Why has workforce become increasingly expensive for foreign investors?
In recent times, Serbian government representatives have claimed that workers in Serbia are no longer “cheap labour,” a notion seemingly supported by the rise in net wages and overall labour costs in foreign currency in recent years. However, Danas interviewees argue that much more is needed for a dignified life.
For years, Serbia has attracted foreign investors, primarily due to substantial state subsidies and the availability of “cheap” labour.
Yet, Serbian President Aleksandar Vučić recently stated on a TV Happy broadcast that cheap labour in Serbia is a thing of the past. He acknowledged that wages here are lower than in Western Europe, but noted that even there, cheap labour is no longer available, adding that the new minimum wage is around 54,000 dinars.
Mihail Arandarenko, a professor at the Faculty of Economics in Belgrade, agrees to an extent, explaining that foreign investors track Serbia’s minimum or average labour costs per worker in euros or dollars.
“What they’re really interested in is the total cost of an employee,” Arandarenko explained.
Our labour has become relatively ‘more expensive’ for foreign investors.
Arandarenko elaborates that this refers to the concept of Gross 2, which includes net wages plus income tax and all contributions.
“As both net wages and total labour costs in foreign currency have grown here faster than almost anywhere else in Europe in recent years, it’s accurate to say that our workforce has become relatively ‘more expensive’ for foreign investors,” he noted.
He further explained that it’s not just about keeping euro-denominated costs low, but also ensuring that labour productivity is high enough for investors to make a profit. However, assuming productivity remains unchanged, the variable in focus is labour costs in foreign currency.
“The investment benchmark varies between investors. For some, it’s the whole world, for others Europe or the Western Balkans. Compared to the world and the Western Balkans, we are no longer ‘cheap,’” he emphasised.
Conversely, Jovan Protić, coordinator for the International Labour Organisation (ILO) in Serbia, sees this assessment as overly simplistic, questioning what defines “cheap” labour.
Investors aren’t leaving just because of labour costs
“One way to gauge whether labour is cheap or expensive is to ask if investors are leaving because they find better conditions elsewhere. However, this depends on numerous factors beyond labour costs, particularly where Serbia struggles, such as in legal security,” he explained.
Protić added that a signal of relatively expensive labour would be if companies engaged in basic tasks, like cable assembly, began relocating to cheaper locations.
“We haven’t seen that happening yet, so I wouldn’t say high labour costs are an issue,” he noted.
There are still people available for work; the question is at what price.
“According to official data, our inactivity rate remains quite high, suggesting there are still pockets of untapped domestic labour,” Protić pointed out.
“Reservoirs” of inactive people
He indicated that there are still “reservoirs” of inactive people, though the reasons for this are unclear.
“It’s worth asking whether they are unwilling to work for a given wage, or if it’s due to their qualifications, age, or location,” he said.
If factories are opening here despite rising labour costs, Protić suggests that factors beyond labour costs are attracting firms.
“That would be great if true, but I don’t see much evidence of it. Some individuals seem to benefit from bilateral agreements rather than improving factors like legal security,” he concluded.
Zoran Mihajlović, secretary of the Council of the Confederation of Autonomous Trade Unions of Serbia (SSSS), also questioned the government’s metrics.
“What exactly do they mean by cheap labour today? Comparing European standards and the fact that a dignified life requires far more than what many earn in Serbia—many workers here live on the brink of poverty—it’s hard to say that we’re no longer cheap labour,” he pointed out.
Mihajlović believes that wages should be aligned with the cost of living.
“The minimum wage should match the cost of the consumer basket, while the average wage should cover one and a half times that,” he argued.
Lower wages, higher prices for essentials than in Europe
Željko Veselinović, president of the Sloga union, said it depends on what’s measured and pointed out that wages in Serbia are among the lowest in Europe.
“In terms of euro-denominated wages, we’re no longer ‘cheap,’ but when you consider what those wages buy, we’re still a low-wage economy and a poor country,” he observed.
Veselinović highlighted the issue of high costs.
“With prices for basic necessities here higher than in much of Europe, many people are barely getting by,” he explained.
The high cost of living, he said, is Serbia’s biggest issue.
“On the other hand, wages remain among the five lowest in Europe, so fundamentally, we’re still cheap labour,” Veselinović concluded.
Source Link