The intelligent use of human resources is at the backbone of an ambitious plan the FIC has proposed for Romania to become the 10th economy in the EU in 2036. In order to achieve this goal, in the long term, the attractiveness and sustainability of the domestic labour market should be consolidated. It is essential for labour policies to take into consideration demographic trends and be closely integrated with educational policies. The work force can be a strong enabler of economic development in Romania if the related policies are designed in an integrated manner to respond to the impact of digitalization.
In the past few years, several modifications to labour legislation have been made, to adopt long awaited laws, enabling greater flexibility and adaptation of the labour market to socio-economic realities.
For instance, the flexibility of labour relations has been increased by the recently adopted Teleworking Law (No. 81/2018). Another substantial change in labour legislation has been the adoption of the Law on Internship, which aims to ease the transition from education to the labour market.
The Unemployment Law was also amended several times in 2018 in order to further incentivize inclusion for vulnerable categories. The Government also adopted OUG No. 60/2018 modifying some normative acts in relation to the labour force, through which the subsidies for employers that employ apprentices, graduates and young people at risk of social exclusion were increased. The amount of the activation bonus for the registered unemployed who do not benefit from the unemployment allowance was also increased.
The General Register for employees' records was reorganized, to create a single register of employees' records based on an individual labour contract, both for the private and for the public sectors. However, the software for the new General Register has not yet been introduced.
However, despite these developments, Romania’s economic growth is at risk due to the current labour force shortages which in the absence of specific measures, will only increase in the next few years. With higher demand for work concentrated in a few regions where new businesses have developed or existing ones expanded, the market has started to see low or no supply of employable workers.
To address the polarization of supply and demand on the labour market, several measures have been taken to encourage cross-regional labour mobility and attract people to where they can find jobs (e.g. by changing the conditions for offering mobility grants to unemployed people moving to another locality). The measures have proved to be ineffective and the need for workers is higher today, fuelled by emigration and the failure of integration and education programs. According to various sources, 3 to 5 million Romanians currently live and work abroad.
Wage increases have been recorded throughout the 2010-2019 period. The gross average wage has more than doubled, while the minimum salary has more than tripled during the same period.
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|
Gross minimum wage | Gross average wage |
| 2011 | 670 RON | 1902 RON |
| 2014 | 900 RON | 2328 RON |
| 2016 | 1250 RON | 2809 RON |
| 2017 | 1450 RON | 3223 RON |
| 2018 | 1900 RON | 4532 RON |
| 2019 | 2080 RON 2350 RON for employees with higher education |
4837 RON |
While increases in the average wage are a good indicator of improving employment conditions, recent rises in the minimum wage at a higher rate than the growth in labour productivity and without impact analysis could have a negative impact on the viability of certain business sectors/industries. Moreover, these measures, especially when correlated with recent fiscal changes eliminating caps on social contributions, are generating an unsustainable trend of more and more labour contracts being registered with the minimum salary. The most important effect of these changes has been the growing concern that the legislative framework and fiscal systems are not predictable, hence contributing to uncertainty in relation to the future development of business in Romania.
Transferring social contributions from the employer to the employee has had also a significant impact on the income of all employees. Starting from 1 January 2018, the minimum wage was increased to 1,900 lei and wages in the state sector were increased by 25%. Part of the increase is merely the result a shift of pension and health (CASS) contributions to employees. The net monthly gain for employees earning the minimum salary is 1.162 lei. The increase of 450 lei in gross salary meant, in fact, an increase in net income of only about 97 lei.
Given the rise in demand for labour, and consequent increase in its costs, in the medium-term it is important to avoid any measures that could destabilize the labour market or have negative effects on progress registered and on the trust of foreign investors in the Romanian business environment. In its current form, labour legislation is likely to continue to bring growing benefits.
In the past 2 years, social dialogue in Romania has reached a plateau in terms of institutional exposure.
Various official social dialogue assemblies have either been set in motion, or reorganised, in order to streamline the tripartite dialogue on issues concerning labour legislation.
The Tripartite National Council for Social Dialogue, the Social and Economic Council, and the Social Dialogue Commissions are the most relevant institutions but there are numerous other groups, both formal and informal, working on this issue, most of which bring the same actors to the table (for example, the ad-hoc tripartite social dialogue meetings at the Ministry of Labour, the tripartite meetings organised by NGOs on specific social topics etc).
However, the institutional development of social dialogue has been carried out at the cost of jeopardizing the flexibility and, ultimately, the efficiency of the institutions mentioned above.
Moreover, in spite of the existence of numerous groups, the state authorities (Parliament and Government) are not encouraging real dialogue. Their role is therefore mostly cosmetic. The general feeling is that institutional social dialogue is about „ticking the boxes” in a process provided for by law, rather than about real consultations.
The obstruction of social partners from actively and efficiently contributing to social dialogue is also carried out by organising very important meetings at very short notice. (In some cases the invitation is sent only a few hours ahead of the event).
Separately, informal dialogue channels are sought by some social partners, solely with decision makers (mainly law-making institutions), in an attempt to influence the decision making process in a less transparent manner than institutional social dialogue.
An example in this respect is Ordinance 82/2017, issued by the Government after unilateral discussions with some trade unions. Through this ordinance, the rules of collective negotiation at company level were temporarily changed, making these negotiations compulsory in all companies in an attempt to force them to accept the shift in social contributions.
At the time this material was being prepared, the Romanian parliament was debating two initiatives to amend the Social Dialogue Law that introduced major modifications, based only on the input of the trade unions. If these are adopted unchanged, this will represent a major step backwards for labour legislation.
In 2011, both the Labour Code and the Social Dialogue Law were modernized in order to create more flexibility on the labour market. Trade unions opposed these changes at the time and they have lobbied ever since for the reintroduction of the previous provisions and many more that would dramatically increase their role and power of negotiation.
The positive results of the modifications made to labour legislation in 2011 are reflected in some important indicators. For instance, according to the National Institute of Statistics (INS) from 2011 to 2017, the number of active employees has increased by 14.7% up to 4.9 million, representing approximately 700,000 new employees.
The unemployment rate has also improved significantly. Unemployment dropped to 4% in January 2019, with approximately 354,000 people registered as unemployed. Wage increases have also been recorded throughout the 2010-2019 period, as mentioned in the section above.
The FIC recommends and supports the clarification of the social dialogue situation in Romania and this should be done on two main axes:
A concentrated effort from all the parties involved (government, employers’ and employees’ confederations and civil society) should be triggered in order to ensure the proper implementation of the social dialogue framework, as defined in law. This can only be achieved through more proactive involvement by all parties in social dialogue, and through the rejection of abusive practices (such as summoning crucial meetings at very short notice, failure by representatives of the authorities to attend important meetings etc.)
The authorities should make sure that they organize tripartite meetings in such a manner as to allow all the parties involved to thoroughly evaluate the issue under discussion and prepare a well-documented position. Moreover, the deadline for sending comments on various employment issues should be set based on the volume of information. All the positions should be analysed and decisions should be made taking into account these positions.
The minimum wage has increased every year since its introduction in 2000, through HG No. 296/1999. On average it has increased by 17% annually and in many cases twice per year.
From 1 January 2018 a new increase in the minimum salary was introduced, to RON 1.900 per month (HG No. 846/2017), although at that time the business environment had serious objections to this increase, because there was no transparent mechanism to justify it, even though all social dialogue partners had agreed on the need for such an instrument – a mechanism that would take into consideration stable and predictable macro indicators.
Source: Calculations based on Eurostat
Yet in the same way, without real dialogue with the social partners and in the absence of impact studies, by the end of 2018, the Government had decided to raise the minimum wage again starting from 1 January 2019, while proposing a differentiated setting, on the basis of length of service and studies. This approach has led to major business concerns. Employers' organizations have highlighted the major negative impact of this approach due to a lack of predictability and lack of correlation with current economic developments, which breaches the fundamental principles highlighted by the International Labour Organization as regards the way in which minimum wages should be set.
The FIC believes that it is necessary to have a minimum wage policy and to be aligned with the practices in other EU countries. We also consider that it is essential for the framework of the minimum salary increase to be predictable, so that it is easier for businesses to plan ahead.
This would provide more stability and predictability to the economic environment in Romania and create realistic premises for growth. Furthermore, the open dialogue begun in 2016 between all relevant partners (Government, trade unions and employers) should be resumed. The FIC has proposed that decisions on the level of the minimum salary should be based on market & economic research, which should identify and evaluate both the benefits and the associated risks for companies’ profitability and competitiveness in the medium and long term of any changes in the minimum salary. Increases should take into consideration certain key indicators such as the cost of living, inflation rate, social inclusion, etc. Currently Romania is one of only seven EU countries which does not benefit from a transparent and measurable system for establishing the minimum wage.
One of the pillars of flexicurity in social relations is the implementation of ways of working which are flexible, both in terms of the location in which the work is carried out and in terms of the duration or flexibility of working hours. The challenge is to meet employers’ increasingly diverse needs, as well as employees’ needs to balance work and family responsibilities. There is a growing need to adapt to the needs of international remote project teams, freelancing and the specifics of the more flexible economy.
A first step in this direction was made in 2018, when the Teleworking Law was adopted in Romania, based on the European framework agreement on teleworking.
Furthermore, many European countries also have legislation expressly regulating other atypical ways of working, such as on-call employment contracts or job sharing. These are not yet covered by Romanian legislation.
Given that a flexible working environment is extremely important to attract and keep investors, the FIC highlights the need to adapt labour legislation to this issue, through regulation of new types of individual employment contract, i.e on-call work or job sharing.
To achieve this goal, some provisions in the Labour Code should be made more flexible. For example, restrictions on employees with part-time contracts doing extra work should be eliminated. In addition, the period in which overtime can be compensated should be broadened by introducing so-called “free credit hours”.
Moreover, the Labour Code should set out the possibility for an employee to cumulate several individual labour contracts, either with the same employer or with different employers. In order to do so, it should be explicitly stated that the employee can conclude individual labour contracts with either a different employer or different employers for the same job in order to avoid the existence of non-uniform practices at the level of ITM
Public expenditure on social security services has surpassed 40% of all general government revenues in 2018, making it by far the main cost in Romania’s budget and amounting to 11% of GDP. Moreover, public wages and social transfers now account for 78% of fiscal revenues and social contributions, marking a steep, dangerous 23% increase in just 3 years. Consequently, maintaining a sound, coherent and, most importantly, sustainable system of social security services is of paramount importance for the health of public finances and that of the general macroeconomic balance. The strong growth trends seen over the last decade for these expenditures, as well as prospects for further unsustainable increases in this sector provide several reasons for serious concern.
Public pensions make up around 75% of all social expenditures, and the pay-as-you-go (PAYG) system’s considerable financial deficit is a serious cause for concern. The way this deficit has been apparently reduced in 2017-2018, via substantial increases in public sector wages, which in accounting terms has increased state revenue from pension contributions (CAS), is misleading and has not improved the sustainability of the PAYG system.
In the meantime, the granting of over-generous special pensions for certain public employees has only made matters worse. In the long term, the sustainability of the public pensions system is precarious and demographic forecasts are adverse: Romania is set on the path of a rapidly ageing and shrinking population, and, based on current trends will become one of Europe’s “oldest” nations in the next few decades, according to research by both the EU and the UN.
Unfortunately, the major pension system overhaul in 2010-2011, which helped stabilise this situation, has been completely rolled back in recent years. All positive measures contained in Law No. 263/2010 have been reversed in several ways which effectively turn the public pension system (PAYG and special pensions) back to its 2009 state, when it was considered by independent research to be the most unsustainable among EU member states. Furthermore, the Government’s draft for new public pension legislation, issued at the end of 2018, which is set to more than double Romania’s pension expenditure, will certainly be catastrophic for the country’s public finances.
Consequently, the public pension system on its own is not enough to secure adequate, sustainable pensions for future generations of Romanians. Therefore, the continued development of the private pension system launched in 2007-2008 is essential to improve the general capacity of the pension system to meet the expectations of the active population.
Meanwhile, private pension funds have continued to grow and consolidate and have even started to make a considerable positive difference in the country’s growth and the development of capital markets. Mandatory private pension funds (2nd Pillar) have until recently benefited from a steady statutory contribution increase from 2% in 2009 to 5.1% in 2017, when this was unfortunately reduced to 3.75%. This brought a nominal decrease of 12% in individual saved contributions for millions of working Romanians, even though the rather strong wage inflation in the economy has increased the overall contributions directed to the 2nd Pillar by 10% in 2018 compared to 2017. The less developed voluntary private pension schemes (3rd Pillar) have registered a constant increase in membership and contributions, partly encouraged by the tax deduction of EUR 400/year.
Since their launch in 2007-2008, private pension schemes in Romania have earned more than 7.5 million members (individual accounts), reached combined net assets under management of more than EUR 10bn and posted robust investment performance. The 2nd Pillar funds posted an average annual return of 8.4% from the date they were set up until the end of September 2018, while the average annual return of 3rd Pillar voluntary funds for the same period is about 6%.
The FIC strongly believes that the Government’s draft law issued at the end of 2018 for a new, revised public pension system – proposing a doubling of pension expenditure by 2021 – is unrealistic and will certainly be catastrophic for the country’s public finances. We recommend that this draft law should be reconsidered and rewritten with a significantly more reasonable and realistic mindset with respect to the available financing resources.
The FIC also recommends the preservation of legislative stability in the private pensions sector and the protection of the system’s general viability. We strongly recommend that the mandatory private pensions (2nd Pillar) system should remain unchanged in the short term, i.e. we urge the Government not to enact proposals to make participation optional or other similar changes. Further measures to encourage the growth in coverage of voluntary pension funds (3rd pillar), including an increase in tax deductibility for employers’ payments to these pension funds from the current EUR 400 per year to EUR 1,000 per year, are also desirable in the short to medium term.
One of the fundamental components of flexicurity is professional training, which is inextricably linked to a healthy labour market. Current legislation fails to do enough to encourage companies' involvement in initial training (which for a long time was the exclusive prerogative of the national education system), nor does it adequately involve the state in supporting training organised by employers through incentives or the provision of facilities.
Investment in Human Capital is a priority for the EU, as it is the main instrument for ensuring competitiveness and economic growth. Although all Member States have identified common challenges in this area like ageing societies, skills deficits in the workforce and global competition, it is the responsibility of each Member State to adopt the best policies for training and education.
Romania currently has a deficit of qualified workers in certain regions, and although a legal framework currently exists for apprenticeships, the number of participants in this type of vocational training is very low.
A further challenge is unemployment among higher education graduates (especially young graduates) and difficulties in securing their professional inclusion.
The FIC’s policy is to encourage more flexible mechanisms, allowing companies to become more involved in training during schooling, so future employees (current students), may acquire practical knowledge during their studies. Consequently, the FIC supports legislative changes to promote dual education, apprenticeships, internships and on-the-job training.
The FIC encourages dialogue between the state authorities and the business community to bring together learning experience and the right skills needed within the working environment. This should be achieved by:
Adjusting the current legal framework on apprenticeships and high education graduates.
Increasing the financial incentives offered by the state for all participants involved (for employers as well as employees).
Raising awareness on professional training.
We are confident that by taking the right measures, an attractive environment will be created that will have a positive impact on the labour market (i.e. the number of qualified personnel will increase and the unemployment rate will fall).
Enhancing the general reputation of professional schools
After the fall of the communist regime, the general reputation of technical and professional schools fell significantly. This was a direct consequence of the destabilisation of the economy (with tens of thousands of workers losing their jobs) on the one hand, and the emergence of numerous private universities (which gave the illusion of a successful white-collar career, but had low academic standards), on the other.
Over time, the professional schools became something of a “scarecrow” for potential students, an icon of a failed educational system, with a low reputation. Moreover, they generally failed to attract the best teachers.
In recent years, however, following the direct involvement of multinational companies in the education system through various long-term projects (e.g. Oilmen’s school, Kronstadt, the auto school in Pitesti etc.) combined with the strengthening of standards in national examinations, the professional schools have experienced slow but steady progress. This trend is obviously a good sign but the combined efforts of private and public actors must continue.
The FIC understands the crucial importance of technical and professional education in developing the next generation of professionals and also acknowledges the urgent need of the Romanian educational system for involvement by the private sector. Consequently, the FIC is willing to cooperate with the Government and other social actors (employers’ and employees’ confederations, NGOs etc.) to help develop a sustainable, long term, national strategy and policies for the professional education system based on KPIs.
Furthermore, the FIC, through its members, is ready to get involved in communication activities, to raise awareness in Romanian society of the importance of professional education.
The appeal of professional schools could also be raised by official school visits by highly successful professionals in industry, who could present their success stories to children and teachers and the path they have followed.
The sessions should concentrate on the new technologies and work procedures used in heavy industry to eliminate misconceptions about the blue-collar work environment and increase its appeal as a successful employment choice for the future.
Authorities in the education sector should organize dedicated events, within schools, for students in the early stages of education (7th or 8th grade) and their parents, to which they should invite company representatives to present technical education opportunities & practice offers, along with career counselling sessions.
In conjunction with representatives of the European Union, the authorities should also identify policies and mechanisms to finance the investments made by companies (in transportation, accommodation, scholarships, materials, devices and educational apparatus) and, thus, encourage their involvement.
Local authorities (e.g. townhalls) should be encouraged to help companies by providing accommodation in the housing facilities of high schools or canteen services for students coming from a long distance.
Reorganizing the technical and professional education system
In recent years, some progress has been made in technical and professional education, in the sense that the professional system is seen again as a medium and long-term option for the development of crafts, and an opportunity to ensure a close link between education and the labour market. However, the vocational system still tends to focus more on the needs and interests of teachers rather than those of students.
The FIC acknowledges the importance of reorganising the education system and suggests that this should be based on the following principles:
Creating a system centred on the needs of students and employers, which aims to provide the practical skills and technical knowledge needed for successful incorporation into the labour market.
Establishing a flexible system which allows the setting-up of dual system schools only where favourable conditions exist, taking into account the requirements of the business environment. Where it is not possible to implement this system, schools should remain under the current one.
Developing a stable and predictable system, linked to the labour market’s needs. This would require inter-ministerial committees to ensure good coordination between the three main actors involved in public policy development and the modernisation of VET (vocational education and training) in Romania (MENCS, MMFPSPV, MECRMA), as well as the development of accurate analysis and forecasting mechanisms for the medium and long term.
Developing a participatory system which includes an assessment of social actors, studies (including prognosis) of the main economic actors by area, high schools and available data on teachers, as well as analysis of population demographics in those areas, in order to identify future labour market needs.
Many employers and non-governmental associations have proposed setting up school campuses based on regional needs and the level of development of the regions, (for example to encourage the relocation of existing schools and bring them into close proximity to large industrialised areas) or supporting companies which already have a concrete plan for the development of local VET (e.g. Kronstadt, Continental Timisoara, etc.). These regional campuses would facilitate the learning mobility of pupils according to their abilities, and areas of interest of employers.
For recording, storing and analysing data on Technical and Professional Education, creating an Interoperable Management Information System (IT) would support those involved in this process.
The FIC recommends that public authorities should initiate a reorganisation strategic plan for the technical and professional education system (with support from interested companies) based on current geographical needs.
The FIC is aware of the complexity of this process and is willing to get involved in helping the Romanian Government to update its strategy for technical and professional education.
Romania is going through an acute labour shortage crisis, which is even beginning to affect the country's economic and financial security. In the absence of radical, immediate measures, there are clear signs that it will only change for the worse in the coming years.
In June 2018, Coaliția pentru Dezvoltarea României (CDR) requested an analysis of the labour market, including an assessment of the gap between labour demand and supply, with the aim of identifying possible solutions for managing labour deficits in Romania in the short and medium term.
According to the PwC Workforce Barometer developed by PwC Romania for CDR, in Romania, in August 2018, there were about 1.1 million people of active age who were not officially engaged in any type of economic activity, were not following any educational programs and were not retired either. Yet only 0.4 million people were registered unemployed.
The long-term forecasts show that the number of employees will continuously decrease, the number of people involved in economic activity will stagnate, while the number of pensioners will continuously grow and will soon reach a 1: 1 ratio versus employed people. This will generate significant pressure to increase productivity so that the active labour force can sustain economic growth and provide for the dependent population.
The medium-term labour force deficit is expected to reach 1,000,000 people by 2021.
Over the past 10 years, Romania’s total population has decreased by 4.80%, while labour resources have fallen by 9%, one of the highest rates in the EU. Besides the decreasing population, emigration will continue to affect labour market dynamics. Every year around 200,000 people emigrate, and the diaspora is currently approximately 3.4 million people. The causes of mass departure appear to be the lack of affordable and quality education, medical services and infrastructure. Recent data show that many of the people leaving are young, productive workers (half of those who left in 2015-2017 are aged 20-34).
In terms of productivity, Romania is at the bottom of the list among EU countries, but has the highest rate of increase; 23.3% in 2016 compared with 2008. Productivity can have an impact on the relationship between GDP growth and the demand for labour, because higher productivity can generate GDP growth without necessarily involving a proportionate increase in the demand for labour.
However, the wage adjusted productivity ratio in Romania has decreased in most sectors, due to disproportionate salary increases. The highest increases since 2008 have taken place in the Services and ITC sectors, while Agriculture and Mining have seen the lowest improvements in wage levels.
Possible solutions identified to solve the labour crisis include increasing the number of employees by bringing non-economically active people in Romania into the labour force, attracting non-EU workers, offering encouragements to those who have left to return, as well as increasing labour productivity through technological progress and financial and managerial support. Each of the above solutions has its challenges, but a common basis: education, digitalization and innovation.
Education is a key factor affecting employability. In Romania, the number of people in education has decreased at all levels, except post-secondary education.
Digital technologies have developed tremendously in recent years, helping to improve people’s daily lives in a myriad of simple, accessible and affordable ways. Half of current work can be automated, but overall technology creates more jobs than it destroys. Successful policy measures should include further training and support for older workers to become “digital adopters”.
Studies show that while half of current work can be automated, in the medium-term automation will transform blue collar/low skilled jobs into skilled, professional jobs. As people will work alongside machines, at least basic digital skills will be required at all professional levels.
Another important issue will be the rapid pace of change. People of all ages should be ready to learn during their entire life, re-skill, to work flexibly and move around the country for work. As the exact jobs of the future are as yet unknown, other skills than digital ones that are critical for transition to the workplace of the future include social and emotional skills such as communication, creativity, adaptability, critical thinking, and empathy.
At present, in Romania, out of the population aged 24-64, only 1.2% are enrolled in any purposeful learning activity, whether formal, non-formal or informal, undertaken on an ongoing basis with the aim of improving knowledge, skills and competence. This is a decline compared to 2011 (1.7%) and well below the EU average (10.8%). This is also very far from the EU 2020 15% target which aims to develop a skilled workforce which responds to labour market needs and to promote job quality.
The extent to which the local economy will grasp the benefits of the 4th industrial revolution by continuing to attract investment and business development will much depend on its capacity to develop a pro-active approach to this issue and future oriented policy responses.
Given the fast speed of technological change, reactivity will not be enough to remain competitive on the labour market. The FIC appreciates that skills are critical for the medium and long term development of the labour market and at the same time for the economic development of Romania. An extensive digital literacy program should be implemented across the country for the adult population allowing them to quickly redeploy to the more automated jobs of the future. This could be implemented by the public sector with public incentives.
Educational curricula should also be upgraded to include up to date digital skills, from very early ages (including kindergarten). This should ease interaction with technology at all ages and enable acquisition of transversal competences.
A similar approach should be taken in relation to social and emotional skills in order to make job adjustment more effective and to prepare workers for life-long learning.