The increase in public sector wages has a gap with reality

The size and composition of public wage expenditures should have generated debate on many issues that are included in this topic starting with the size of government, the fiscal implications of higher public wage expenditures, its impact on inclusive growth, meritocracy, corruption, the efficiency of the wage determination process and the space of the state budget in the medium and long-term perspective of wage funds in budget.

The interest of employees in public wage expenditure is not surprising considering the weight of this relatively large expenditure in total government expenditure, which from 4.5% of GDP in 2023[1] is calculated to reach at 6 percent of GDP in the end of 2025.

However, compared to the level of up to 7.4% of GDP in developing countries, as well as up to 10.2 percent in advanced countries, it can be seen that the growth still does not fill the gap in the share of public salaries in Albania.

The government’s move oriented towards the low level of a good part of the general salaries of the public sector was forced by the pressure of inflation and the decrease in the value of salaries. But an even stronger incentive should be linked to capacity-building processes starting from the necessary competitiveness of public salaries with some salary categories in surrounding countries and beyond, as they are needed to attract and retain adequately qualified staff for the provision efficient public services.

Public sector salaries after the moment of their increase will have to depend on the ability of public sector employees to compete on future possibilities of the size of the public budget. An increase of at least 2% of GDP within a few years is a very bold step and one that further tightens the loop of the budget deficit, if the fiscal performance does not go according to the plans that are expected to be redone after the decision to increase wages.

The explanations of the Ministry of Finance and Economy for the use of the positive performance of tax revenues, as well as based on the budget allocations, are a moment that should be followed by a study analysis that should contain the fiscal detail in its essence.

This political approach with little analysis and economic logic in it should clarify to us whether it has taken into consideration such elements or cases as:

–  Public sector workers may not uniformly receive higher wages as certain occupations or specific groups often enjoy other non-monetary or monetary benefits, such as a higher degree of job security, longer holidays and generous schemes pension.
– Public wages should be influenced by macroeconomic policy objectives, often being used as a policy tool to limit general wage inflation, to support fiscal consolidation efforts, as well as to increase competitiveness through capacity building and further and the qualitative increase of wages based on performance.

With this increase format that the government used, it seems that little has reflected on the differences that some services carry, even if they pay more, they should not benefit further from spending related to public goods and assets owned by the government. So, otherwise they should be treated with the same motivation as private sector employees, who, with the high salary they receive, cover themselves the various expenses that are not a function of business activity.

Meanwhile, in conditions where high corruption in the public sector shows how the programs have failed to manage the competing interests of different groups in a fair and meritocratic way, it is seen that this massive phenomenon cannot be fought only with the increase of low wages, which are more a reason than a reason for the structuring of corruption. The low level of leadership capacities, which come from a will to run the government based on individuals with political loyalty to the leader of the organization, as well as the carrying of all the party spirit over the spirit of the civil servant, make the effect that is assumed to be very small affect the salary increase.

Although we can see a positive progress, corruption is a big problem in Albania. All institutions are already politicized at different levels and are often used as a tool to fight critical voices and uncaptured parts of the citizen opposition, instead of being oriented towards fighting actual corruption. The lack of de facto separation of legislative and executive power, an “under construction” justice system, the truncated financial autonomy of the local government in particular have hindered the fight against corruption.

The implementation of the legislation has been hampered by frequent legal changes, which have created a complicated and incoherent system. All of these constitute a major obstacle in the development of a more efficient, transparent and accountable public sector, as well as produce poor products on a daily basis in the creation, implementation and implementation of appropriate policies.

Otherwise, what is declared by the head of the government, that with this increase in public sector salaries, businesses will be encouraged to increase the salaries of their employees, in fact this does not receive much attention, since the motivations of employees in the two sectors are different. .

However, public-private wage differentials can be expected to narrow across sectors, as well as over time, but this will come after studying a number of factors that may influence this private decision-making. Wage growth should be motivated by creating conditions that influence business for higher productivity by increasing the motivation and morale of workers.

Higher wages can support them and help stave off the threat of layoffs and lower productivity, but also stave off inflation and an even bigger cost-of-living crisis.

Based on these motivations that are used in the private sector, it was necessary to use them for the decision to increase salaries in the public sector. Thus the lack of strong experience to date in wage-setting mechanisms, the low importance of trade unions in the public (and private) sector, the size of the public sector in the economy, the extent to which the government prioritizes policies that promote wages equality and the opening of the economy to international trade, as well as the context of democracy and politics should also be part of a broad consensus in the country.

In fact, the protagonism that has prompted this government decision is largely seen as a political initiative that seeks to gain political credit in the eyes of today’s and tomorrow’s voters by capitalizing on this fiscal cost for the future.

It is still not clear how much additional taxes the Albanian voters will pay to finance this initiative without consulting them as much and as they should.

[1] https://financa.gov.al/wp-content/uploads/2022/10/Tabela-4-Treguesit-fiskale-t-2-deri-t2-2023.xls