{"id":21667,"date":"2025-03-16T08:55:00","date_gmt":"2025-03-16T07:55:00","guid":{"rendered":"https:\/\/altax.al\/?p=21667"},"modified":"2025-05-16T08:59:29","modified_gmt":"2025-05-16T06:59:29","slug":"wage-increase-amid-economic-reality-and-the-challenge-of-sustainability","status":"publish","type":"post","link":"https:\/\/altax.al\/en\/wage-increase-amid-economic-reality-and-the-challenge-of-sustainability\/","title":{"rendered":"Wage increase amid economic reality and the challenge of sustainability"},"content":{"rendered":"\n

The increase of the average wage from 75,025 ALL at the end of 2023 to 83,401 ALL in the fourth quarter of 2024 is a significant development that has attracted wide attention. This wage increase, amounting to 8,376 ALL more per month, has raised questions regarding its justification, the possibilities for a sustainable improvement in living standards, and the consequences it may have on the national economy. To deeply understand this labor market dynamism, it is necessary to analyze several key factors: labor productivity, economic growth, inflation, youth migration, the use of debt, and the challenges of informality.<\/p>\n\n\n\n

1. Labor productivity and wage growth<\/strong><\/p>\n\n\n\n

Economic theory states that wage growth should be closely linked with productivity growth. When productivity increases, workers are able to create more value per unit of labor, and this should be reflected in the wages they receive. However, data from INSTAT for the year 2024 suggest that this link between wage growth and productivity is unclear.<\/p>\n\n\n\n

Labor productivity in Albania has remained low across various sectors, including industry, services, and agriculture. The industrial sector experienced a growth of 3.6%, but the services sector had a slower growth of 1.5%, while the agriculture sector remained almost unchanged. This gap between wage growth and productivity can create inflationary pressure and increase labor costs for enterprises. If this wage growth is not supported by a real increase in productivity, it could lead to price hikes and a decline in employment in the future.<\/p>\n\n\n\n

2. Economic growth with a narrow base<\/strong><\/p>\n\n\n\n

Albania achieved an economic growth of 3.94% in 2023 and an estimated growth of 3.8% for 2024. However, this growth is mainly concentrated in certain sectors such as construction, tourism, and financial services. This sectorally narrow growth is mostly short-term and unsustainable, creating uncertainty for the long-term development of the economy.<\/p>\n\n\n\n

The construction and tourism sectors, which are the main engines of growth, are sensitive to changes in fiscal policies and external impacts such as investments from the diaspora. These sectors can be affected by unexpected, yet predictable crises, and if investments decline or the informal economy starts to shrink due to anti-corruption efforts, sudden changes in supply within these sectors may occur. Likewise, the agriculture and manufacturing sectors remain weak, not providing a sustainable base for development and wage growth.<\/p>\n\n\n\n

This narrowing of the economic sector base affects the unequal distribution of income and can negatively impact the country\u2019s economic stability. Unsustainable growth may also lead to an increase in unemployment if the development of other sectors remains limited.<\/p>\n\n\n\n

3. High inflation and purchasing power<\/strong><\/p>\n\n\n\n

In a situation where inflation is high for about 35\u201340% of daily expenses, wage increases may not improve the real purchasing power of citizens. The food sector, which constitutes a major part of consumer expenditures, has seen rapid price increases, especially for basic products such as bread, oil, vegetables and fruits, meat, and dairy. Food prices have surpassed the average annual inflation, making it increasingly difficult for citizens to cope with the cost of living.<\/p>\n\n\n\n

In this context, wage increases may seem like an attempt to maintain purchasing power at similar levels, but they do not bring a real improvement in living standards. Furthermore, oligopolistic markets, where a few companies control food supply prices, make prices more uncontrollable and difficult to reduce. This means that wage increases are more a way to maintain balance than a significant improvement in citizens’ livelihoods.<\/p>\n\n\n\n

4. Youth migration and labor force shortage<\/strong><\/p>\n\n\n\n

A key factor affecting wage increases is the emigration of youth and the loss of skilled labor. Albania has been facing a wave of youth emigration for years, as they leave for better employment and education opportunities abroad, creating considerable gaps in the labor market. Various sectors, particularly those requiring skilled workers, are forced to offer higher wages to retain employees in the country.<\/p>\n\n\n\n

This trend is also putting pressure on public administration, which is compelled to raise wages to prevent potential departures, creating an additional burden on the public budget. However, this is not a long-term solution, as wage increases may raise government expenditures, leading to the need for external financing or debt, which has its own consequences.<\/p>\n\n\n\n

5. Public debt and the financing of wage growth<\/strong><\/p>\n\n\n\n

Wage increases in the public administration and other sectors may largely be financed through public debt, since tax revenues are still low and not collected to the necessary extent due to informality. High public debt raises the costs of debt servicing and reduces the opportunities for investments in productive sectors and stimulating consumption.<\/p>\n\n\n\n

If debt continues to rise, it may become unmanageable and lead to the need for tax increases or cuts in public investments, which would contribute to economic hardship. In order to achieve sustainable wage growth, the government needs to diversify its revenue sources and reduce informality\u2014a task that it appears is not yet being addressed as it should be.<\/p>\n\n\n\n

From the above analysis, it can be concluded that the increase in wages in the public and private sectors is not a phenomenon based on a sustainable economy, but is mainly driven by:<\/p>\n\n\n\n