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Following the Forum for Prosperity and Jobs in BiH: Labour Market and Tax Burden on Employment

Considering the fact that young people make up just 12.7% of the workforce in Bosnia and Herzegovina (with youth unemployment running as high as 59%) and the fact that, internationally, Bosnia and Herzegovina has one of the highest rates for social contributions (71%), reforming the labour market and adjusting the tax burden on employment are two of the biggest socio-economic challenges the country faces.

Technical experts and representatives of trade unions, employers and civil society sought fundamental and urgent solutions to these challenges at the workshop on Labour Market and Tax Burden on Employment, organized by the International Monetary Fund during the Forum for Prosperity and Jobs in May 2014.

Workshop participants agreed that the slow pace of Bosnia and Herzegovina’s transition to a market economy, the lack of strategic reforms, a problematic business environment and continuing political uncertainty have all deterred investors and hampered the creation of new jobs. Among the factors responsible for the underperformance of the BiH labour market, participants cited labour market rigidities that discourage hiring, out-dated labour laws that make it difficult to dismiss unproductive workers, the prevalence of the grey economy, low salaries (that can be twinned with low productivity), a high tax burden, and a cumbersome and expensive public administration.

As summed up by the representative of the IMF, Mr. Ruben Atoyan, this situation can only be addressed by improving the business environment and the investment climate in Bosnia and Herzegovina, in this way fostering macroeconomic growth and stability.

“When it comes to the labour market, all socio-economic partners must cooperate,” Mr Atoyan said. “Social dialogue is required and should be continued in order to reach labour market reforms. The current setting is preventing employers from doubling the number of employees.”

The workshop also concluded that Bosnia and Herzegovina should adopt a set of labour market reforms that will help create new jobs. These include revitalising the process for reaching collective agreements, reducing the disincentives to job creation, and, in particular, promoting the inclusion of young people in the workforce.

Workshop participants urged the authorities to consider proposals to reduce the tax burden on employment, without jeopardising fiscal stability and with the help of the IMF. Bosnia and Herzegovina needs to stimulate job creation and improve competitiveness by bringing labour taxes closer to the European average of around 30% of total labour costs.