Serbia faces a significant demographic challenge due to persistently low birth rates and continued high emigration. This shrinking workforce poses serious economic consequences, including slower economic growth, stagnant wages, and a decline in living standards. To mitigate these issues, several strategic measures need to be implemented.
Enhancing active labor market policies
One key strategy is to increase labor force participation. Despite the challenges, Serbia has an underutilized labor force, with around 300,000 unemployed individuals and another 180,000 informal workers in agriculture. Mobilizing this workforce could help meet the economy’s growing demand for labor.
However, a major obstacle is the mismatch between the available workforce and market needs. Many of these individuals have low levels of education and skills and live in rural areas, far from the urban centers like Belgrade and Novi Sad, where most economic activities are concentrated. This results in a paradox where businesses struggle to find workers, while the unemployed remain without jobs.
To address this mismatch, the government needs to expand and better fund active labor market policies, focusing on providing training and education to the unemployed, rather than merely offering subsidies to investors.
Expanding access to public services
Another untapped labor pool consists of those who are willing to work but are unable to do so due to caregiving responsibilities. These individuals often care for young children, the elderly, or sick family members. Addressing this issue requires a multi-faceted approach, as the burden of social policies is often shifted onto households.
For instance, expanding access to nurseries, kindergartens, and extended school programs would enable more parents to enter the workforce. A more ambitious reform could involve transitioning from the current two-shift school system to a single, full-day shift, similar to practices in other European countries.
For those caring for the elderly or the sick, the focus should be on improving geriatric care facilities and expanding institutionalized palliative care. Additionally, providing in-home geriatric services, such as assisted living support for a few hours each week, could allow more caregivers to participate in the workforce.
Improving transportation infrastructure to better connect smaller towns with major urban centers is also crucial. For example, fast rail connections could allow people to commute quickly and affordably from towns like Vršac, Valjevo, or Smederevska Palanka to jobs in Belgrade or Novi Sad. While the construction of the fast railway to Novi Sad and its extension to Subotica are positive developments, other important routes, such as those to Sremska Mitrovica, Užice, Smederevo, Zrenjanin, and Šabac, need to be included in future plans.
Improving healthcare
The state of healthcare in Serbia has a direct impact on the workforce. Poor healthcare leads to shorter life expectancy, lower productivity and a significant number of people exiting the labor market prematurely due to health issues.
A major problem is the lack of preventive care—Serbia’s healthcare system focuses more on treating illnesses rather than preventing them. Poor lifestyle habits like smoking, excessive alcohol consumption and sedentary living contribute to health problems that could be avoided. Additionally, long waiting times for diagnostic tests and treatments often exacerbate health issues, turning minor problems into major ones.
Extending working life in line with life expectancy
With about a quarter of Serbia’s population being retirees, increasing labor force participation cannot be fully effective without addressing the potential of this group. In the short term, offering additional incentives for younger retirees to re-enter the workforce, perhaps through part-time work with reduced tax burdens, could encourage some to continue working voluntarily.
In the long term, aligning the retirement age with increasing life expectancy is essential. This could involve gradually raising the retirement age by one or two months each year, based on improvements in life expectancy.
By linking the number of years worked to life expectancy, future retirees would work longer but still enjoy the same number of years in retirement as previous generations. Additionally, a longer life expectancy generally means better health and physical capabilities, enabling older individuals to remain productive in the workforce.
Several European countries, including Denmark, Germany, and Italy, have already adopted such policies. In Serbia, this would mean raising the retirement age by about half a year every decade.
Enhancing education
Quality education is the foundation for reducing inactivity and unemployment, particularly given the current profile of Serbia’s workforce. It is crucial to increase school enrollment (currently, about 5% of children do not complete primary school) and extend the years of schooling. Moreover, curricula need to be updated, teachers motivated, and a system for evaluating the quality of education must be established.
The skills acquired during schooling should enable students not only to enter the labor market but also to remain active in it longer. Those with the lowest levels of education and skills are most likely to fall into inactivity or unemployment. By addressing these educational gaps, Serbia can create a more resilient and adaptable workforce.
