Thursday, August 21, 2008

Macedonian Wages Among the Highest in the World

"Invest in Macedonia", implored the government's campaign, because wages here are among the lowest in Europe. Are they?

The average salary in Macedonia is c. 200 euros per month and the cost to the employer - what with wage taxes and contributions to the pension and health funds thrown in - is c. 320 euros. That translates to c. 4000 euros a year.

What does the typical Macedonian worker give in return? In other words, what is the value of the goods and services that each and every Macedonian employee produces?

Easy: simply divide the country's GDP by the size of its workforce.

According to the IMF, Macedonia's GDP this year would be c. 8 billion USD (or 5 billion euros). The World Bank and the CIA largely agree with this estimate. That's 2500 euros per every Macedonian, man, woman, and child (=GDP per capita).

Of course, only 20% of Macedonia's population are employed, so GDP per employee is c. 15,000 euros (excluding the 10% of those who do not get paid).

It looks like a good business: invest 4000 euros a year in your employee and get back 15,000 euros worth of (pretax) product.

But, how does it compare to other countries?

Start with the region.

Albania's and Bosnia-Herzegovina's GDP per capita are equal to Macedonia's, but rising fast with impressive flows of FDI. Bulgaria's and Serbia's are 40% higher. Croatia's is three times Macedonia's. But, since the rate of employment in Croatia is double that of Macedonia, a Croat worker produces only 1.5 times as much GDP as a Macedonian one. Every Greek, Czech, and Slovene worker is four times as productive as a Macedonian worker (these countries' GDP per capita is 8 times Macedonia's) while the Romanians are almost twice as plentiful and the Russian workers beat the Macedonians 1.7:1 (Russia's GDP per capita is 3 times Macedonia's).

Of course, such a comparison is unfair. The Czech average salary is 722 euros and in Serbia it touches 400 euros. We should, therefore divide the GDP per capita by the cost of labor. This is known as GDP unit labor cost.

Even then, Macedonian workers are spectacularly unproductive. The Macedonian costs 4000 euros a year and produces 15,000 euros of GDP annually. The Serb costs pretty much the same (c. 5300 euros a year), but produces 20,000 euros of GDP every 12 months. The Czechs, Greeks, and Slovene employees do even better: they each cost between 9000 euros (Czech Republic) and 20,000 euros (Greece) a year, but give in return 60,000 euros of GDP!

Here's a riddle for you:

An unskilled Russian factory worker earns (gross) 1.60 euros per hour. A German - 13 euros per hour. Where is it better to open a factory?

Let's see: the Russian costs 310 euros a month and the German costs 2500 euros a month. Case closed?

Not yet. The Russian produces 2,000 euros a month. The German produces 8,000 euros a month. An investor is left with 4 times more production in Germany than in Russia. He pays more - but, he definitely gets more.

The Macedonian, by comparison, produces a paltry 1200 euros a month. This is why Macedonia is not an attractive destination for foreign direct investors. Salaries here are actually way too high. Judging by this meager output, to render it attractive, the average wage in Macedonia should not exceed 50 euros a month, all included.

Are Macedonian workers lazier or more stupid than their counterparts elsewhere? Not so. Labor productivity does depend on the existence of a work ethic (longer hours and more effort and initiative). But, more importantly, it reflects the workers' level of education and skills, the age and quality of machinery and other capital goods and equipment used in the production process, the availability of knowledge and technology, and the proliferation of better management. Macedonia needs to work hard in all these spheres merely to catch up with the rest of the region, let alone the world.

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