Increasing the Labor Market Activity of the Poor, Females, and Informal Workers: Let’s Make Work Pay in Macedonia

Abstract

This article simulates the effects of two alternative social policies—individual and family in-work benefits—on labor market choices in Macedonia, with special reference to the poor, females, and informal workers. The ex-ante analysis relies on a combined tax and benefit micro-simulation model for Macedonia (MAKMOD) and a structural model for labor supply, both utilizing the 2011 Survey of Income and Labor Conditions. Results suggest that the proposed reforms will have a considerable effect on the working choices of Macedonians. The family in-work benefit is found to be more effective for singles, and marginally effective for couples with only one working member. In addition, the effects are found to be larger for the poor, females, and informal workers, the categories most prone to be unemployed in Macedonia.

Keywords:

• in-work benefits
• Macedonia
• making work pay policies
• reform of the social system

JEL Classification:

• H55
• J22

Notes

¹ http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do

² These are the latest data published by the State Statistical office, based on the Survey of Income and Living Standards (SILC). The poverty line is set at 60% of the median equalized income.

³ Share of active population in working-age population (15–64).

⁴ http://www.ilo.org/empelm/what/WCMS_114240/lang–en/index.htm

⁵ http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lfsi_emp_a&lang=en

⁶ It is usual to use two thirds of the median wage as a benchmark to distinguish low-pay wages. In our case, given that wages rather than wage levels are reported in the LFS, we consider all wages below MKD8,000 as low wages (actually wages below the wage range of MKD8,001–10,000). Specifically, two thirds of the median wage is about MKD9,000, which is the midpoint in the range of 8,001–10,000.

⁷ Additionally, the marginal and average effective tax rates increase at about 33% of the average wage.

⁸ In 2009, the government implemented a gross wage reform that consisted of several elements: introduction of a gross wage concept of wage negotiation and contracting from the previous net wage system, incorporation of tax-free allowances into wages, integrated collection of PIT and social insurance contributions by the Public Revenue Office, and transfer of the liability for payment of contributions from employer to employee.

⁹ Working part-time is not unusual in Macedonia, but since neither employees nor employers customarily ask for/offer part-time contracts, the share of those working part-time is only 2.2%. The median hours per week of part-timers is 20. This is the main reason why the 0, 20, and 40 hour options have been chosen. Those with zero hours represent 52% of our working sample, and those with full hours (40) another 30%. Hence, about a quarter of our working sample are overtime workers, the major part of whom work 48 hours. However, we decided to only simulate in our analysis up to 40 hours, because we believe the reporting of overtime work is arbitrary: respondents mostly referred to “staying overtime” rather than to “being paid overtime” and having that embedded in the contract.

¹⁰ The estimation disregards the following groups: nonemployed persons under 18 and over 64 years of age, students, pensioners, persons with a disability due to the inflexible labor supply, those employed at zero wages as this is not likely the result of their human capital but a specific situation in the labor market, and the self-employed due to the different factors affecting their wages.

Additional information

Notes on contributors

Nikica Mojsoska Blazevski

Nikica Mojsoska Blazevski is a Full Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Marjan Petreski is an Associate Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Despina Petreska is a Economic Researcher at the Economic Research & Policy Institute, “Finance Think” – Skopje, Macedonia.

Marjan Petreski

Nikica Mojsoska Blazevski is a Full Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Marjan Petreski is an Associate Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Despina Petreska is a Economic Researcher at the Economic Research & Policy Institute, “Finance Think” – Skopje, Macedonia.

Despina Petreska

Nikica Mojsoska Blazevski is a Full Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Marjan Petreski is an Associate Professor at the School of Business Economics and Management, University American College Skopje, Macedonia. Despina Petreska is a Economic Researcher at the Economic Research & Policy Institute, “Finance Think” – Skopje, Macedonia.