Western Balkans need ‘better jobs’ to narrow gap with EU – World Bank
The Western Balkan economies – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia – need to tackle the gap between rising workforce education levels and a labour market dominated by lower-skilled jobs, which prevents the region from converging with EU living standards at a faster pace, the World Bank said on Tuesday.
Despite being increasingly more educated, the majority of workers in the region are still employed by low and mid-productivity firms in mostly manual and routine jobs offering below-average income. To address the challenge and maintain growth, governments need to work in a coordinated manner to create more quality jobs, the World Bank said in the latest edition of its Western Balkans Regular Economic Report.
The transition to a more skill-intensive economy in the Western Balkans is progressing too slowly, the lender said, noting that a rising share of post-secondary educated workers are employed in jobs requiring only secondary education or less, earning between 15-30% less than peers whose education matches their occupation. “This leads to both a drag on individual earnings potential and an underutilization of human capital that could otherwise drive faster convergence,” the report read.
From 2011 to 2022, employment trends across sectors in the Western Balkans varied widely. Agricultural jobs declined in all countries – most sharply in Serbia – except in Kosovo, where rural development programmes likely helped preserve formal farm employment. The services sector grew quickly across the region – accommodation and food services drove growth in Kosovo, Montenegro, and Serbia, while ICT jobs expanded strongly everywhere. Manufacturing and construction showed mixed results. North Macedonia, Serbia, and Bosnia and Herzegovina gained jobs in higher-value segments but lost them in labour-intensive industries, whereas Kosovo and Montenegro saw broader job growth across both manufacturing and construction.
The region faces a labour market paradox – labour shortages persist alongside high unemployment, which stood above 10% in 2024, and relatively low labour force participation, at below 55%, especially for women, youth and the elderly. Given current population, growth, and labour market trends, the region will over the next five years face a shortage of more than 190,000 workers, or about 2.5% of its current labour force, unless it increases activation or emigration slows. In addition, the green transition and artificial intelligence (AI) intensify pressures, and about 20% of workers may face the need for significant reskilling.
The strong post-pandemic recovery in the Western Balkans has boosted growth faster than in the EU. However, labour productivity has lagged as much of the growth has been driven by adding more workers rather than boosting output per worker, according to the report. The productivity will have to play a greater role in sustaining the growth, which requires a shift toward more sophisticated, knowledge – and technology-intensive forms of production, and translates into meaningful wage growth.
Despite some progress, most Western Balkan countries still have less than half the EU’s average income, and their growth is slowing. They have reached middle-income status, but catching up with EU living standards is still far away, the World Bank said.
To sustain convergence and create better jobs, the governments in the region need to create the foundational infrastructure for jobs, strengthen governance and create a predictable regulatory environment, and mobilise private capital for the private sector to expand.
The World Bank said on Tuesday that the economic growth in the Western Balkans is projected to slow to 3.0% in 2025, from 3.6% in 2024, due to a continued weak external environment and rising domestic pressures in several countries.
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