The State as the Largest Employer

In Bosnia and Herzegovina, working for the government is not the exception — it is, for a large share of the formal workforce, simply the norm.

How Large the Public Sector Actually Is

Across much of the developed world, governments employ somewhere between fifteen and twenty-five percent of the formal workforce. In Bosnia and Herzegovina, the share is considerably higher. Estimates vary depending on how broadly "public sector" is drawn — whether it includes state-owned enterprises, public utilities, and the sprawling apparatus of cantonal and entity administrations alongside core civil service — but credible analyses place the figure above forty percent of formal employment, and some methodologies push it higher still. The country has, in effect, built a labour market in which the state is not merely a large employer but the dominant one.

The explanation is partly historical. The Yugoslav economy ran on socially owned enterprise, in which workers were nominally collective owners but the state set the terms. When that system collapsed in the early 1990s, the industries it sustained — steel, mining, textiles, chemicals — either disappeared or shrank to fractions of their former scale. What did not shrink was the institutional superstructure. The Dayton Agreement of 1995, which ended the war by creating two entities, ten cantons within the Federation entity, and a constellation of municipalities, institutionalised a governmental architecture of extraordinary density for a country of roughly 3.3 million people. That architecture requires staffing, and it has been staffed generously. The result is a formal labour market in which private enterprise was never able to expand fast enough to absorb what the public sector continued to hold.

The practical consequence is fiscal. Bosnia and Herzegovina spends a very high share of its gross domestic product on wages and social transfers — the two expenditure categories most directly associated with public employment. This leaves limited room for capital investment, and it creates a structural rigidity: public-sector wages and pension entitlements, once established, are politically very difficult to reduce. Governments facing revenue shortfalls tend to delay infrastructure spending or accumulate arrears rather than cut personnel costs. The International Monetary Fund and the World Bank have flagged this pattern in successive reviews, noting that the wage bill crowds out productive public investment and constrains fiscal space in ways that compound over time.

The Headline Hides the Variation

The entity-level picture is where the aggregate figure becomes genuinely revealing — and genuinely complicated. The Federation of Bosnia and Herzegovina and Republika Srpska have constructed their public sectors on different scales, and the variation between them is not simply a matter of size but of political economy.

Republika Srpska has pursued a more centralised administrative model since the early 2000s. Its government consolidated a number of functions that the Federation distributes to cantons, which means fewer layers but a single, large central administration. Public companies — in electricity, forestry, roads, and communications — remain substantial employers in their own right. The government in Banja Luka has also used public employment as a stabilising instrument in a context where private-sector job creation has been uneven, particularly outside the capital. The result is an entity where public-sector dependency is high and where the fiscal relationship between the government and the workforce is tight: a meaningful share of household incomes flows directly from the entity budget.

The Federation presents a different architecture but not a lighter one. Ten cantons, each with its own government, administration, and in most cases a full set of line ministries, create parallel bureaucracies that duplicate function in ways that are difficult to justify on efficiency grounds alone. The Federation-level government sits above these, and the state-level government of Bosnia and Herzegovina sits above that. The cumulative effect is a public employment system that is not just large but layered — the same function is often funded and administered at three or four levels simultaneously. Education is the clearest example: the state sets no curriculum (it has almost no competence over education), the entity sets limited framework rules, and each canton runs its own schools with its own teachers employed under its own collective agreements. In some cantons, public employment in education and health alone accounts for a substantial majority of all formal payroll employment.

This canton-level fragmentation means that the Federation's aggregate public employment numbers aggregate across jurisdictions with genuinely different fiscal positions. Cantons with a stronger industrial or commercial base — parts of the Sarajevo canton, or those with viable manufacturing — have somewhat more balanced labour markets. Cantons that are smaller, more rural, or that lost their industrial base in the 1990s have almost no private-sector counterweight. In those places, the government is not the largest employer in a relative sense; it is, for practical purposes, the only formal employer.

What the Ratio Means for Sustainability

The sustainability question is not simply whether the public sector is too large in some abstract sense — it is whether the current ratio is compatible with the tax base that exists to fund it. Bosnia and Herzegovina's formal private sector generates payroll taxes, profit taxes, and indirect tax revenues, but it is not large enough to sustain the public employment structure indefinitely without either borrowing or cutting. The country has done both at different moments, though borrowing has been constrained by its institutional arrangements with the IMF and by the currency board mechanism that governs monetary policy.

Remittance inflows add another layer of complexity. The money that arrives by wire from the diaspora supports household consumption and provides an informal subsidy to a domestic economy that would otherwise face harder adjustment pressure. This cushion reduces the political urgency of reform: when families can manage on a combination of a modest public-sector wage and a remittance transfer from a relative in Germany or Austria, the pressure on governments to expand the private sector or rationalise public employment is diffuse and slow-building.

The deeper structural concern is generational. Bosnia and Herzegovina has lost a large portion of its working-age population to emigration over the past two decades. Those who remain are disproportionately employed in, or dependent on, the public sector. The private sector — particularly in manufacturing, tradeable services, and technology — struggles to recruit because the public sector offers relative security that private employers in a fragile economy often cannot match. This dynamic suppresses private-sector wages in some segments while protecting public-sector wages in others, creating the kind of divergence between entity pay scales that makes national labour market reform nearly impossible to coordinate.

None of this is unfamiliar territory in post-conflict transitions, but in Bosnia and Herzegovina the political architecture has made the path out of it unusually narrow. Reform of public employment requires decisions that cut across entities, cantons, and state-level institutions that do not coordinate naturally and that have competing political incentives. Each layer of government has an interest in maintaining its own payroll — not necessarily out of corruption, though that exists too, but because employment is legitimacy, and legitimacy, in this country, remains deeply tied to which community controls which institution. Until that equation shifts, the state will remain what it has been since Dayton: not just the largest employer, but the one employer that almost nobody in power has a sustained interest in making smaller.