Making Work Pay in Western Balkan Countries: The Case of Serbia and Macedonia

In the premises of the Institute of Economic Sciences agreement was signed between the Regional Research Promotion Programme Western Balkans (RRPP) and the Foundation for the Advancement of Economics (FREN) regarding the project Making Work Pay in Western Balkan Countries: The Case of Serbia and Macedonia . The project will be implemented in the period from June 2012 to June 2013.


Project Partners - Foundation for the Advancement of Economics (FREN) and University American College - Skopje (UACS)

The Foundation for the Advancement of Economics (FREN) is an influential Serbian nongovernmental, non-profit, economic think-tank. FREN was founded in 2005 by the Belgrade University‘s Faculty of Economics, one of the leading economic faculties in South East- Europe.

The main FREN‘s goal is to promote academic research in Serbia and build a body of knowledge for economic decision-makers. FREN‘s team comprises of a network of over 30 researchers and experts, who regularly and systematically monitor economic trends in Serbia, conduct in-depth research and encourage and facilitate the exchange of information and availability of economic data. Thanks to the quality and relevance of its research, FREN has established itself as one of the leading economic thinktanks in Serbia.

The University American College Skopje (UACS) was established in 2005 as one of the few independent universities in the Republic of Macedonia. The University is an institution for higher education that combines the best of American and European educational experiences. UACS is designed to provide the community with higher education, professional support to industry and government, and most notably, well-trained young individuals prepared to enter the workforce with professional and exceptional knowledge.



This research examines employment, poverty and income inequality effects of introducing making work pay (MWP) policies for two Western Balkan countries: Serbia and Macedonia. MWP policies (or in-work benefits) are means-tested transfers given to individuals conditional on their employment status. They intend to enhance the incentives to accept work and to redistribute resources to low income groups.

The motivation for this study comes from two particular problems of the Serbian and Macedonian labor market: high levels of inactivity and informality, particularly among lowpaid (low-skilled) workers. Inactivity rate in Serbia and Macedonia is among the highest in Europe - in Q4 2011 it amounted to 45.5% and 43.5%, respectively. At the same time, both countries face high informal employment rates. In Macedonia 32% of all employment is informal, whereas in Serbia this figure is even higher 43%. We argue that the high inactivity and informality rates are due to the specific design of the tax and benefit system in these countries. Our research proposal offers alternative policy solutions designed with the intention to increase labour participation rates in those two countries.

The country focus has been chosen according to the following criteria: (a) the focus of the Regional Research Promotion Programme (RRPP) Western Balkans; (b) Serbia and Macedonia with its socio-demographic structure, can be seen as a typical Western Balkan countries. Additionally, given that tax and labour market structures of these economies share many similarities, especially among former Yugoslav republics, the results of our analysis could be of interest to a wider range of countries in the region; (c) data and model availability. FREN researchers developed a tax and benefit microsimulation model for Serbia (SRMOD) particularly suited for the evaluation of the redistributive effects of policy reforms like the introduction of MWP policies. Currently, the model is being integrated with the labour supply model which would additionally allow to asses incentive effects of these policy reforms. Based on the experience with SRMOD, our research would include building the same model for Macedonia, which should then serve for simulation of MWP benefits but also for future policy analysis.


Project Team

Mihail Arandarenko is Full Professor of Labour Economics at the Faculty of Economics, University of Belgrade and Director of the Foundation for the Advancement of Economics (FREN). He obtained his PhD from the University of Belgrade in 1998 and spent academic 1999-2000 as post-doctoral fellow at the Collegium Budapest – Institute for Advanced Study. He has published extensively,  including the monographs: ’Labour Market in Serbia: Trends, Institutions, Policies’ (2011), 'Mapping Serbian Labor Market' (2006), 'Development of Social Policy in Serbia and Montenegro' (2003), and 'Economic Theory in Transition' (1997). Prof. Arandarenko's research areas include labour markets, employment programmes, industrial relations and social policy. He has been consulting short and long term for leading international agencies, including the World Bank, UNDP, ILO, EAR, OECD, USAID etc. He is a national correspondent of the European Employment Observatory, a project of the European Commission. He is a member of Employment Council of Serbia since 2001. He served as the Lead Advisor for the implementation of Poverty Reduction Strategy of Serbia (2004-2005), Chairman of the Task Force for the preparation of National Employment Strategy (2005) and Chairman of the Working Group for the preparation of the Law on employment and insurance in case of unemployment (2009).

Jelena Zarkovic  Rakic works as assistant professor at the at the Faculty of Economics – University of Belgrade. She is the director of the Foundation for the Advancement of Economics (FREN), particulary dealing with issues of tax and social policy and labor market issues. In the editorial board of Quarterly Monitor she is in charge of the section Employment and wages.

Jelena participated in several projects such as : Construction of Tax-benefit Microsimulation Model for Serbia – SRMOD“; „Serbia and the Republic of Srpska (BH) - Country Chapters for the OECD Tax-Benefit Model“; „Simulation of the Effects of draft Law on Social Protection, on Income Distribution and Poverty in Serbia, by using SRMOD“. She is currently engaged on the following projects: „From inactivity to employment: Opportunities for raising activity and employment in Serbia“; „Making Work Pay: Evidence from Transition Country”;  „Creation of Budget Calculator”. Sasa has presented his scientific papers at numerous domestic and international conferences. Since 2010 she is engaged as lecturer at the course Formulating Public Policy Proposals and Analysis of Policy Impact, organized by the Department for Human Resources Management of the Government of Serbia. She participated with notable contributions in a number of domestic and international conferences.

Sasa Randjelovic works as teaching assistant at the Faculty of Economics – University of Belgrade. He is fellow of the Foundation for Advancement of Economics (FREN), in charge of fiscal policy issues, with particular focus on tax policy. He is executive editor of the Quarterly Monitor, FREN’s flagship publication – quarterly bulletin of economic trends and policies in Serbia. In the editorial board of Quarterly Monitor he is in charge for the analysis of fiscal flows and policies.

Sasa was engaged on numerous research projects: Construction of Tax-benefit Microsimulation Model for Serbia – SRMOD (FREN i University of Essex);Serbia and the Republic of Srpska (BH) - Country Chapters for the OECD Tax-Benefit Model (2009,World Bank); Simulation of the Effects of draft Law on Social Protection, on Income Distribution and Poverty in Serbia, by using SRMOD (2010, World Bank); Estimation of Structural Fiscal Deficit in Serbia – Econometric Support to the Ministry of Finance of Serbia (2012, USAID). He is currently engaged on the following projects: Making Work Pay: Evidence from Transition Country (CERGE-EI GDN Research Competition);Construction of Tax-benefit Microsimulation Model for FYR of Macedonia– MAKMOD(RRPP); Policy Measures to Formalize the Shadow Economy and their Effects on Economic Growth in Serbia (BEP);Creation of Budget Calculator (Pro Concept – in cooperation with the Parliament of the Republic of Serbia).

Sunčica Vujić received her PhD diploma from the Econometrics Department, VU University Amsterdam in 2009. Since 2011. she works as the Assistant Professor at the Department of Economics, University of Bath since 2011. She is Associate Researcher at the Foundation for the Advancement of Economics (FREN) since 2010. Her main research is in the field of applied labour economics, with a focus on economics of education, crime, health, poverty and inequality.

Sunčica has worked and is currently active on several research projects in collaboration with FREN: Evaluation of the Active Labour Market Programme “Severance To Job” (CESID and UNDP Serbia); Behavioural Microsimulation Modelling and Structural Labour Supply: Evaluating the Effects of Working Tax Credit in Serbia (CERGE‐EI Global Development Network (GDN) Research Competition); Gender Pay Gap in the Western Balkan Countries: Evidence from Serbia, Montenegro and Macedonia (Regional Research Promotion Programme (RRPP, Western Balkans); Making Work Pay in Western Balkan Countries: The Case of Macedonia (RRPP, Western Balkans).

Marko Vladisavljević is researcher at FREN. He holds MS in Econometrics from University of Belgrade (2011). Main areas of his research interests are social policy, labour supply, microeconemtrics, gender and discrimination. He participated in a number of projects for FREN, of which for the topic of social enterprenourship are most relevant: “Gender impact analysis of existing support measures for entrepreneurship in Serbia” (for UN Women), “

Position of the internally displaced persons in the labour market in Serbia” (for Grupa 484), “The position of vulnerable groups on the labour market in Serbia” (for UNDP) and “From inactivity to employment: An Analysis of Factors Affecting Inactivity and Opportunities for Raising Activity and Employment in Serbia” (for Social Inclusion and Poverty Reduction Unit).

Dr. Marjan Petreski (1982) is the Research Vice-Dean of the School of Business Economics and Management within the University American College Skopje. He also chairs the University Research Committee, which is in charge of steering the research work. Marjan specializes in research and teaching in applied macroeconomics. His narrow research focus is exchange-rate regimes and monetary policy and strategy, with particular reference to developing countries. Previously, he has been developing his research skills within the Ministry of Finance and th

e National Bank of Macedonia. Marjan earned his MSc in International macroeconomics from the University of Sheffield, UK in 2006 and his PhD in Economics from Staffordshire University, UK in 2011. For his research, he has been awarded the Young Scientist Award 2009 by the Macedonian Academy of Sciences and Arts, the Olga Radzyner Award 2010 by the Österreichische Nationalbank and the Postgraduate Teaching Fellow Award by CERGE-EI Prague. When not teaching or doing research, Marjan devotes time to his hobby – philately. He has a collection of more that 17.000 stamps and has established contacts with over 300 people from over 100 different countries.

D-r Nikica Mojsoska-Blazevski is the Dean of the School of Business Economics and Management at UACS. Nikica earned her PhD at Staffordshire University in 2006. Nikica worked in the Ministry of Finance from 2000 to 2009, being a Head of Macroeconomic Policy Department in the last three years. She has been teaching at UACS since its establishment (2005), both on undergrad and grad levels, and is specialized in economics and quantitative modules. She has published and presented several papers and reports in economic journals and conferences, mainly in the area of macroeconomics, labour markets and policies, education and social system and policy. She has been awarded the Best paper in macroeconomics Award by the National Bank of the Republic of Macedonia in 2011.

Despina Petreska graduated from the University American College Skopje in 2012. Her interest includes macroeconomics and applied modelling with time series and panel data. In 2012, she was the winner of the annual award for Young Researcher conferred by the National Bank of the Republic of Macedonia.



Within the framework of the project ”Making work pay - the case of Serbia and Macedonia” funded by the Regional Research Promotion Program (RRPP) Western Balkans, on 26 and 27 October 2012 at the University American College in Skopje (UACS),  FREN's research fellows, Sasa Randjelovic and Marko Vladisavljevic, delivered a course on development of tax-benefit micro-simulation model based on EUROMOD platform (tax and benefit micro-simulation model for the European Union, for more information visit: For more information see


FREN research associates, Jelena Zarkovic Rakic and Sasa Randjelovic, have participated at the 2nd microsimulation workshop which took place on 11-12 October 2012 in Bucharest, Romania. They presented a paper which is a result of their work on the project ”Making work pay - the case of Serbia and Macedonia” funded by the Regional Research Promotion Program (RRPP) Western Balkans ( more information see