15th July 2023, Skopje – For the first time since the country’s independence, systemic solution for public sector wages has been agreed upon, which is in the interest of both the employees, with their wages continuously increasing, and the fiscal sustainability and maintaining macroeconomic stability in the country.  So, this is a landmark joint decision on public sector wages has been reached. The solution agreed is a result of an extensive process of negotiations and consultations with the Unions, as well as the international financial institutions. Negotiation process had its ups and downs, but, by itself, it is a success story, since it was conducted in a democratic manner, with strong case and valid arguments. Shared and sincere desire to find a solution has led us to building mutual trust through the process, laying the foundations, step by step, of a viable solution, which a just and sustainable merit system in the public sector rests on.

As I see this solution, it is a joint success of the Government and the Unions, our profound partner in protecting the rights and ensuring better conditions for the public sector employees, thus contributing to a more efficient and professional administration, as well as better quality services for both the citizens and the businesses. I would like to personally commend the Unions and give credit to all those included in this process for contributing to the implementation of such a crucial reform. I would also like to express gratitude to the Prime Minister, and my peers in the Government, for their unwavering support. The Government, I would point out, has never been the “opposing party”, but rather a manager in the process towards finding the optimal outcome. Negotiations were driven by active participation of all stakeholders, but what was important was to offer adequate solution to the International Monetary Fund, so as for they to recognize the fiscal sustainability of the proposal, causing no pressure on macroeconomic stability. What makes this crisis distinctive is the high inflation undermining the living standard of the citizens, on one hand, and the inflationary spiral the wage increase may cause, on the other, i.e. the pressure for further inflation rise spurred by consumption. Thereby, policymakers are facing a considerable challenge to balance the policies, simultaneously maintaining macroeconomic stability and citizens’ standard of living.


First in the World to Index Public Sector Wages to Average Wage

I believe we have achieved the respective balance with the solution we have agreed upon together with the Unions. In particular, existing wages of all public sector employees will increase by 10% with the September wage. Under the established system for indexation of the minimum wage, around 62,000 budget users’ employees, i.e. administrative, judiciary and prosecution personnel, customs officers, MoI and Army of North Macedonia staff, health institutions, childcare personnel, etc., had their wages increased by 5% in March. Thus, cumulative increase is higher than last year’s inflation rate.  All public sector employees will be paid vacation allowance (K-15) for 2023 in the amount of Denar 10,000 by the end of this year, whereby as of 2024 onwards, vacation allowance will be set in the amount of at least 30% of the average net wage under the General Collective Agreement (should no negative real GDP growth be registered in any of the previous four consecutive quarters).

But, I will emphasize, the crucial decision we reached last week is the systemic solution for indexing public sector wages to the average wage as per the nominal GDP growth. Starting March 2025, public sector wage will be indexed by multiplying the average wage by a relevant coefficient. Such step will provide for a realistic system of wages, in compliance with the labour market developments, which will be just and transparent for the whole public sector. Transition period for implementation of this solution will take around two years, quite sufficient considering it is a substantial reform requiring impeccable implementation of all related activities, including amendments to the respective legislation, the General Collective Agreement and defining the coefficient.

I will point out that we will most probably be the first country worldwide to index public sector wages to the average wage, thus ensuring a continuous wage adjustment by closely following the labour market developments and productivity. Around 20% of the euro area countries, i.e. five countries, index public sector wages, fully or partially, to the inflation rate, while wages are automatically indexed in only two countries (Belgium and Luxembourg). Part of EU Member States and the countries in the region index only the minimum wage in the private and/or public sector.

Just to reiterate, we have set a system for adjusting the minimum wage in the public and the private sector, whereby it is indexed to the increase of the average wage annually, in addition to the costs of living. The objective is to keep pace with the development element (productivity growth), together with the social element (costs of living). Pension indexation system is established on the basis of the same principle. This crucial process for social and workers rights and relations will be finalized in 2025 by implementing the public sector wages system.


Public Sector Wages Continuously Increasing in the Past 5 Years

Our goal as a Government is for wages to rise in both the public and the private sector, coupled by productivity growth and GDP growth. Over the past five years, considering the demands and the needs of the public sector, wages were increased in several instances. In addition to the annual public sector wage increases in March and September this year, the wages rose for the entire administration in 2019 as well. Wages in the education sector grew in the past 5 years on annual basis, in particular wages increased in both primary and secondary education in 2018, 2019, 2020, 2022 and 2023 and higher education in 2021, 2022 and 2023 (by 18% this year). Wages of childcare and social care personnel increased by 10% and 15% each in 2019 and 2020. During the same period, employees in the culture sector had their wages increased by 20% and 18%. Last year, wages of judiciary staff rose by 15%. Army of North Macedonia personnel’s wage grew by 10% and Denar 2,000 in 2018 and 2022 respectively. Health sector employees had their wages increased three times in the past five years by 10%, 25% and 5%. Wages of employees in MoI, State Audit Office, IPA structures and other institutions and offices also increased. I would like to reiterate that in the three out of the past five years, we faced multiple overlapping crises, we saw a pandemic, energy crisis, supply chain disruptions and high inflation.

Wages in the private sector also rose in the last 5 years, as notably evident from the data on average wage, which increased by 50% in the respective period. Although the effects of the inflation crisis may stir readers’ negative reaction about the above statement, I would still emphasize that these data series show positive trends in our economy which, once the crisis is over, will be even more visible. I would also point out that structural changes do not happen over night and their effects are delayed therefore, but they will be visible in the medium and the long run.


Optimize for Greater Efficiency and Effectiveness of the Public Sector

Public sector, in particular the state administration, can and should be a key factor in making these changes happen. Public sector serves the private sector and it is its duty to ensure conditions for private sector development and competitiveness. Private sector should be underpinned by the public sector, rather than the public sector being its burden. Hence, optimization is necessary alongside with a system for decent valuing of public employees, i.e. a functional analysis for optimal utilization of capacities and improvement of quality of services offered by the public sector. Efficiency and effectiveness in implementing strategies and policies and rendering regular public services have to be significantly improved in certain public sector. Strategy therefore has already been designed and activities are being accordingly undertaken. Optimization goes hand in hand with rationalization, i.e. optimal number of employees in the public sector – less of a financial burden on the Budget and greater efficiency and effectiveness of the public sector. Rationalization does not imply layoffs, but rather a well- devised program with favourable and attractive measures for redeploying the employees to the private sector, where high labour force demand already exists, on one hand, contributing to the competitiveness and the growth of the economy, on the other.


We Remain Committed to Fiscal Consolidation and Sustainability

I would touch upon the fiscal part as well, which is of equal importance, since fiscal sustainability is a precondition for stability, economic growth and development. I would emphasize that although public sector wages, a substantial budget item, will be increased by 10%, we will remain committed to maintaining the deficit as projected in 2023 Budget and pursue the efforts for gradual fiscal consolidation. Transition period in implementing the public sector wage reform will allow for optimizing and restructuring the budget expenditures, without thereby impairing its development component. The Government has already adopted respective measures under the Fiscal Sustainability and Economic Growth Support Plan, strengthening both the revenue and the expenditure side of the Budget, all to the end of narrowing the budget deficit.

I would like to highlight that continuous success and results are attainable only with a well-designed strategy and a system for its implementation put in place. It is also the case in the economy, as well as any social sphere. Regardless of whether we are facing a crisis or experiencing an economic growth, in order for our economy to get closer to the goal – EU accession and standards, unwavering commitment to structural reforms is required, which will boost the competitiveness and encourage faster growth and development.

Lastly, let me underline that economics is a science revolving around the most optimal distribution of resources to the end of creating added value and maximizing the benefits therefrom, as well as ensuring sustainability throughout this process. This may sound like “Pareto Optimality” to the economists. By reaching the goal and creating added value, welfare improves, national income increases, hence the distribution increases. We, as a Government, are committed to development, better standard of living and better living conditions for the citizens. This is why I have dedicated this column to the solution agreed upon, which is marginalized to “raise wages or not” in the everyday conversations. The essence of the negotiations was not whether or not to increase the wages – wage will be increased together with the economic growth – the negotiations were rather for agreeing upon a just and systemic solution which will be sustainable at the same time, or “Pareto Optimality” as per the economic theory, i.e. maximizing the new added value with the resources available.

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