Center for Research and Studies GEA completed an analysis “Growth of labor productivity – the precondition for the increase of wages and stable economic development”.The growth of labor productivity is the primary economic objective that enables strengthening of competitiveness of the domestic economy and stable development. In that sense, one of the basic management tasks, at the company level and in terms of the entire economy alike, is measuring effectiveness. Macro-level monitoring of labor productivity indicators is closely linked to managing economic development in several important areas such as competitive position in relation to the region, exposure to the informal economy, adequacy of labor legislation, education policy, public and private sectors wage policies, debt policy, etc. Despite its importance, the issue of labor productivity in Bosnia and Herzegovina has been neglected in the previous period, which is confirmed by the fact that not a single document (in both BH entities) related to economic policy has comprehensively addressed this issue, including the recently presented draft version of the 2016 Economic policy of the Government of the Republic of Srpska.

Of course, there are reasons why more attention should be paid to this economic indicator. Results of the performed analysis reveal that the domestic economy has been suffering from a chronic disease of low labor productivity for a long time. This problem is especially expressed in the Republic of Srpska, where GDP per person employed did not exceed 37.000 BAM in the last five years. Even though labor productivity is significantly low in the Federation of B&H as well, still, GDP per person employed has constantly been above that level and has a certain trend of growth (40.112 BAM in 2014). What additionally worries is the comparative data on the average labor productivity in member states of the European Union, which, measured in the same way, shows that B&H has reached only some 30% of the EU average (the Republic of Srpska 28.56%, the Federation of B&H 31.36%). The problem is even more serious if we consider the process industry alone, where labor productivity is 6 to 7 times lower than the EU average. In other words, this means that an average employee in the process industry in the EU creates more in one day than a B&H employee in a week.

If we view GDP growth as the result of two key determinants, the number of employees and their performance, then this data accurately illustrates the magnitude of the problem of low labor productivity, which paired with huge unemployment jeopardizes the perspective of long-term and stable economic growth in B&H. Furthermore, low labor productivity limits possibilities for a sustainable increase of wages, both in the real and in the public sectors. Finally, what emerges is the issue of debt management or the way monthly credit payments will be made if labor productivity does not grow significantly over the upcoming period.

For these reasons, measures of economic policy must steer to a new direction and, along with support to employment, prioritize the encouragement of labor productivity, especially in those fields and sectors that have been recognized as strategic. In practice, this requires a combination of systematic interventions stimulating higher investment in human capital, technology, and infrastructure. Setting a new course simultaneously means questioning of the current measures of support to domestic companies, especially in light of differentiation between measures of economic from measures of social policies. Despite being a politically sensitive issue, elements of social policy must be implemented within an integral system of social welfare, while measures of economic policy should be directed primarily to the increase of employment and productivity. Otherwise, every new delay will only additionally speed up the movement along the negative spiral towards informal economy, low wages and worse living standard of citizens.   

The complete analysis in English can be found here.