As of January 1st this year, according to the decision of the Government of the Federation of Bosnia and Herzegovina (FBiH), the minimum net salary in the FBiH is 1.000 BAM, compared to the previous 619 BAM.
The minimum wage results in an increase in public revenues per worker by about 300 BAM and employer costs by about 682 BAM. The minimum gross salary now amounts to around 1.740 BAM, which is the minimum amount an employer must allocate to hire a worker.
However, it should be emphasized that this will almost certainly and very quickly lead to an increase not only in minimum wages but in all salaries in the FBiH, across nearly all sectors.
On the other hand, the downside is that there will almost certainly be an increased rate of inflation that will “consume” much of this increase.
The reasoning is quite simple. Here’s an illustration:
If workers in a company currently earn a net salary of 700 BAM, and their direct superiors or those performing somewhat more complex tasks earn 1.100 or 1.200 BAM, when workers’ salaries are increased to 1.000 BAM, it logically follows that the superiors’ salaries will also have to increase by the same amount. Otherwise, they would end up earning almost the same.
If managerial staff in the same company earn 2.000 BAM, they too will naturally expect their salaries to increase by the same or a similar amount.
Thus, a chain reaction or linear increase in salaries for all employees in that company will occur, not just the minimum wages. This will place a significant burden on employers, as the increased amount for taxes and contributions must also be considered.
Even in companies where no workers currently earn less than 1.000 BAM, salaries will soon have to rise. Companies within a sector are interconnected in a single market. If wages rise in one company, they must rise in others, as those that do not increase wages risk losing their workers.
This salary increase will lead to a rise in product prices. For example, bakers will have to factor the increased cost of labor into their products, such as bread and other baked goods. The same will be done by hairdressers, auto mechanics, retailers, and others.
This happened last year in the Republika Srpska (RS) when the minimum wage was increased to 900 BAM, and it will almost certainly happen in the FBiH as well.
Inflation, or the rise in product prices, will “consume” much of the gains of those with the lowest incomes.
Unfortunately, market forces will very quickly restore the status quo – salaries will be higher, but everything will be significantly more expensive, so the standard of living for those with the lowest incomes is unlikely to change much.
