Strong employment growth, accompanied by a significant decline in unemployment in Serbia, most likely came to an end in 2025 after several years, domestic economists have warned, following official statistics showing a slight drop in employment, a rise in the unemployment rate, and the continued relatively rapid growth of wages.
The Labour Force Survey conducted by the Statistical Office of the Republic of Serbia (SORS) showed that the total number of employed people fell by 1% last year, while the unemployment rate rose from 8.6% in 2024 to 8.7% in 2025. The decline in employment was driven by shifts in informal employment, which dropped by 5.8%, while the decrease in formal employment was significantly smaller in percentage terms – 0.3%.
These survey indicators are consistent with the report on registered employment, also published by SORS and based on administrative sources, which likewise shows a slight decline in registered employment last year – by 0.2%.
The final quarter of last year brought weaker results both quarter-on-quarter and year-on-year. The employment rate stood at 50.5% (around one percentage point lower both quarterly and annually), while the unemployment rate was 8.9% (up by 0.7 percentage points compared to the previous quarter and by 0.3 points compared to the same quarter in 2024).
Similar to trends over the full year, the fourth quarter of 2025 saw a decline in informal employment that was proportionally much larger than the decrease in formal employment. In addition, there were fewer employees in both the public and private sectors (with declines both quarterly and year-on-year). But why do economists see this more as the end of an era in the domestic labour market rather than a temporary trend?
Employment and unemployment rates
“Labour market developments in 2025 suggest that the period of solid employment growth and a marked reduction in the unemployment rate that characterised previous years has likely come to an end. Namely, strong wage growth – faster in recent years than productivity growth – combined with substantial administrative increases in the minimum wage, is beginning to act as a constraint on new hiring,” explain the authors of the latest Quarterly Monitor, published by the Faculty of Economics at the University of Belgrade and its Foundation for the Advancement of Economic Science.
In other words, they indicate that last year’s outcome stems primarily from structural factors rather than a temporary slowdown in economic activity or seasonal variations.
This effect is particularly pronounced among lower-skilled workers, where employers have less room to absorb rising labour costs, which may lead to reduced demand for such labour.
“As a result, the unemployment rate in Serbia may stabilise in the coming period at around the current level of approximately 8.5%, which is still significantly higher than in comparable countries in Central and Eastern Europe (where it stood at 4.2% in 2025),” the publication states.
As Professor Milojko Arsić of the Faculty of Economics recently noted at the presentation of the bulletin, “during 2025, conditions in the labour market slightly deteriorated – this deterioration is not substantial, but based on a number of factors, it appears likely to continue this year and in the years ahead.”
He pointed out that the decline in employment was concentrated in industry (particularly textiles and the automotive wiring industry), trade (where it is not entirely clear whether this was caused by government-imposed limits on retail margins and the resulting shop closures), and other services.
“There is also another long-term trend, partly driven by global developments and partly by the structure of Serbia’s economy – the introduction of artificial intelligence, which is replacing human labour with software. This is happening first in the IT sector, particularly in areas involving routine tasks, a large portion of Serbia’s IT sector is engaged in exactly that. These often include customer support and similar roles – such jobs are very easy to automate. This process is likely to continue in the coming years, as artificial intelligence expands into many other sectors.”
Wages, once undervalued, are now overvalued
For roughly a decade, wages have been rising significantly faster than productivity, leading to an increase in unit labour costs, the Quarterly Monitor notes. If wages in Serbia were once undervalued, they are now likely overvalued relative to productivity levels, Arsić said.
This has led to a situation in which rapid wage growth eliminates jobs that generate low added value. Maintaining employment alongside rising wages is therefore only possible through a shift in the economic structure towards sectors that create higher added value. However, this requires substantial private investment and an improved business environment, experts emphasise.
At the same time, labour productivity increased slightly in the final quarter compared to the same quarter of the previous year (by 2.7%), due to slower real growth in economic activity and a smaller decline in employment. Real unit labour costs, however, rose more significantly, as real wage growth outpaced the growth of gross value added and labour productivity.
In the manufacturing sector, productivity per worker is particularly low and declined by more than 10% between 2015 and 2024.
“A significant drop in labour productivity was recorded in the production of food products, beverages, textiles, leather, wood processing, paper production, printing, the manufacture of coke and petroleum derivatives, and rubber production. Real wages increased by 65.3% over the same period, leading to a substantial rise in real unit labour costs,” the bulletin notes, concluding that this contributed to a reduction in employment in the manufacturing sector last year.
(Bloomberg Adria, 08.04.2026)