Does Formal Work Pay in Serbia? The Role of Labor Taxes and Social Benefit Design in Providing Disincentives for Formal Work

  • Johannes KoettlEmail author
Part of the Economic Studies in Inequality, Social Exclusion and Well-Being book series (EIAP, volume 8)


There are two particular issues of the Serbian labor market of extreme importance in the recent debate: the high levels of inactivity and informal employment among the Serbian working-age population. Both of these issues lead to the question if it is actually “worthwhile” for the working-age population to engage in income-generating activities in Serbia. This chapter focuses on the role of labor taxation and social benefit design, how it relates to informal employment and inactivity, and what disincentives for formal work might be provided to people in working age so they choose to “exit” into informality or inactivity.

The analysis shows that there are three main reform options to decrease informal employment and to activate the inactive (1) to make formal work pay for low-wage earners, (2) to genuinely means test any entitlements to free health insurance or other municipal entitlements, and (3) to step up inspections and enforcement. The two main policy tools to make formal work pay are to decrease labor taxation at the lower wage levels and to reform benefit design for social assistance and family benefits.


Social Assistance Social Security Contribution Informal Worker Labor Taxation Informal Employment 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Eurostat (2010) Statistics Database. Available at
  2. Hussmanns, R. (2003) Statistical definition of informal employment: Guidelines endorsed by the Seventeenth International Conference of Labour Statisticians (2003). Geneva, Switzerland: International Labour Organization.Google Scholar
  3. Koettl, J. and M. Weber (2012) “Does Formal Work Pay? The role of labor taxation and social benefit design in the New Member States.” Research in Labor Economics. 34:167–204.Google Scholar
  4. Perry, G., W. Maloney, O. Arias, P. Fajnzylber, A. Mason, and J. Saavedra-Chanduvi (2007) Informality. Exit and Exclusion. Washington, D.C.: World Bank.Google Scholar
  5. World Bank (2009) BEEPS at-a-Glance 2008–09. Serbia. Washington, D.C.: World Bank.Google Scholar
  6. World Bank (2010) World Development Indicators. Washington, D.C.: World Bank. April.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2013

Authors and Affiliations

  1. 1.The World BankWashingtonUSA
  2. 2.IZABonnGermany

Personalised recommendations