Abstract
During the first three months of 2023, favourable trends were recorded on the labour market. Earnings recorded a growth of slightly more than 10% in comparison with the same period in 2022. This growth was mostly influenced by decisions on salary increases in the public sector during the previous and current year. The growth of wages certainly represents a positive signal for all employees in the public sector, however, it did not follow the growth of labour productivity. Such an increase in wages may affect the deterioration of the situation in public finances, since the increase in wages in the public sector will cause an increase in budget spending. In addition to the increase in wages, there was also a growth in employment of 9% in the comparative period.
Introduction
During the previous two years, the labour market suffered significant consequences due to the pandemic. The number of unemployed people reached the highest number in the last fifteen years, while the number of employed people decreased significantly. The recovery of the economy and the intensification of economic activity during 2021-2022 also led to the recovery of the labour market. In addition, the Government of Montenegro made decisions that increased salaries, but also decisions related to employment in the public sector, which was reflected in labour market indicators at the national level.
Recorded earnings growth in the first quarter of 2023
During the first quarter of 2023, an increase in wages was recorded. Average net earnings in the first three months amounted to EUR 770, which is 10.2% more than in the first quarter of the previous year. After the implementation of the economic program from the beginning of 2022, that increased wages (by changing the tax legislation, where the increase in wages was not accompanied by an increase in labour productivity), a more significant increase in wages was recorded in January and continued during February and March 2023.
The highest rate of wage growth was recorded in the mining and quarrying sector (21.6%), agriculture, forestry and fishing (17.3%), education (16.8%) and public administration and defence, compulsory social security (14.6%) in the comparative period (first quarter of 2023 compared to the first quarter of 2022). However, wage growth was most influenced by the increase in wages in the public sector, while wage growth in mining and quarrying and agriculture, forestry and fishing had a smaller contribution, given that both sectors employ less than 2% of the total number of employees.
On the other hand, employees in the public administration and defence, compulsory social security sector make up 10% of total employment, while the education sector (which is mainly in state ownership) makes up slightly more than 7% of total employment. The average net salary in the public administration and defence sector, compulsory social security increased from EUR 732 EUR (the first quarter 2022) to EUR 839 (the first quarter 2023). Compared to the national average, earnings in this sector are higher by 9%, while earnings in the education sector are higher by 3.8%.
During the previous months, the Government passed regulations on salary increases for employees in the public sector. First of all, salaries were increased in the health sector, education and public administration and defence, compulsory social security sector, as well as others in other state institutions. In this connection, the Branch collective agreement for the area of administration and justice was signed. Therefore, salaries were increased for a total of 30,000 employees in the public sector. The decision on salary growth in the public sector will be reflected in the salary level in April, which will have an impact on the total net wage in Montenegro.
Considering the high inflation during the previous period and taking into account the drop in real disposable income, any increase in wages will have a favourable effect on the standard of living of citizens. However, the increase in wages should correspond to the increase in productivity. This increase in wages in the public sector contributes to the greater attractiveness of this sector for employment compared to the private sector and real economy. This can certainly affect the state of the labour market and the economy in the coming period. Higher wages in the public sector may influence the decision of job seekers to seek employment in the public sector or the possible transfer of employees from the private to the public sector. In addition, the administrative salary increase contributes to the growth of budget consumption.
Public finances are already facing numerous challenges, where the budget is burdened by the payment of salaries of employees in the public sector and various types of social transfers that were increased during the previous period (in the first quarter of 2023, this kind of expenditures increased by 35% compared to the first quarter of 2022), as well as the growth of public debt, so that any increase in budget spending can put public finances in trouble and call into question the sustainability of public finances. Given that the growth of wages in the public sector was accompanied by an increase in the number of employees in this sector, this may additionally affect the state of public finances. According to the data of the Ministry of Finance, expenditures for gross wages and other personal income in the first quarter of 2023 amounted to EUR 156.2 million, which is 18.8% more compared to the same period in 2022, while compared to the plan, this budget item was 2.2% higher.
Employment trends
In the first quarter, an increase in the number of employees was also recorded. Total registered employment was at the level of 232,452, which is 9% more compared to the first quarter of 2022. The growth of employees was recorded in all sectors, where the highest rate of growth in the number of employees was achieved in the sectors Information and communication (49.5%), Real estate activities (32.2%), Professional, scientific and technical activities (16.2%) and Administrative and support service activities (16.0%). Nevertheless, employment in the trade sector had the greatest impact on employment growth, which increased by 7.2%, taking into account that the majority of employed people work in this sector. Also, the construction sector and accommodation and food service activities have a significant contribution to employment growth. The number of employees in the public administration and defence, compulsory social security sector increased by 0.8% in the comparative period.
Favourable trends on the labour market are also shown by data on the number of unemployed. According to the MONSTAT, the number of unemployed in the first quarter of 2023 was 44,425, which is 19.3% less compared to the same period in 2022. In the following period, especially during the summer season, a further decrease in the number of unemployed can be expected. However, the demand for labour during the tourist season is not met from the domestic market. Despite the high number of unemployed, jobs are filled with labour from abroad, mainly from the countries of the region and Russia, Ukraine and Turkey. Such a trend has been present for years.
The Employment Agency implements measures and activities aimed at promoting seasonal employment among the domestic workforce, however, the demand for seasonal jobs is still lower than the supply. Some of the reasons are the low wages offered in seasonal jobs compared to wages in other countries, such as Croatia, lower labour mobility, etc. According to that, the lack of labour is one of the challenges faced by businessmen during the summer tourist season.
Regarding the employment of foreigners, the Ministry of Labour and Social Welfare defines the quota for temporary residence and work of foreigners, which is planned for 2023 in the amount of 21,454. During the first four months of 2023, a total of 9,725 work permits for foreigners were issued . Based on the data of the Employment Agency, in 2022 a total of 29,319 permits for temporary residence and work of foreigners were issued (of which 64% are within the defined quota, and 36% are outside the quota). The largest number of foreigners are employed in the construction, trade, accommodation and food service activities and other service activities sectors.
During 2022, a slight increase in wages was recorded, in 2023, due to the decision to increase wages in the public sector, a more significant increase was recorded. The growth of wages has a positive effect on the income of the population. On the other hand, the question arises of the justification of wage growth, i.e. whether it is a consequence of labour productivity growth or an administrative decision. The growth of wages in the public sector in the first quarter was reflected in increase of budget spending. A similar trend can be expected in the coming period. This certainly represents an additional challenge for public finances, which are already faced with problems of sustainability.