The Serbian economy is facing a significant challenge as the disparity between labour availability and labour productivity continues to widen. Despite stable employment levels projected through 2025, productivity improvements have been sluggish. This stagnation is indicative of deeper structural issues, including a mismatch in skills, demographic shifts, and inadequate investment in human capital that aligns with the needs of various industries.
Certain sectors within Serbia’s labour market are experiencing tight conditions, particularly in advanced manufacturing, engineering, energy, and information and communication technology (ICT), where there is a persistent shortage of skilled workers. Conversely, lower-productivity service sectors are absorbing labour without contributing equivalent gains in output. This imbalance hampers firms’ capacity to expand and discourages investment in higher-value activities that require specialized skills.
The issue is further exacerbated by migration trends, as skilled workers increasingly seek employment opportunities abroad, especially within the European Union. While remittances from these workers bolster household incomes domestically, they do not compensate for the loss of productivity or innovation capabilities. Consequently, while the labour market may appear stable overall, it is becoming increasingly misaligned with Serbia’s industrial objectives.
Weak investment levels are compounding the productivity challenges. With gross fixed capital formation growing at less than one percent in real terms, there are limited opportunities for automation, process enhancement, and technological advancement. As a result, companies tend to rely on intensifying labour utilization rather than improving output per worker, leading to diminishing returns over time.
This situation places a cap on sustainable wage growth. In the absence of productivity gains, any increase in wages can either compress profit margins or lead to higher prices, which ultimately undermines competitiveness. While Serbia managed to avoid this scenario in 2025 due to disinflation and cautious wage practices, the underlying risks remain present.
Addressing the productivity issue requires more than just increasing the supply of labour; it necessitates a strategic alignment between education, vocational training, and industrial policy that responds directly to the demands of the manufacturing, energy, and technology sectors. Without such alignment, Serbia risks remaining trapped in a low-productivity equilibrium where employment persists but progress stalls.
