Starting from April 1st, the increase of the minimum wage to 40,000 Albanian lek came into force and businesses reacted positively, deeming it as a necessary step.
In a survey conducted by the Secretariat of the Investment Council in March before the decision came into force, with over 500 enterprises, 50% of companies expressed support for the further increase of the minimum wage, mainly in services, trade and tourism. Around one-third of companies think that this will help curb the country’s labor force’s departure, mainly in tourism, trade, and industry. A significant percentage of companies (34%) have more than 50% of minimum wage employees, which highlights the importance of the minimum wage increase for many workers.
However, the increase in the minimum wage has led to an increase in the costs of business activities for most companies (84% experienced an increase of up to 30%). This has been met mainly by cutting profits and price increases rather than laying off employes, concludes the Secretariat.
According to the report, companies have a mixed perception of the impact of the minimum wage increase on their competitiveness. While 39% think it has had no impact, 37% think it has made them less competitive. This perception is more negative among exporters.
According to the Secretariat, half of the companies perceive increased employee motivation at work (somewhat/enough), mainly in services, tourism, and industry. This suggests that higher wages can lead to increased employee morale and motivation.
However, companies do not perceive an increase in productivity because of the minimum wage increase. Only 18% of them perceive and increase in productivity, mainly in services and tourism.
Low wages are perceived as a dominant factor of dissatisfaction and discouragement for employees/job seekers in the local private sector labor market, according to the data collected by the Secretariat on a questionnaire with 262 young people. Referring to data published by INSTAT, for the economic activities of industry, construction and services, the average hourly labor cost per employee in full-time units in Albania is lower than in EU member and candidate countries.
The relationship between labor productivity and minimum wage increase can be complex and multifaceted. Some argue that increasing the minimum wage can incentivize workers to work harder and be more productive, as they are being paid a higher wage for their efforts.
Others argue that increasing the minimum wage may lead to higher labor costs for employers, which could ultimately lead to reduced employment or reduced hours for workers.
According to the International Labor Organization, “recent studies have shown that minimum wages not only help to reduce wage dispersion and to channel productivity gains into higher wages, but they can also contribute to higher labor productivity – both ad the enterprise and aggregate economy-wide level”. Newer companies tend to view the relationship between minimum wage and productivity more positively.
You can read the Secretariat’s full report here.
