Minimum wages have a positive and significant effect mainly on formal sector wages. However, this does not appear to have any significant effect on informal sector wages. By studying the effect on workers working in the informal sector, it is seen that the effectiveness of minimum wages as a tool for poverty alleviation in these groups is limited and their benefits are low and not covered as and when needed by social policies.<\/p>\n
Due to limited fiscal resources, the minimum wage should be a possible instrument to allow workers a standard of living above the minimum.<\/p>\n
However, even though with the increase that was decided by the government, the minimum wage from the second quarter of 2023 reached 40 thousand lek per month, mainly to cover the increased cost, it seems that with this high level of market prices (formal and informal) this salary[1]<\/a> cannot cover the average standard of living[2]<\/a>.<\/p>\n The problem of the level of the minimum wage and medium and high wages is a separate discussion related to the confrontation of living with income from work. What we have discussed earlier on this topic is the adaptation of a fair taxation policy for dual employment<\/a> and the implementation of fiscal equality for employees<\/a>.<\/p>\n Our analysis today focuses on how the minimum wage, as approved by the government in 2023, affects informality.<\/p>\n Currently, the effectiveness of this instrument seems to be limited due to the dual structure of the labor market with a formal sector covered by labor market policies, such as the minimum wage, as well as a large informal sector where the minimum wage law not even labor market legislation is applied.<\/p>\n The whole dilemma of the fair and comprehensive implementation of the minimum wage policy is inextricably linked to the level of informality.<\/p>\n The level of employment for the years 2021 \u2013 2023 in the informal sector<\/a> fell by only 3.2%[3]<\/a> compared to the rapid increase of the minimum wage[4]<\/a> by 53.8%. Moreover, from the analyzes carried out by the researchers, it is observed that the minimum wage increased the overall inequality in the sectors most exposed to it (agriculture, various services and construction, as well as food and accommodation services) due to strong effects on increasing inequality in the informal sector.<\/p>\n In the way the minimum wage has been implemented, it does not appear to have had widespread effects.<\/p>\n First<\/em>, a large part of the workforce is self-employed or works as unpaid family workers in micro and small businesses, and this has increased opportunities for informality. For these “uncovered” or “informal” groups, minimum wage legislation usually does not apply.<\/p>\n Second<\/em>, the level and capacity of law enforcement against informality has been hampered by the increase in the level of corruption and this is reflected in the low income collected from insurance contributions in the above sectors.<\/p>\n If we look at the effect we would have in the opposite case than we argue above, then the implementation of the minimum wage would be obvious, since we would have a significant decrease in employment in the informal sector and a significant increase in employment in the formal sector.<\/p>\n Meanwhile, in a competitive labor market model (without informality), if the minimum wage were implemented at the current level, of course this policy would cause a decrease in the demand for labor of businesses thus generating unemployment, or we would have closure partial closure of businesses, due to the immediate increase in costs. The minimum wage became significantly more mandatory in the formal sector, with a very high increase that actually made the labor cost of businesses expensive in a short period of time.<\/p>\n The introduction of the minimum wage in the formal sector should, as a rule, reduce the labor demand of businesses and reduce employment in the formal sector. Workers move to the informal sector, thus shifting the labor supply curve up, which leads to lower wages and increased employment in the informal sector, but also to an increase in pressure on the formal sector to increase wages without increasing the ability to employees who are still employed by the informal market.<\/p>\n In fact, this did not happen, since if we refer to the official statistics[5]<\/a> there is no decrease in the number of businesses according to the balance of their openings and closings. All this market trend has a single explanation: business management of informality according to the ways it is carried out in the Albanian market.<\/p>\n Although businesses can avoid the minimum wage by operating informally, minimum wage increases adopted without the necessary analysis and without consultation with all business groups have had the effect of increasing overall inequality.<\/p>\n The presence of the informal sector means that there may be unintended consequences of the minimum wage. Policies intended to reduce inequality may end up increasing it because of the informal margin of adjustment.In some sectors such as those above, an increase in the minimum wage has increased both the size of the informal workforce and income inequality among informal workers (by age and gender).<\/p>\n According to INSTAT 2023, informal workers make up about 26.2% of the economic sectors without agriculture. From the measurements and surveys conducted, it results that the level of informality together with the huge agricultural sector exceeds the level of 35% of the workforce, where most of them earn lower wages and are significantly less educated\/skilled than formal employees.<\/p>\n From the experience of countries[6]<\/a> that have had a positive effect on the formalization of the labor market after the minimum wage increase, it is worth mentioning those countries that have adjusted it every year, which are not considered relatively high increases for businesses and where there are a small informal sector.<\/p>\n Meanwhile in Albania, the weak effect in combating the informality of the labor market through the minimum wage policy seems to have been influenced by the lack of policies and harmonizing measures of a gradual increase and in sync with the cost of living, with the level of informality to determine the necessary resources, with administrative capacities without mass corruption and based on meritocracy and a consequent will of the Albanian governments of the last decades to influence positively and not electorally with the minimum wage.<\/p>\n First,<\/em> the growth of the minimum wage in real terms for many years in the last two decades has been very low and this has provoked overall negative effects on formal employment. As a result, the effects related to the minimum wage have not served as a differentiated stimulus of the local cost of living, which varies from one region to another. The minimum wage can be applied progressively based on the regional cost of living of families, effectively serving as an incentive, but maintaining a national floor. This differentiation can create internal displacement (migration), since the level of the minimum wage as a function of the cost of living does not make movement attractive by this policy alone.<\/p>\n Second<\/em>, employers have exploited weaknesses in policy and administration and used adjustment channels other than formal employment to manage rising labor costs and business as a whole. This situation still continues…<\/p>\n Third<\/em>, the relatively small contribution of real minimum wage increases to formal sector wage growth indicates that minimum wages may benefit formal sector workers, but they are no substitute for an economy with little investment in education\/skills that will to increase the wages and well-being of employees in the informal sector as well.<\/p>\n We believe that reducing the size of the informal sector and shifting the formal labor force away from the mandatory minimum wage, improving the quality of the labor force can allow more workers to benefit from the increase in the minimum wage, mitigating the unintended consequences. of this current labor market policy.<\/p>\n [1]<\/a> which, with the employer’s retention of social contribution obligations, amounts to ALL 35.5 thousand\/month<\/p>\n [2]<\/a>\u00a0 In 2022, the average monthly consumption expenses for a family, consisting on average of 3.7 people, are estimated at 88,367 ALL<\/a>, with a further increase of 8.6% in 2023<\/a> (95,966 ALL) and 2.1% in 2024<\/a> (97,981 ALL\/ month)<\/p>\n [3]<\/a> https:\/\/www.instat.gov.al\/media\/10066\/tregu-i-punes-2021.pdf<\/a><\/p>\n https:\/\/www.instat.gov.al\/media\/13552\/tregu-i-punes-2023.pdf<\/a><\/p>\n [4]<\/a> https:\/\/www.instat.gov.al\/al\/temat\/tregu-i-pun%C3%ABs-dhe-arsimi\/pagat\/#tab3<\/a><\/p>\n [5]<\/a> https:\/\/www.instat.gov.al\/media\/13413\/regjistrat-e-biznesit-2023.pdf<\/a><\/p>\n [6]<\/a> https:\/\/izajold.springeropen.com\/articles\/10.1186\/s40175-015-0036-4<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Minimum wages have a positive and significant effect mainly on formal sector wages. However, this does not appear to have any significant effect on informal sector wages. 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