Prices and Wages

Prices and Wages

For many years, all prices and wages were forced by the government, using annual economic plans. The leadership followed the Stalinist model of conveying general productivity gains to households by reducing retail prices rather than by raising wages, which would have allowed consumers a modicum of leverage in the marketplace and, if goods were unavailable or failed to attract purchasers, would have produced inflationary pressure, forced savings, and a black market. Between 1950 and 1969, the Albanian authorities lowered prices thirteen times. The 1970s witnessed no price cuts, but the government reduced some prices again in 1982 and 1983. Enterprises that sustained losses because of the governments' system of setting wages and prices were compensated with subsidies from the state budget.

The economic anarchy that followed the collapse of the centrally planned system ended the years of artificial price stability. The August 1991 law on economic activity removed price controls on the prices of all goods except bread, meat, dairy products, other essential food items, other goods in short supply, and products produced by monopoly enterprises. Also, the law required an annual review of price ceilings. Price controls became less effective as private food markets developed. The price freeze even failed to halt price increases for rationed food items because they disappeared from the shelves of state stores, where price restrictions were enforced, and found their way onto the black market, where speculators kept prices high. The Council of Ministers endorsed a draft law on prices, drawn up by the Ministry of Finance, which would free retail, wholesale, and producer prices for all but a few agricultural commodities and monopoly controlled products. The authorities introduced trade liberalization to stimulate supply increases and competition, which they hoped would maintain downward pressure on prices. The government also planned gradual elimination of subsidies for money-losing firms in an attempt to stop hyperinflation.

Under the communist system, Albania's government had maintained one of the world's most egalitarian wage structures. The central authorities fixed the number of workers at an enterprise, assigned them to particular jobs, and set the wage fund, which for the nation as a whole translated in 1983 to a monthly pay of about L400 for a worker and about L900 for a manager. By 1988 average worker earnings grew to between L600 and L700 (US$89-US$104); and pay for top officials reached L1,500 (US$223). In the early 1990s, the regime modified the wage system, creating incentives for overfulfillment of plan targets, and allowing for a 10 percent pay cut for management if enterprises failed to attain plan targets.

Economic liberalization spawned a private sector without wage controls. Market-driven price hikes forced the government to raise wages for state workers twice in mid-1991. During the economic chaos, negotiators for Albania's newly independent trade unions demanded that the government automatically increase wages to keep pace with price hikes. At state factories and farms idled by disruptions in deliveries of raw materials, workers' salaries were reduced only 20 percent, a move strongly criticized by the country's main opposition party as inherently inflationary. The opposition called for fixed wages for workers at state enterprises and an absolute limit on subsidies to money-losing enterprises, as two means of slowing the bidding-up of wages and inflation. In the chaos, the average monthly income for Albanian workers plummeted to the equivalent of about US$10.

Enver Hoxha and his followers enforced frugality on Albanians for decades. The regime made few significant attempts to turn the product mix of the country's industrial sector away from heavy industrial goods and toward consumer goods, especially durable consumer goods. Instead of absorbing personal savings by producing and selling more consumer items, the government lowered the incomes of the few highly paid and skilled workers. People who complained often lost their jobs and were sent to state farms. The policy eased inflationary pressures but had dire consequences for worker motivation and willingness to accept responsibility. The Albanian economy's reliance on domestic monopolies made it especially susceptible to shortages. The country's only glass factory, for example, shut down in mid-1990. Lacking hard currency to purchase imported glass, Albanians had to live without bottles and replacement windows. When Italy delivered plate glass as part of relief supplies, it was discovered that the Albanians had no glazing putty.

Domestic consumption at first slowed with the collapse of the Stalinist economic system. In 1991 state shops were practically empty of goods, if they were open at all. Milk, butter, eggs, and medicines were in short supply. People had to squeeze through metal-barred windows at bakeries just to buy loaves of bread. Private stores and black marketeers had a relatively wide variety of goods, including pasta, peeled tomatoes, soap, fruit juices, and toilet paper, but with one kilogram of spaghetti costing a tenth of the average monthly salary, these goods were far beyond the purchasing power of the vast majority of the population. The government introduced general rationing but, by mid-1991, widespread fear that supplies of basic food items would run out caused crowds to begin plundering warehouses and retail outlets. Hopes for increased supplies and broader choices in the marketplace grew with the emergence of the private sector, which almost immediately began bringing in products that previously were unavailable, and often banned.

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