THE INTENSITY OF IMPACT OF LABOR SUPPLY REDUCTION ONTO THE GROWTH OF WAGES IN REPUBLIC OF SRPSKA

Abstract

The aim of this research is to determine the level of intensity of the impact of labor supply reduction onto the growth of wages in Republic of Srpska. Simple linear regression is the main tool that is used in this research. The model of the relationship is established between two variables, the labor supply reduction and growth of wages in order to draw conclusions about the behavior of one, based on the behavior of the other variable. Concerning the results, we have seen that there is a marked reduction in labor supply at the level of the entire economy of Republika Srpska and a significant growth of wages. More importantly, the wage growth is very strongly influenced by labor supply reduction. By statistical regression analysis, we have determined the statistically significant, strong impact of the reduction of labor supply on wage growth (y = -0.004x + 2365.3; R=-0.91; R2=0.83; p<0.01). There is a general trend of wage growth that the pandemic crisis has not stopped and which will certainly continue in the post-crisis period. However, the key question is whether this kind of growth is sustainable. Unfortunately, there is a decline in labor productivity. The decline in gross value added per worker or labor productivity has been more or less pronounced in the three observed years. Current wage growth, with declining productivity, is not sustainable in the long run. If things with productivity remain as they have been for the three observed years and if the wage growth continues, it will inevitably lead to reduced competitiveness of the economy. The RS economy can avoid this trap if productivity starts to rise again. Improving productivity requires large investments in knowledge and technology, and companies need public sector support in this area.