “Danas” that the question is how businessmen will accept it.

“For them, it will be acceptable if the non-taxable part of the salary increases or the contribution rates decreases, but I do not know how realistic this is. If this is not achieved, due to the growth of labour costs, it is possible that some employers will lay off some of their workers or switch to the shadow economy. Moreover, the ratio of minimum to average wage should always be considered. According to the announcement, the minimum wage would be 50% of the average wage but anything above 40% is quite high,” says the expert and adds that the most important thing is how companies will view this obligation if their tax burden is not reduced.

Companies are not so sure that they will be able to follow the government’s ambitious plans.

(Danas, 07.07.2021)


This post is also available in: Italiano

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