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OPINIONMarch 26, 2024

A Tale about Productivity and Jobs in North Macedonia

This opinion was originally published in Macedonian by MIA on March 14, 2024. Sanja Madzarevic-Sujster is a Senior Economist, and Joana Madjoska is an Economist at the World Bank. 

Moving from middle-income to high-income status will require boosting productivity, inclusion, and sustainability while reducing dependence on fossil fuels and energy intensity—all in a context of narrower fiscal space, rising costs of capital, and persistent global economic uncertainty, argues the 2023 update of the Systematic Country Diagnostic for North Macedonia. In the wake of the global financial crisis, a sustained increase in the incomes of households in the bottom 40 percent of the distribution halved the headcount poverty rate to about 20 percent, and years of inclusive growth drove one of the world’s steepest declines in inequality. However, further progress may be halted unless the country’s growth potential rises.

Even prior to the pandemic the country’s growth performance lagged peer countries. At the current growth rate (below 2 percent) it will take several generations for North Macedonia to reach the average EU income level. Convergence has been slow: North Macedonia’s per capita GDP rose from 25 percent of Germany’s (the major destination for Macedonian migrants) GDP per capita in 2000 to 29 percent in 2021. This gap must be narrowed faster to stem the tide of emigration among young workers to that country in particular. The report argues that low productivity, especially of firms, among else, is behind low potential growth. Boosting it is critical to spur growth but also create more high-paying jobs.

The World Bank Enterprise Survey showed that productivity of manufacturing firms in North Macedonia was low even before the outbreak of the pandemic and was lagging its peers (Figure 1). Firm productivity, calculated on micro firm-level data, also varies widely across firms: firms in the 90th percentile are on average four times more productive than those in the 10th percentile. The trade sector exhibits a particularly high productivity dispersion: firms in the 90th percentile are more than eight times as productive as firms in the 10th percentile (Figure 2). Such high dispersion in productivity between firms in the same sector is a sign of market distortions and resource misallocation.