Western Balkans’s low labor productivity hampers successfull EU integration

The economies of the Western Balkans (WB6), comprising Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, and Serbia continue to grapple with low labor productivity, maintaining a significant gap both in relation to the European Union and within the region itself, a recent report shows.

The Western Balkans face a critical juncture in their economic development. Without concerted efforts to address structural inefficiencies, invest in technology and skills, and curb emigration, the productivity gap with the EU will persist or widen.

According to the Organisation for Economic Co-operation and Development (OECD) data for 2020–2023, the WB6’s average labor productivity stands at approximately $27 per hour worked, compared to $68 in the EU, highlighting a substantial gap both regionally and with European standards.

Regional productivity variations

Within the WB6, productivity levels vary significantly. Montenegro leads with $33 per hour worked, followed by North Macedonia ($31), Kosovo ($27), Serbia ($25), and Bosnia and Herzegovina ($23). Albania trails with the lowest productivity at $18 per hour—35% below the regional average and only one-fourth of the EU average. These disparities reflect structural economic differences and varying levels of development across the region.

In 2024, EU labor productivity per hour worked grew by 0.4%, recovering from a 0.6% decline in 2023, while hours worked per employed person in the EU saw a modest 0.1% decrease, continuing a downward trend from a 0.2% drop in 2023.

In the same region, the oldest EU member Greece has a productivity level measured at $40 per hour worked. The newest EU member Croatia (the country joined in 2013) has a productivity level measured at $38 per hour. Cyprus, which joined in 2004, has $48, and Bulgaria and Romania, which joined in 2007, have $36 and $32 respectively.

The persistent productivity gap in of the Western Balkans stems from several structural factors. Many economies in the region, particularly Albania, remain heavily reliant on the primary sector and retail trade – sectors characterized by limited added value. Additionally, investments in technological infrastructure, automation, and digital innovation lag behind European standards.

Key factors further constraining productivity include:

High levels of informal economic activity and widespread undeclared work, which distort official productivity metrics and hinder business development.

Migration of skilled labor, leading to workforce shrinkage and aging populations, which curtails growth potential.

Erosion of human capital, as outward migration deprives economies of talented professionals, impeding modernization efforts.

According to OECD analyses, without comprehensive structural reforms, focused on fostering innovation, technology adoption, and continuous education, the productivity gap with the EU is likely to persist or even widen. Policy recommendations emphasize strengthening technical and vocational training, incentivizing business investments in research and development, and creating opportunities to retain young talent and professionals within the region.

Labor productivity directly influences wage growth, competitiveness, and economic convergence with the EU. For the Western Balkans, improving this indicator is vital not only for development but for ensuring long-term economic sustainability within the European framework.

Despite ongoing reforms aimed at creating jobs and stimulating growth, convergence with EU living standards remains slow. Many citizens continue to seek employment and educational opportunities abroad—migration rates from the WB6 have increased by 10% over the past decade, with about 20% of the population residing outside the region. While high emigration presents challenges—such as skill shortages and labor market distortions—it also offers opportunities. The diaspora can contribute through remittances, knowledge transfer, and potential return migration if supportive policies are in place.

Building human capital and a skilled workforce is essential for boosting competitiveness, attracting investment, and navigating digital and ecological transitions. These elements are foundational to resilience and prosperity, especially amid international uncertainties and the post-pandemic recovery.

Regional and European perspectives

In 2024, EU labor productivity per hour grew by 0.4%, with notable increases in Poland (+4.8%), Bulgaria (+3.9%), and Denmark (+2.9%). Conversely, countries like Italy, Croatia, Romania, and Ireland experienced slight declines. The average hours worked per employed person decreased marginally by 0.1%, with some countries increasing working hours – Lithuania, Slovenia, and Finland, while others, such as Bulgaria, Malta, and Poland, saw reductions.

Bulgaria is a specual case as its situation is not better than of candidate countries. While recent years have seen advancements in labor market reforms, the country faces demographic decline and an aging population, which threaten future productivity and economic stability. Persistent disparities among different social groups, widespread informal employment, and social disadvantages among minorities – including immigrants – remain significant concerns. Addressing these issues requires targeted policies to foster inclusive growth and social cohesion.

At the regional level, convergence is more evident in Central and Eastern European countries, such as Ireland, Lithuania, and Slovakia, that have benefited from catch-up growth. Regions like București-Ilfov in Romania saw an impressive 7.9% annual productivity growth, whereas some Greek, Italian, and Bulgarian regions lag behind.

The global environment has also impacted productivity trends. The outbreak of the war in Ukraine and subsequent energy crisis in 2022 slowed international trade and global value chain engagement, dampening productivity growth prospects across Europe.

EU integration

Russia’s invasion of Ukraine on 24 February 2022 changed EU perceptions on its enlargement policy. EU leaders reaffirmed at the 26-27 June European Council summit their strong support for the EU accession process of the Western Balkans. The European Council emphasized that the region’s future lies within the EU, advocating for gradual, merit-based enlargement and closer integration. Enhanced cooperation on defense, increased expenditure on security, and deeper economic integration – particularly within the Single Market, were highlighted as strategic priorities for sustaining Europe’s prosperity and global influence.

Economic cooperation in the Western Balkans is essential to further unlock the region’s growth potential. European Commissioner for Enlargement Marta Kos will attend the meeting of EU and Western Balkan leaders on the growth plan, which will take place in Skopje on 30 June and July 1. It is based on four pillars: strengthening economic integration in the EU single market; strengthening economic integration within the Western Balkans through the regional common market; accelerating key reforms; and increasing financial assistance to support reforms.

While progress has been made, significantly improving labor productivity remains crucial for the Western Balkans. Strengthening structural reforms, investing in innovation and digital infrastructure, fostering skills development, and harnessing the region’s diaspora are essential steps toward narrowing the productivity gap with the EU, ensuring sustainable growth, and securing a prosperous future within Europe.

Caption: (L-R) Finland’s Prime Minister Petteri Orpo, European Commission President Ursula von der Leyen, President of Montenegro Jakov Milatovic and European Council President Antonio Costa attend a family photo at the EU-Western Balkans Summit in Brussels, Belgium, 18 December 2024. EU and Western Balkans leaders are meeting in Brussels to discuss strengthening regional cooperation and partnerships. EPA/OLIVIER HOSLET