Work productivity, which measures the income earned per employee (the figure of business efficiency per employee), showed a significant increase during 2022 according to official data from the Institute of Statistics (INSTAT), which stem from the final data of the Structural Survey of Enterprises, recently published.

Net sales per employee for the year 2022 were 6.13 million lek compared to 5.11 million lek in 2021, increasing by 20%. INSTAT reported that this indicator is higher among producers of goods compared to service providers.

In 2022, business sales were boosted by the rise in prices, while expenses for employee wages increased at a slower pace. According to INSTAT, the real wage growth (adjusted for inflation) in 2022 was only 1.5%.

More detailed data shows that in 9 out of 12 regions of the country, wages increased less than inflation, resulting in a real wage decline in the vast majority of the country compared to 2021.

Businesses achieved record profits

In 2022, the average inflation reached 6.7%, as a result of disruptions in the production chain caused by the pandemic and later the effects of Russia’s attacks on Ukraine on commodity prices.

While the rise in business costs was passed on to the final consumer, enterprises achieved record profits. Other data from the Ministry of Finance revealed that income from corporate income tax reached a record 47.7 billion lek, increasing by 34% annually.

The annual ranking of companies with the highest profits, also showed a significant increase in profits.

Trends changed in 2023

But in 2023, data indicates a slowdown in labor productivity because wages in both the private and public sectors saw rapid increases. Especially in the private sector, wage growth was driven by emigration, which caused a labor shortage, forcing businesses to sacrifice profits.

The average wage increase in the private sector continued to remain in double digits even during the third quarter of 2023. It marked 14.5%, down from 15.0% in the previous quarter.

In real terms, the wage increase in the private sector stood at 10.4%, the same value as in the second quarter of 2023.

This increased labor costs for units by 9.9% during the third quarter of 2023, accelerating compared to the 7.1% rate recorded a quarter earlier. The trend has decreased labor productivity, analyzed by the Bank of Albania in recent days.

Productivity fluctuations

During the past decade, labor productivity has fluctuated and often declined even though the economy was growing. Actions to formalize the economy increased the number of legal employees, who despite the increase could not affect production.

In Albania, employment increased more than economic growth, resulting in employees sharing less profits from work.

Demographic developments, with population aging and a reduction in the workforce, are putting pressure on Albania’s economic model.

Experts and international financial institutions call for Albania to increase educational skills to steer the economy towards innovation and high-value sectors.

Analyses by specialized institutions such as the International Monetary Fund and the Bank of Albania show that wage growth without increasing productivity in the economy turns into a risk, affecting price increases and not well-being.

Practices from other countries have shown that labor productivity increases by orienting the economy towards technology, innovation, and products and services with high value in the market.

But to achieve this stage, the country needs a well-trained and skilled workforce.