Workers produced more in 2022 but were paid less, businesses hit record profits

Labor productivity, which measures the income received by an employee (business figure per employee), marked a significant increase during 2022 according to official data from INSTAT, which originate from the final data of the Structural Survey of Enterprises , recently published.

Net sales to hire for 2022 were 6.13 million ALL from 5.11 million ALL in 2021, increasing by 20%. INSTAT referred that this indicator is higher among producers of goods, compared to producers of services.

In 2022, business sales were helped by rising prices, while employee wage costs grew at a slower pace. According to INSTAT, the real salary increase (indexed for inflation) in 2022 was only 1.5%.

More detailed data show that in 12 regions of the country, in 9 of them salaries have increased less than inflation, affecting that the real salary in the vast majority of the country has decreased compared to 2021.

Businesses achieved record profits

In 2022, average inflation reached 6.7%, due to disruptions in the production chain caused by the pandemic and then the effects of Russia's attacks on Ukraine on commodity prices.

As the increase in business costs was transferred to the end consumer, enterprises have resulted in record profits. Other data from the Ministry of Finance revealed that income from profit tax reached a record of 47.7 billion ALL, increasing by 34% on an annual basis.

Even the annual ranking of the companies with the biggest profits, published by Monitor, showed a significant increase in profits.

The trend changed in 2023

But in 2023, the data points to a slowdown in labor productivity, as wages in both the private and public sectors saw rapid growth. Especially in the private sector, wage growth was driven by immigration, which caused labor shortages, forcing businesses to sacrifice profits.

The increase in the average salary in the private sector continued to remain in double digits during the third quarter of 2023. It marked the level of 14.5%, from 15.0% in the previous quarter.

In real terms, salary growth in the private sector stands at 10.4%, the same value as in the second quarter of 2023.

This increased unit labor costs by 9.9% during the third quarter of 2023, accelerating from the 7.1% rate recorded a quarter earlier. The performance has reduced labor productivity, the Bank of Albania analyzed in recent days.

Productivity fluctuations

Over the past decade, labor productivity fluctuated and often declined even as the economy was growing. Actions for the formalization of the economy increase the number of legal employees, who, although growing, had no way to influence production.

In Albania, employment increased more than economic growth, as a result, employees shared less earnings from work.

Demographic developments, with the aging of the population and the reduction of the labor force, are putting pressure on Albania's economic model.

Experts and international financial institutions call that Albania should increase teaching skills to orient the economy towards innovation and more productive sectors.

Analyzes by specialized institutions such as the IMF and the Bank of Albania show that increasing wages without increasing productivity in the economy turns into a risk, influencing the increase in prices and not welfare.

The practices of other countries have shown that labor productivity increases by orienting the economy to technology, innovation and products and services that have a high value in the market.

But to reach this stage, the country needs a well-educated and skilled workforce./ Monitor