# **Increasing minimum wage in real terms or at least indexing the nominal wage to inflation has been**

**under consideration by policy makers in Kosovo.** Table 1 reports current minimum wages and several scenarios of potential increases in minimum wages (net and gross) in comparable currencies. Currently, the monthly gross nominal minimum wage in Kosovo is 130 euros for employed individuals aged 15-34, and 170 euros for employed individuals 35 and over <mark>. We consider several scenarios of minimum wage increase, with a maximum increase to 250 euros (Scenario 1) as a baseline scenario, which would increase the m</mark> inimum-tomedian wage ratio to 0.63.<sup>5</sup> Given the discussion above, such an increase in the real wages is high, especially for younger individuals. Scenario 2 proposes a slightly lower change: to increase the minimum wage for both younger and older individuals to 230 euros, which would increase the minimum-to-median wage ratio to 58 percent. Scenario 3 proposes to increase the minimum wage to a level consistent with poverty-level wages.<sup>6</sup> This change in the minimum wage policy would result in an increase of the minimum-to-median wage ratio to 54 percent, which is similar to the level observed in most European countries (see Figure 1.b). Scenario 4 follows a rules-based minimum wage increase<sup>7</sup> accounting for core inflation and private sector wage growth, which would result in an increase of the minimum wage to 137.6 euros for 15-34 years old and to 180 euros for 35 and older. Finally, Scenario 5 proposes to increase the minimum wage to 50 percent of the median wage (193.6 euros in 2018 euros). <mark>In Section V, we compare the potential effect of alternative minimum wage policies (Scenarios 1-5).</mark>

**Table 1. Current minimum wage and scenarios for increases**

||Gross Nomin<br>Wage, EU|al Minimum<br>R 2018|Net Nomin<br>Wage, E|al Minimum<br>UR 2018|Percentag<br>Nominal Mi|e Change in<br>nimum Wage|
|---|---|---|---|---|---|---|
|Age|15-34|35-64|15-34|35-64|15-34|35-64|
|Current|130|170|124.8|163.2|||
|Scenario 1|250|250|240|240|92.3%|47.1%|
|Scenario 2|230|230|220.8|220.8|76.9%|35.3%|
|Scenario 3|212|212|203.5|203.5|63.1%|24.7%|
|Scenario 4|137.6|180|132.1|172.8|5.9%|5.9%|
|Scenario 5|193.6|193.6|185.9|185.9|48.9%|13.9%|

_Source: Statutory minimum wages and official CPI estimates from Kosovo Statistics Agency (Harmonized Indices of Consumer Prices; April 2018)._ 5 A debate over a potential increase in the minimum wage in Kosovo began in 2016/2017. The same analyses used in this paper were conducted using the 2016 Labor Force Survey (the latest available data at that time) and were intended to inform the debate in 2018 when the government was considering an increase between 230 and 250 euros for all employed. The estimates presented here have been updated with the 2018 LFS.

> 6 Poverty-level wages are the wages required to lift a family out of poverty in Kosovo. Poverty-level wages are computed as the national poverty line (per adult equivalent) multiplied by adult equivalents in the household, divided by the number of household members who work full time. Given that part-time work in Kosovo is prevalent, an adjustment is also made to include part time-work.  In 2017, the poverty line per household was 302 euros per month. Considering that about 0.93 household members on average work full time (LFS estimates) and 0.98 work part-time, this is equivalent to a poverty-level wage of 212 euros per month.

> 7 As per Administrative Instruction No. 09/2013.

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