News archive - [Event Review] Conference on “Making Work Pay in Western Balkan Countries: The Case of Serbia and Macedonia.”

The Faculty of Economics at the University of Belgrade, on September 5, featured results from the RRPP-funded research project Making Work Pay in Western Balkan Countries: The Case of Serbia and Macedonia.

The audience was addressed by Jelena Žarković Rakić, Saša Ranđelović and Marko Vladisavljević, Researchers from the Foundation for the Advancement of Economics (FREN) in Belgrade; and Nikica Mojsoska Blazevski and Marjan Petreski, Researchers from the University American College Skopje (UACS) in Skopje. The conference also included a presentation by Olivier Bargain, a professor at the Aix-Marseille School of Economics, France; and Research Fellow at IZA, Germany. 

For several years, inactivity rates of Serbian working age populations were among the highest in Europe - almost 40%. Serbia also faces high informal employment rates reaching 18.2%. Many economists argue that this is a consequence of the system of taxation of labour that places a particular burden on individuals with low wages. Additionally, social benefits are designed in such a manner that, once an individual incurs formal income on their records, their benefits will either decrease at a rate equal to the total amount of earned income or be withdrawn completely. Major income-tested benefits, social assistance and child allowance are three areas that are most affected by this policy. Tax and benefit systems therefore discourage individuals with lower wage capacities in their job-seeking efforts.

Based on this information, the study attempts to answer the following question: What changes could be made to the Serbian tax and benefit systems in order to make (formal) work more attractive and profitable for employees? 

During the last decade, most member countries of the Organisation for Economic Co-operation and Development (OECD) introduced alternative schemes of social assistance - so-called "in work benefits" (IWB) - which are awarded to individuals with low wages to supplement their income from formal employment. These policies encourage entry into the labour market, but also ensure a higher living standard for low-income individuals, helping to reduce poverty. Additionally, IWB schemes contribute to higher formality by reducing the labour tax wedge and encouraging wage earners to report their taxes. These policies are attractive for countries harbouring supply problems in the labour market, simultaneously tackling market demand with higher minimum wage. Given the high minimum wage in Serbia (almost 50% of average wage) and the constant complaints of employers (it hampers employment of low-paid workers) this is an additional argument for the introduction of in work benefits.

The research results for Serbia indicate that the introduction in work benefits would significantly increase the participation of individuals at the bottom of income distribution. More specifically, those with the lowest income would reduce their inactivity as much as 19 percentage points after qualifying for this type of compensation. The introduction of in work benefits would also reduce income distribution inequality, another important goal of this policy.

From a budgetary perspective, we assume that this policy would cost as much as classic social benefits—0.13% of GDP. Keeping in mind that the number of social assistance beneficiaries in Serbia increased among individuals of working age since the beginning of the crisis, such a policy would be a great alternative to social assistance.

It is important to keep in mind that the employment effect of an in-work benefit depends on both the motivation of individuals to seek employment in conjunction with the labour market’s capacity to accommodate them. In other words, there will be larger employment gains after the introduction of IWB during times of economic prosperity than during crises. Despite these findings, it is better to begin introducing in work benefits to policy makers for consideration now, as the recommended policy changes contain great potential for multiple positive effects. 

Original Source: RRPP

Geographical focus
  • Republic of North Macedonia
  • Serbia
Scientifc field / Thematic focus
  • General

Entry created by Desiree Pecarz on October 23, 2013
Modified on October 23, 2013