PODGORICA (Montenegro), November 30 (SeeNews) – Social assistance programmes in Montenegro and a high marginal effective tax rate for earnings below social assistance levels create disincentives for people to transition from informal to formal sector jobs, the World Bank said on Thursday.
The combination of the two factors discourages people from taking up part-time, temporary, and seasonal jobs in the formal economy, the World Bank said in its report The Western Balkans : Revving Up the Engines of Growth and Prosperity.
The report looks at how Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia - the six countries of the Western Balkans - can speed up economic growth and achieve faster income convergence with the EU.
Between 25% and 33% of total employment in Montenegro is informal, which undermines workers, firms, and the economy at large, according to the report.
As a result, large firms face unfair competition while small firms have incentives to stay informal, both hindering efficient investment and growth.
At the same time, people working informally face barriers to work-related legal rights and protection and insurance mechanisms against shocks such as illness, loss of a job, and poverty in old age, the World Bank said.
On a regional level, the unemployment rate in Western Balkans is almost two times higher than in other small transition economies that are now in the EU. With half of the working age population in the region seeking work and a quarter of job-seekers failing to find it, the need to increase participation in the labour market in the region remains key, World bank noted.
It will take as many as six decades for income levels in the Western Balkans to catch up with those of the European Union (EU) if economies in the region continue to grow at the average speed achieved between 1995 and 2015, the report concludes.