Minimum Wage, not as a populist tool, but as a signal of economic development

According to historical data, the minimum wage in Albania has had an interrupted and politicized history since the 1990s. Initially, it was set to define a minimal standard of living after the transition from a planned economy to a free market. Subsequently, increases have been frequent, especially during election periods, often disconnected from economic indicators such as productivity, unemployment, economic growth, or inflation.

From 2000 to 2024, the minimum wage has increased more than 12 times, often at arbitrary rates and lacking methodological consistency. The increase in Albania’s minimum wage has been more political and social in nature than based on objective economic indicators or alignment with the realities of the labor market.

In the 2025 elections, one of the main promises of several political parties is the immediate increase of the minimum wage to 500 euros, followed by a 30% increase over the next three years or a gradual 10% annual increase. This promise, articulated with a strong populist tone, aims to send a clear message about improving workers’ well-being and boosting domestic consumption. However, it raises serious concerns about its economic feasibility: the lack of connection to productivity indicators, the unaffordable cost for smaller businesses—especially in more vulnerable sectors and regions—and the risk of increasing informality and damaging international competitiveness. In the absence of parallel reforms in education, innovation, and strengthening the economy’s production base, this kind of promise is more likely to turn into a new structural burden rather than a genuine driver of sustainable development.

But let’s look at the promise from the perspective of business and the private economy, which has no say in the matter, as decisions are made by the government and politicians for them.

Let’s calculate the cost for a small business with 10 employees:

• Currently, the minimum monthly wage is around 400 euros gross (2025).
• If it jumps to 500 euros immediately, that’s an increase of 25%.
• If we factor in social contributions and taxes (around +30% on the gross wage), the real cost to the employer increases from 520 euros to 650 euros per employee.

→ The total monthly expense for 10 employees would be = (650–520 euros) × 10 employees = an additional 1,300 euros per month, or an additional 15,600 euros per year.

After three years, with a 10% annual increase, the calculation is as follows:

Year 1: 500 euros ➔ 550 euros
Year 2: 550 euros ➔ 605 euros
Year 3: 605 euros ➔ 665.5 euros

The real cost to the employer after three years (with contributions) = 665.5 euros × 1.3 = 865 euros per employee. Compared to 520 euros today, the total cost increases by 66%.

→ For 10 employees, this means an additional 3,450 euros per month, or 41,400 euros more per year compared to the current baseline.

From the calculation above, the clear implications are:

• Micro and small businesses, especially in services, agriculture, or textiles, will find it very difficult to bear this cost without raising prices or reducing the number of employees.
• Unemployment could increase in low-productivity sectors where wage increases cannot be compensated by increased production.
• Inflation could accelerate as higher labor costs are passed on to consumers through higher prices for goods and services.
• Private investments, especially foreign ones, would shift toward markets where labor costs remain more competitive.

In developed economies, the minimum wage is seen as a balancing mechanism between worker protection and market functionality, not as a “gift” from the state. When treated as a social gesture, the link between production and compensation is severed, creating the illusion of improvement that is not supported by economic reality. If the wage increase is not accompanied by an increase in productivity, the first effect is a slowdown in economic growth and long-term unemployment.

The government (social, educational, and economic policies) must build a framework where private businesses increase productivity, and as a result, pay higher wages. The minimum wage then becomes a reflection of the overall improvement in economic conditions, not an imposition from above.

If vocational education, infrastructure, support for innovation, and labor markets function well, private businesses will increase the value of production per worker, and the minimum wage will increase organically. Employment policies should be coordinated with policies for economic development, the financial market, and education.

For example, in Scandinavian countries, the minimum wage is a result of an ecosystem where education, technology, investments, and labor market regulation work in sync.

The approach to the minimum wage as a “populist social gesture” produces harmful effects in several key areas of the economy:

• First, in the labor market, this approach distorts the natural relationships of the market. Specifically, informal employment increases, and formal employment decreases as many businesses try to avoid the additional legal cost of regular employment.
• Second, in terms of inflation, the artificial increase in labor costs translates into higher prices for consumers. Businesses facing higher minimum wages are forced to pass on this cost to the prices of goods and services.
• Third, in terms of investments, the uncertainty created by arbitrary interventions in wage determination discourages investors, both domestic and foreign. Fear of unforeseen wage increases makes investments riskier and less attractive.
• Fourth, concerning international competitiveness, sectors that rely on low labor costs, such as textiles and agriculture, are most affected. Higher production costs make them less competitive in foreign markets, risking the loss of traditional markets.
• Fifth, in terms of regional inequalities, this method of increasing the minimum wage deepens the gap between more developed areas like Tirana and poorer regions. This happens because businesses in less developed areas have fewer options to absorb the increased costs, leading to the closure of operations and encouraging internal migration to the capital.

Minimum Wage as an economic signal, not a populist tool

In the public debate over the minimum wage, we are often witness to a deep misunderstanding of the role it should play in the economy. Many times, its increase is presented as a political or social act, a “gesture” aimed at gaining temporary support. But in reality, the minimum wage should be viewed and used differently: as an economic signal that reflects the real improvement in productivity and labor market conditions.

Any decision to raise the minimum wage should be based on a sustainable foundation: the increase in labor productivity. If economic sectors produce more value per unit of labor, then it makes sense for wages to follow this trend. Otherwise, an artificial increase in the minimum wage without a real production base brings harmful consequences for the sustainability of businesses and formal employment.

The push to increase wages should also be part of a broader reform strategy, not an isolated measure. Without sustained improvement in the education system, technological innovation incentives, and active policies to support small and medium enterprises, any wage increase remains a risky climb over a fragile base. Only when the economy creates a more fertile ground for true growth can we expect the minimum wage to increase in a sustainable and fair manner.

Another issue that is often overlooked is regional sensitivity. Albania is not a homogeneous market: Tirana has a different economic dynamic from Dibra, Berat, or Kukës. A uniform minimum wage policy, applied uniformly across the territory, risks deepening existing inequalities. Economically weaker regions will be hit hardest, driving informality or pushing internal migration to the capital. Therefore, a differentiated model should be considered, reflecting the specific realities and opportunities of each area.

Furthermore, minimum wage policies cannot be simple products of government decision-making. They need to be built through genuine dialogue with employers and unions. The real involvement of labor market actors ensures that increases are implementable, acceptable, and tailored to the real capacities of the economy.

Finally, a wise policy on the minimum wage should be characterized by transparency and stability. Decision-making should be based on widely recognized and publicly understandable formulas, linked to objective indicators such as economic growth, inflation, or productivity improvement. Creating a predictable framework helps businesses and workers plan better and strengthens trust in the labor market.

At the end of the day, the minimum wage should be the result of economic development, not an artificial tool to cover structural problems. It should be a testimony that public and private policies are working in harmony to increase the value of labor and build a healthy development cycle.

If treated as a “social gesture,” the minimum wage can turn into a mask that hides the true weaknesses of the economy. However, if used as a signal of a more productive and fair economy, it becomes a powerful instrument for long-term growth and stability.