Project “The nature and consequences of low wages in post-transition: Empirical evidence from Macedonia”

Nikoloski, Dimitar (2018) Project “The nature and consequences of low wages in post-transition: Empirical evidence from Macedonia”. Civil Society Scholar Award. (Unpublished)

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Abstract

Poverty and social exclusion are often associated with long-term unemployment, but being employed is not always sufficient to provide decent living conditions for workers and their families. The ‘low-wage workers’ are often associated with an image of men and women struggling to support their families and living at risk of poverty and social exclusion. With an average net monthly wage of around 350 Euro in 2015 Macedonia was positioned among European countries with lowest level of workers compensation. As a consequence, Macedonia on average scores much worse regarding the indicators of poverty and social exclusion vis-à-vis more developed EU countries. In these circumstances, it is a challenging task to reveal the nature and potential consequences of low pay employment, which in the case of Macedonia is even more appealing due to the fact that wages on average are already low by international standards. Apart from creating hardship for workers and their families, low-paid work imposes a financial burden for countries’ welfare systems. The costs for improving the living conditions of vulnerable segments encompass unemployment benefits as well as costs of activation programmes, social assistance and other cash transfers. In addition, the administration of all these programs requires a complex system of social assistance and it is associated with sizeable government spending. For instance, the current social assistance system in Macedonia is fragmented consisting of many types of programmes rather than having a single comprehensive program, while the total spending on social assistance in 2016 was about one percent of GDP. Although most of the former socialist countries have substantially reduced the initially high unemployment, during the post-transitional development they still struggle in attaining satisfactory wage levels. Since wages represent the most prominent determinant of the households’ wellbeing, the relatively stagnant real wages compared to more developed European countries have been considered as an important factor for high and sustainable rates of poverty and social exclusion in these countries. Therefore, the sub-optimal labour market outcomes in post-transition are generally result of the initially high unemployment followed by sharp decline of real wages which, remained stagnant despite subsequent unemployment reduction. In other words, the post-transition can be distinguished as a specific development period where transitional recession has had long lasting economic and social effects even after its formal termination. In this context, policy measures intended to improve the wellbeing of the population have to be based upon previous comprehensive analyses of the labour market characteristics and have to be implemented by credible governments. The aggregate compensation received by employees from their employers represents the most significant part of total household income. Namely, this income category in almost all economies is higher than other forms of personal income such as: income from investment, self employment, pensions and various government welfare programmes. In addition, the importance of wages arises from the fact that pension schemes are often based on wage levels and their dynamics. By contrast, the self-employed do not receive wages, but sell directly their labour in the market. The property and enterprise owners obtain income from rents, dividends and other financial instruments’ gains. The unemployed in certain countries and under constraints receive public financial support. For instance, the income from wages and salaries in Macedonia in 2015 represented 56.5 percent of total disposable household income. This is even more pronounced among urban population where wages and salaries represent more than 61 percent of total disposable household income. Although income from self-employment plays important role among rural population, the income from wages and salaries for this category still accounts for almost one half of total disposable household income. In this context, it is worth mentioning that we apply term wages to payments received by workers who are paid on a salaried basis, for example monthly rather than an hourly basis. The term is used this way merely for convenience and is of no consequence for most purposes. However, it is important to distinguish among wages, earnings and income. The term wages often refers to the payment for a unit of time, whereas earnings refer to wages multiplied by the number of time units. Thus earnings depend on both wages and the length of time the employee works. Both wages and earnings are normally defined and measured in terms of direct monetary payments to employees. Finally, total income represents the most encompassing category over resources of a person or household during a given time period, usually a year. The income includes earnings, benefits and unearned income, which consists of dividends or interest received on investments and transfer payments received from the government in the form of welfare payments, unemployment benefits etc. Personal earnings from work are important category in the economy since higher earnings mean higher consumption as well. If total consumption grows, this will boost sales throughout the industries, increasing productivity which, in turn is conducive to a further growth in earnings. According to the Keynesian multiplier assumption, income increase will be followed again by growth in consumption, giving rise to a positive feedback loop. Having in mind the importance of the wage share in total household income, we can assume that the wage level to great extent determines the level of living standard, poverty and social exclusion in the society. The aim of this research is twofold. First, to determine the nature of the low pay phenomenon in Macedonia, i.e. to what extent it is a result of differences in the productivity of workers or it reflects the job-related peculiarities; and second, we are interested to identify the consequences of low earnings for persistent labour market segmentation and poverty. With respect to this, we will address the following research questions: What is the post-transitional context for exploring the phenomenon of low-pay and its consequences upon the wellbeing of workers and their families? How we can determine the profile of low-wage workers in Macedonia and whether they can be considered as being temporarily or permanently affected by low pay phenomenon? Is the low pay work characteristic among certain population segments contributing to higher risk of poverty and social exclusion? What are the implications for labour market and social policies aiming to improve the well-being of the low-paid employees? Despite the existence of a large body of works on wage determination, income inequality, various aspects of employment structure and labour market segmentation, no studies have so far specifically addressed the issue of low pay in Macedonia. Having in mind the above considerations, this paper is structured as follows. In Part 1, we provide the background of research by defining the context of post-transition. Moreover, we pay attention to the case of Macedonian transitional restructuring and we review the general labour market trends, labour market dynamics and the dynamics of wages and income inequality in Macedonia. In Part 2 we analyse the nature of low pay employment in Macedonia by paying attention to earning function and determinants of low pay from comparative static point of view. In addition, in this part we present the earning profiles and we analyse the gender pay gap. The core subject of this part is the identification of the low pay determinants and dynamics of low pay. In Part 3 we analyse the consequences of low earnings on poverty and social exclusion. In this context, we first introduce the AROPE indicators as most widely used measures for risk of poverty and social exclusion in Europe. Moreover, we empirically explore the factors affecting the in-work poverty and social exclusion in Macedonia by paying attention to the role of various social transfers. Finally, in Part 4 we convey the main findings from research and formulate the policy recommendations that will target the low pay segments in the Macedonian society. More precisely, as potential field for policy intervention we consider education and training, active labour market policies, unionisation and collective bargaining, wage subsidies and taxation and statutory minimum wage. In addition, we propose a set of complementary policy measures that will help in preventing the in-work poverty and social exclusion.

Item Type: Other
Subjects: Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions: Faculty of Economics
Depositing User: Mr Dimitar Risteski
Date Deposited: 08 Feb 2020 21:18
Last Modified: 08 Feb 2020 21:18
URI: http://eprints.uklo.edu.mk/id/eprint/2636

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