After a prolonged period of growth, Serbia recorded a slight decline in employment in 2025. In a recently published opinion, the Fiscal Council points out that, judging by the projections in the Fiscal Strategy, employment is expected to stagnate over the next three years. This does not automatically mean that unemployment or economic inactivity will increase. However, it is an important signal that Serbia’s current model of economic growth – largely based on an abundant supply of inexpensive labour, which is no longer available – has reached its natural limits.
This can already be seen in practice. Several foreign companies operating in lower value-added industries have closed their facilities in Serbia in recent years. Serbia has ceased to be a low-cost destination for them because labour costs have risen. As a result, the country faces the challenge in the coming years of transforming the structure of its economy – shifting from traditional industries towards more advanced sectors.
“The departure of such companies (i.e. those operating in lower value-added industries) is not, in itself, a major problem. To some extent, it is a natural outcome of economic progress. Some of these factories are relocating to countries that are cheaper than Serbia, which was foreseeable even when they first arrived. The real problem is not that low-productivity jobs are leaving, but that we still have nothing with which to replace them,” said Danko Brčerević, Chief Economist of Serbia’s Fiscal Council.
Employment will no longer grow
Employment growth, which had made a significant contribution to Serbia’s economic expansion in recent years, has effectively come to a halt, according to the opinion of the Fiscal Council, an independent state body that analyses and provides opinions on the fiscal policies adopted by the Government.
The Council recently published its opinion on the draft Fiscal Strategy of the Government of Serbia for 2027, including projections for 2028 and 2029. The Council notes that labour market changes are recognised within the Government’s own Strategy. For example, projections of potential GDP growth indicate that employment growth is no longer expected to contribute in the coming years.
However, although the Government acknowledges this shift, it does not provide an analysis of its causes, possible consequences, or appropriate economic policy responses.
What the statistics show
According to the Labour Force Survey (LFS), the number of people employed in Serbia fell by around 1% in 2025, while registered employment data indicate a decline of approximately 0.2%.
The Labour Force Survey also recorded a slight increase in the unemployment rate—from 8.6% to 8.7%.
The current growth model has reached its limits
Commenting on these employment trends, Danko Brčerević explained that the changes are not dramatic, but they represent an important signal that Serbia’s current economic growth model has reached its natural limits.
“Over the previous decade, Serbia’s economic growth relied on strong growth in public capital investment, combined with substantial foreign direct investment directed mainly towards traditional sectors such as mining and labour-intensive manufacturing. This approach initially produced results because the country had high unemployment and relatively low wages,” Brčerević said.
According to him, increased investment combined with the utilisation of previously unused labour enabled Serbia to grow somewhat faster than neighbouring countries between 2018 and 2024.
However, he points out that the key resource underpinning the model’s initial success has now largely been exhausted.
“According to estimates by the Statistical Office, the population aged between 20 and 64 has fallen by as many as 540,000 over the past ten years, or 12.5%, due to unfavourable demographic trends. At the same time, emigration of working-age people to European Union countries has remained high. Serbia is no longer the low-wage country it was a decade ago.”
Wages have risen faster than productivity
In its opinion on the draft Fiscal Strategy, the Fiscal Council states that, alongside unfavourable demographic developments, one of the most likely causes of the changes ahead is that wages have been rising faster than productivity for years. Significant administrative increases in the minimum wage have also contributed substantially.
“The consequences of these trends are visible through a loss of competitiveness in lower value-added industries and the withdrawal of certain foreign investors,” the Council states.
Brčerević explains that around ten years ago, for the same level of output, a worker in Serbia cost employers roughly 15% less than workers in Central and Eastern European countries.
“Unlike those countries, Serbia had high unemployment at the time, so people were willing to work for relatively low wages. That inexpensive and readily available workforce was one of the country’s key advantages in attracting investment.”
In the meantime, he says, the labour market has tightened as employment increased while the working-age population continued to shrink. As a result, employers have had to offer higher wages and better working conditions, leading many workers to move from the informal to the formal economy.
“The rapid growth in wages was temporarily economically sustainable and did not undermine competitiveness because wage levels initially were objectively low. However, our analysis shows that this room for manoeuvre has now largely been exhausted. Labour costs in Serbia relative to output have practically converged with those in comparable countries.”
Brčerević believes the core problem is that Serbia has ceased to be a particularly cheap location without becoming significantly more technologically advanced.
“This corresponds to what economists call the middle-income trap. Escaping it will be Serbia’s main economic challenge in the coming decade.”
Factories are moving to cheaper destinations
Foreign companies came to Serbia based on a straightforward calculation: available and inexpensive labour, relatively cheap energy, generous state subsidies, and low risk, Brčerević explains and adds: “As subsidy periods expire and labour and energy costs rise, some companies no longer have an economic reason to remain. Firms generating low added value are especially vulnerable because they have the least capacity to absorb rising labour costs.”
According to him, this is precisely what is now happening in Serbia, particularly in the south of the country, where wages are lowest. He cites the closure of Benetton in Niš, as well as the closure of Leoni’s facility in nearby Malošište, which employed nearly 1,900 workers. In Leskovac, the Turkish company Jeansy left after twelve years of operation and substantial state incentives, while in Vranje a similar case involved the Danish company Kentaur.
Brčerević believes that further withdrawals of companies from low value-added sectors are highly likely. “The process has been further accelerated by administrative increases in the minimum wage, which have been unusually strong in recent years.” He emphasises that the departure of companies from low value-added industries is not inherently problematic. “To some extent, it is the result of economic progress, as factories relocate to countries that are cheaper than Serbia. The real problem is not that low-productivity jobs are disappearing, but that we still have nothing to replace them with.”
Low-skilled workers caught in a “scissor effect”
Brčerević also points to another challenge Serbia will face.
Employment growth in Serbia is stalling at an unemployment rate of around 8.5%, whereas in Central and Eastern European countries this occurred only when unemployment had fallen to roughly 4%.
“In other words, those countries reached the limits of their labour markets at virtually full employment, while we have done so with a significant number of people still without jobs.” According to him, this suggests that low-skilled workers are caught in a “scissor effect”. “On the one hand, they have become too expensive for simple, low-paid jobs. On the other hand, they lack the qualifications needed for more complex and better-paid positions.”
In his view, this gives the state a clear task. “In the short term, active labour market measures are needed – above all, retraining programmes, with special attention paid to marginalised groups. In the medium term, reforms to social protection and perhaps a somewhat more progressive tax policy are also required.”
Workforce only “partially” prepared for technology-intensive industries
Brčerević says that the current structure of Serbia’s workforce is only “partially” adapted to more technology-intensive industries and stresses that the quality of education is crucial.
“Serbia does not lag far behind in terms of years spent in education. Expected years of schooling are 13.3 in Serbia compared with 13.6 in the developed EU. However, when adjusted for actual learning outcomes, this falls to less than ten years.” He notes that Serbia ranks among the poorest performers in this respect, alongside Bulgaria and Romania. “The same conclusion emerges from international PISA assessments, where our fifteen-year-olds lag behind both the EU average and neighbouring countries,” Brčerević says, adding that it is extremely dangerous for the state to undermine educational quality in its strongest segments – those training people for the jobs most important to Serbia’s future.
Stagnation does not necessarily mean rising unemployment
Brčerević also points out that stagnant employment does not necessarily mean rising unemployment or inactivity. At the same time, the number of people able to work is declining because of demographic trends and emigration. “We will have to see which of these forces ultimately proves stronger.”
He says that an apparently paradoxical situation is possible in the coming years: “Stagnant or slightly declining employment accompanied by a stable, or even somewhat lower, unemployment rate. This is already happening in some Central and Eastern European countries facing demographic challenges similar to Serbia’s.”
The Government recognises the changes but does not analyse them
Brčerević argues that the Government of Serbia implicitly acknowledges in its Fiscal Strategy that something significant has changed in the labour market.
“But that is where the analysis stops, without examining the causes, possible consequences, or appropriate economic policy responses, which is not a good approach.”
In his opinion, the most important consequence of this trend could be a noticeable slowdown in economic growth, which has largely relied on cheap and readily available labour—a resource that no longer exists.
A change in economic structure is needed
Brčerević sees the solution in restructuring the economy – gradually moving from traditional industries towards more advanced sectors that generate greater value per employee. However, he stresses that this is not easy to achieve.
“Technological progress is driven by a free and innovative private sector operating in an environment that allows it to develop. The key elements of such an environment are well known: legal certainty and an efficient judiciary, low levels of corruption, predictable business conditions, fair competition, and a high-quality education system capable of supplying skilled workers.”
However, in his view, these are precisely the areas in which Serbia has demonstrated serious weaknesses for many years.
“That is why the issue of productivity growth cannot be reduced merely to better technology; at its core lies the quality of a country’s institutions.”
What does the Government say in the Fiscal Strategy?
Part of the Fiscal Strategy published by the Government of Serbia on 4 June is devoted to the labour market.
While presenting statistical data for the previous year, the Government states that although the main labour market indicators remained relatively favourable compared with previous years, recent developments point to a weakening pace of job creation.
“The share of long-term unemployed persons within total unemployment continues to decline gradually. However, challenges related to matching labour supply and demand remain, particularly in conditions of gradual changes in the structure of demand for labour,” the Strategy states.
According to the document, the Government expects a gradual stabilisation of labour market trends in the coming period. It states that particular attention will be devoted to further improving the education system, including the expansion of dual education and retraining programmes, increasing the employability of young people, and supporting groups that face greater difficulties in finding work.
At the same time, active labour market policies will also target sectors undergoing adjustment, particularly labour-intensive branches of manufacturing.
From a medium-term perspective, labour market developments will depend primarily on productivity growth and the economy’s ability to adapt the structure of its workforce to the needs of more technology-intensive and productive industries.
Employment declined at the start of the year as well
The Government also referred to employment data for early 2026. Citing CROSO data, the Fiscal Strategy states that average employment between January and March stood at 2.312 million people, 0.2% lower than in the same period of 2025.
“The decline in employment was driven by lower levels of activity in certain labour-intensive manufacturing sectors, particularly the clothing and leather industries, the production of electrical equipment, and metal products. Employment also fell in the retail trade sector,” the Strategy states.
Nevertheless, the Government believes that these negative trends were partly offset by employment growth in service industries. “The largest contribution came from the information and communications sector, administrative and professional services, accommodation activities, and social care services.” According to the Fiscal Strategy, these developments indicate a gradual transformation in the structure of Serbia’s domestic labour market.
(Forbes Serbia, 16.06.2026)