The Federation of Bosnia and Herzegovina increased its minimum wage by up to 62% last year, followed by a similar move in Republika Srpska earlier this year. WageIndicator spoke with Prof. Nermin Oruc, Director of Research at the Centre for Development Evaluation and Social Science Research (CREDI), to better understand the situation on the ground.
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| Prof. Nermin Oruc |
Bosnia has a complex governance system. Could you briefly explain the recent minimum wage changes—who has implemented them and who’s been left out?
Bosnia and Herzegovina consists of two main entities. The Federation of Bosnia and Herzegovina recently implemented a sharp minimum wage increase—just days before the New Year. The other entity followed suit, though with added complications.
To assess the impact, it’s important to consider Bosnia’s broader economic context: low competitiveness of the economy overall, low worker productivity, driven in part by weak curricula and skills development. In this setting, doubling the minimum wage—from around €300 to €500—is a bold and potentially risky move, especially for employers who may not be ready to adapt quickly and cover such an increase in operating costs. It is also interesting to note that the decision was passed by the government just a few days before the New Year. It appears to be a populist measure lacking serious ex-ante evaluation of possible implications.
Estimates suggest the new minimum wage now matches the median wage—an unusual and significant shift. Such a shift may serve as an interesting experiment for researchers in the Card-Krueger tradition. One immediate effect has been that employers, who are responsible for paying personal income taxes and contributions, have had to adjust net wages. Previously non-taxable benefits like transport and lunch allowances are now included in the net wage, effectively increasing fiscal revenues—likely a core motive behind the policy. But the net income received by workers hasn’t increased proportionally.
Adding to the complexity, approximately half of Bosnia’s employment is in the public sector—including both public administration and state-owned enterprises. Around 70% of highly educated, skilled workers are employed in this sector. Many public sector wages are calculated using a salary coefficient pegged to the minimum wage (or average wage that will inevitably increase after this move), with increases based on position, qualifications and years of experience. So, when the minimum wage rises, the knock-on effect is an increase in many other public sector salaries, potentially exacerbating wage inequality.
But we still need to ask: does this change actually improve the wellbeing of people in the country? Not necessarily. Wage increases without productivity gains can contribute to inflation. So even though nominal wages have risen, real purchasing power may not have.
Could this push employers to adopt labour-saving tech? Have there been any layoffs yet?
Yes, there’s already evidence of layoffs. I think this change particularly affects young workers, especially those seeking their first job. Minimum-wage jobs were largely held by this group, and given the low quality of formal education, employers had to invest heavily in on-the-job training to make young workers productive.
Now, with higher wage costs, employers may be less inclined to offer those opportunities. Young people might increasingly need to enter the workforce through more precarious or informal arrangements before securing formal contracts.
At the same time, technology is becoming more accessible and affordable. Employers are already investing in tools—like AI—that can handle administrative tasks previously done by interns or entry-level staff. So while technology may not entirely replace workers, it does reduce the number of workers needed for certain tasks. This further limits access to internships and early job experiences, especially for youth.
What triggered the government decision to increase Minimum Wages?
That’s a difficult one. There’s no real reference to any detailed assessment that would justify the decision. The government has framed this as a way to help workers secure a decent wage—which, on the face of it, is commendable. I fully support the principle of a living wage. But such changes must be considered within a broader context: can employers realistically afford these wages? Are the necessary support systems—like skills training—in place?
Bosnia already underperforms in attracting foreign direct investment, even compared to regional neighbours. The intention doesn’t appear to be building a competitive advantage on low wages—but neither does it offer a clear pathway to creating high-value jobs through skills development.
What I’d rather see is serious investment in workforce training. That would allow employers to raise wages sustainably, based on higher productivity, rather than relying on blanket policy changes that could have unintended consequences.
Is there a part of the workforce excluded from the Minimum Wage legislation?
This applies to everybody. So, there’s no distinction—at least not in the Federation. There were some estimates that about 25% of workers receive minimum wages. But as I said, the current minimum wage is now roughly equal to the median wage. So now, it affects about 50% or even slightly more of the workforce.
Also, as I mentioned, the gradual increase in other wages impacts both workers and employers due to the rising cost of labour.
In the other part of the country—Republika Srpska—they’ve just introduced an update to their minimum wage legislation. What’s interesting is that it distinguishes between education levels.
What do you think its impact will be on poverty reduction and social inequality? Do you see any positive effects?
A few years ago, we studied how raising the minimum wage affects poverty and inequality, using a national economic model called EUROMOD. Because of how wages are set and the different ways they’re calculated, we found that the impact on inequality was very small. There was some effect on reducing poverty, but it wasn’t as strong as many might expect—especially since unemployment is quite high. So, raising the minimum wage doesn’t automatically benefit everyone.
The varying intensity of work across households also influences outcomes.That study was based on a moderate 10% increase in minimum wages. Now, with the minimum wage effectively doubled, we’re facing a unique situation that warrants deeper analysis.
In the short term, we’re already seeing layoffs, and poverty may rise as some people lose jobs. But I prefer not to speculate—I believe in relying on strong evidence.
What truly needs to change is the government’s approach. These policies are being rolled out as populist measures, without serious reference to evidence. That, to me, is the core issue—regardless of whether the outcomes are positive or not.
Policy decisions must be grounded in evidence that demonstrates at least some benefit to the broader population, not just specific groups.
April 2025