Increasing the minimum wage: disastrous for many companies, insufficient for workers
The extraordinary increase in the minimum wage at the end of September made the workers happy, but it gave many employers a headache. Some companies even cited it as one of the reasons for closing. Small businesses and those at the beginning of their business have an additional problem
Minimum labor cost in Serbia, it was increased a little over a month ago by an extraordinary 9,4 percent, that is, from 53.592 to 58.630 dinars. With average consumer basket which exceeds 107.000 dinars, and with a minimum of almost 56.000, it is clear that the increased minimum means mere survival.
Nevertheless, the increase of the minimum wage from 450 to 500 euros already had negative effects on the economy – some investors cited this fact as one of the reasons for closing factories.
The Union of Employers of Serbia indicated earlier, based on conducted research, that there is no room for further growth of the minimum labor price, especially for micro, small and medium-sized enterprises.
“After the extraordinary increase in the minimum labor price, we conducted targeted research that exclusively dealt with micro, small and medium-sized enterprises, and the results were quite pronounced in terms of the fact that there is no room for further growth of the minimum labor price. Employers in the east and south of Serbia bear the increase the hardest,” says Ljiljana Pavlović from the Union of Employers of Serbia.
He explains that employers often simply do not have the ability to generate enough turnover to be able to pay employees even the minimum wage.
What awaits us next year?
New increase the minimum it will follow in 2026. It will then amount to 550 euros, and a third of the Serbian economy will then not be able to pay the minimum wage, the honorary president of the Union of Employers of Serbia, Nebojša Atanacković, told the “Beta” agency earlier.
On the other hand, although they welcome the increase in minimum wages, non-governmental organizations for the protection of labor rights point out that even with an increase, the minimum wage is not enough for basic life needs.
“The minimum wage should be a guarantee that male and female workers are not at risk of poverty, but this is not the case – the minimum wage is still not sufficient to meet people’s basic needs,” announced the Center for Emancipation Policies.
At the beginning of September, when the negotiations on increasing the minimum wage for the following year began, the unions announced that the proposed amount was not enough. They demanded that the minimum wage in 2026 be 600 euros, or 70.000 dinars.
The Ministry of Finance offered an amount of 550 euros, and the employers assessed that no additional increase was necessary after the extraordinary October one and that it should remain at 500 euros.
In the end, the proposal of the Ministry of Finance “won”.
Higher costs, lower income
Employers are obliged to pay the state levies of about 60 percent of the wages they pay to employees. Thus, along with the increase in earnings, the costs that must be paid to the state per employed worker also increase.
As Pavlović adds, the biggest problem are micro-enterprises, which in the previous period were operating with considerable problems, but the effects of the extraordinary October increase will still be visible.
“We are preparing more for what the situation will be from next year, when the minimum labor price will increase by another 10,1 percent as planned. However, we expect that perhaps that burden will be partially eased by the fact that the non-taxable part of the salary has increased by a fairly large percentage.”
As agreed, the non-taxable part of the salary will amount to about 34.000 dinars, explains Pavlović.
“For years, we have been talking and trying through negotiations to somehow bring the wage costs down to a decent level,” says Pavlović.
The position of the Serbian Employers’ Union is that, if there is no room for further reductions in taxes and contributions, there is a way to evenly distribute the increase in the minimum wage. One of the proposals was that the minimum wage should not be taxed at all.
Another proposal was to look at the development of the region, as for example in Germany.
“The consequences of the increase in the minimum wage are always least felt in Belgrade. In the south and east of the country, employers feel the new levies much more strongly. In some areas, where the economy is not so developed, businessmen do not even have the possibility to increase the prices of products and services because they will lose clients and they are certainly in a big problem. Then the second measure is to close jobs, and that is not a solution.”
“I can’t hire workers because the levies are high”
Increasing the minimum wage is a special problem for entrepreneurs who often, even though the volume of work requires it, do not have the space to hire additional workers.
Jovana Deljanin lived and worked in China for several years, where she taught the Serbian language. Since May 2024, he has been teaching Serbian to foreigners in Serbia. She registered her business as an entrepreneur, but due to high costs, she is unable to employ anyone, although she has work for several people.
“Incomes are relatively unstable, and the salary needs to be paid every month, so I can’t currently employ anyone else. The total cost of earnings with taxes and contributions is high and I’m not sure if it’s sustainable to pay it every month,” she told “Vreme”.
Deljanin operates as a lump sum, so her taxes and contributions are calculated in a single amount for each month during one year.
“In January, I will receive a new increase for the following year. Regardless of how many clients I have and how much I earn in a month, I have to pay that amount to the state,” says Deljanin.
Leaving because of the minimum wage?
This year, several factories operating in the south of Serbia locked their entrances and fired workers.
Among the latter, 270 workers were dismissed by the company Kentaur AS from Vranje.
Reasons – significant deficit recorded by the company, bad projections on the labor market for this and the next year, and “a drastic increase in the minimum wage in Serbia”, announced the executive director of the Danish manufacturer of professional clothing for service and health activities Mie Krog.
In the Union of Employers of Serbia, they believe that the minimum wage is not the key reason for the closure of companies, but that it did influence such a decision.
Economic consultant Bogdan Petrović previously indicated for “Danas” the possible faster departure of foreign investors due to the increase in the minimum wage, especially in labor-intensive industries.
“All foreign investments that are contracted with state subsidies have a clause that wages must be 20 percent above the minimum wage. This means that an increase in the minimum wage will automatically raise costs in those factories,” he said.
According to him, the factories in the cable industry are the most threatened, and industries with highly qualified labor will not be in trouble.
While waiting for the effects of the extraordinary minimum wage increase, the question arises whether anyone is satisfied with it.
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