Pension systems and labor costs in southeastern Europe

The pension systems in southeastern Europe, which here is defined to include Albania, Bosnia, Macedonia, Montenegro, and Serbia, are facing a wide variety of interrelated problems. Contribution rates are high and have contributed to the growth of informal labor markets. The relatively high expenditures involved in most of the pension systems make it difficult to reduce contribution rates without incurring significant fiscal costs. This paper provides a brief overview of the pension systems in these countries. Section one evaluates the parameters currently in place in these countries in comparison to international standards. Section two provides the conceptual background from which to make decisions regarding the future design of the pension system. Section three looks specifically at issues related to reducing contribution rates in the pension system as a means to increase growth in the formal sector. Section four outlines a pension reform strategy which will need to be customized for specific countries, but which provides an overview of what types of reforms should receive priority, and section five concludes.