Reform of pay system for public employees

After more than four years, the idea of setting the pay of public employees to a uniform salary grid finally took shape in November 2009, when a framework public wage law was approved. With support from the International Monetary Fund and the European Commission, the Romanian government managed to reach a final version of the law after months of negotiations with the social partners. However, trade unions are dissatisfied with the pay provisions.

Steps towards new public wage law

The idea of merging all pieces of public wage legislation into one law dates back to November 2005, when it was included in a protocol between the Government of Romania (Guvernul României) and the National Alliance of Budgetary Trade Unions ‘SED LEX’ (Alianţa Naţională a Sindicatelor Bugetarilor ‘SED LEX’, Alianţa SED LEX) (RO0504104F). The parties to the protocol agreed that a bill should be drafted by the end of June 2006. Later that year, the trade unions accused the government of not having kept its side of the bargain by the due date, and demanded – in light of Romania’s accession to the European Union on 1 January 2007 – that the national minimum net salary for public servants should be €350 a month. The trade unions argued that the salary of similar employees in central and eastern European countries was €470 a month.

In the summer of 2006, the government and trade unions signed a new agreement for the appointment of a joint committee charged with drafting the new public pay law, together with World Bank representatives. The World Bank experts carried out a study regarding the pay system in the public sector in 2008, revealing imbalances and discrepancies between the various types of public employees (RO0901019I). As a consequence of this study, in October 2008, a special working group of experts representing the government, the social partners and the political parties was appointed to examine and agree on the basic principles that should underlie the uniform public personnel pay law. In November 2008, an agreement on these principles was signed, as a guarantee that the draft of the act would be completed within six months.

However, after a government reshuffle and the change of its political spectrum brought about by parliamentary elections, it was only in March 2009 that the National Trade Union Confederation ‘Cartel Alfa’ (Confederaţia Naţională Sindicală ‘Cartel Alfa’, Cartel Alfa) requested a calendar of negotiations for the drafting of the new bill. The collective bargaining between the government and social partners made little progress at the beginning, because they had to renegotiate the previously agreed principles. The new government parties comprised the Liberal Democratic Party (Partidul Democrat Liberal, PD-L) and the Social Democratic Party (Partidul Social Democrat, PSD), which were not signatories to the 2008 agreement.

In April 2009, the national trade union confederations requested that the parliamentary political parties be present at the negotiations and endorse the principles, because the initial signatories – the National Liberal Party (Partidul Naţional Liberal, PNL) and the Democratic Union of Hungarians in Romania (Uniunea Democrată Maghiară din România, UDMR) – were now opposition parties. At the end of April 2009, the principles of the new public pay system, which basically were the same as those agreed in 2008, were finally accepted by the government, and by the national trade union confederations and employer organisations representative at national level.

Principles of new public pay system

The principles of the unitary pay system from public funds are, in essence, the following:

• the ratio between the national minimum wage and the maximum salary in the public sector shall be 1:15 rather than the existing 1:70, according to the trade unions, or even the 1:29 acknowledged by the government;

• pay rises shall be based on macroeconomic and social indicators;

• the base salary shall include the generally applicable fringe benefits and shall account for the main share of wage earnings;

• the transition from the current pay grids to the new pay grid shall be done in such a way as to avoid any reduction in the present gross salary;

• the transition to the new pay system shall be made by differentiated salary increases over the next five years, with a zero increment for high salaries and an accelerated increase for low wages.

The salaries for specific positions in various areas of activity are rated by coefficients applicable to the national minimum wage, which is assigned a reference value of 1.0. For example, the salary for a position rated with the coefficient 6 on the pay scale will result from the multiplication by six of the minimum wage in force.

The negotiations were followed by a period when the trade union confederations were waiting for the reactions of the political parties, while the politicians in turn were watching to see how the trade unions would react. In August 2009, the trade unions demanded that the gap between the minimum and the maximum salary be reduced further from 1:15 to 1:12.

After calculating the effects of the law on the finances of Romania, the government twice diminished the worth of the coefficients negotiated with the social partners: first by 40% and then by another 25%. Overall, the parties bargained over 12 versions of the pay grid before the draft was approved by the government and adopted on 15 September 2009, under the government’s own responsibility, without being debated in and endorsed by parliament. On 9 November 2009, the law was published in the Official Gazette.

The law supersedes nine laws, six government emergency ordinances, 12 government ordinances, six government decisions and 16 other articles in various pieces of legislation that governed the pay of specific classes of employees.

Reactions to new legislation

Soon after the government assumed responsibility for the passing of the law, PNL and UDMR challenged the legislation before the Constitutional Court of Romania (Curtea Constituţională a României, CCR). However, at a hearing of 4 November 2009, CCR rejected the motion filed by the two political parties. When the CCR decision was published, the trade unions stated that they were waiting for the appointment of the working groups to discuss and amend the law, as set out in the provisions of the legislation. It is likely that more negotiations will be necessary before the law can become fully operational.

Meanwhile, on 13 October 2009, the government was dismissed by parliament, pursuant to a motion. No one was available to discuss the new law after two consecutive abortive attempts to form a new cabinet and due to the presidential elections scheduled for 22 November. Therefore, the trade unions suspended the protest movements that they had previously planned.

The main objections raised by some of the trade unions concern the fact that the law was negotiated with the national trade union confederations, leaving no scope for the sectoral organisations to express their views and pursue the interests of their members. Indeed, the turbulent history of the law has inspired the formation of a new trade union, the Alliance of Budgetary Employees (Alianţa Bugetarilor) (RO0909019I).

Economic background

After 2000, Romania experienced a significant and steady process of economic development, which translated into a 6% to 8% annual average growth in gross domestic product (GDP), particularly after 2003. In addition, the pre-accession process and accession to the EU in 2007 created a general euphoria, including in terms of salaries. A large number of government agencies were set up to manage financial and other relations with European institutions; for example, measures were taken to strengthen the eastern border of Romania, which – after accession – became the frontier of the EU.

All of this activity was reflected in the growing wage funds, due to both the increasing level of salaries paid to employees and the greater number of workers on the payroll of public agencies. Contrary to the modest average wage in Romania, some employees working for the government agencies in charge of administering Romania’s affairs as an EU Member State received various forms of extra pay.

In three years, from 2005 to 2008, the number of employees paid from the public funds rose by some 3%, and the number of positions increased by 13%. Of the 4.9 million employees in Romania, over 1.35 million persons are paid from public funds. In 2008, about 22.3% of the employees paid from national public funds were working in the central administration (up by 25% from the reference year 2005); 18.5% of them were working in local administration bodies (up by some 41%); 17.8% were working in defence and internal affairs (up by 32%); 27% were serving in education; and 13.7% were working in the health system.

With 39 types of regulatory legislation, significant differences between sectors arose in relation to not only fringe benefits – and, particularly, incentives – but also basic salaries. In short, the pay of public employees was far from being uniform; in fact, as noted, trade unions claim that a differential ratio of 1:70 exists between the national minimum wage and the maximum pay on the public wage scale.

Moreover, personnel expenses in the public sector doubled in the reference period 2005–2008, whereas, in the same time span, consumer prices increased by 30%. This was the effect of cumulated increments: basic salaries by 79%, fringe benefits by 136%, bonuses and overtime by 270%. For example, the employees managing EU funds received an extra 75% of their base salary.

By mid 2009, the net average salary in public administration was some 47% above the net average salary at national level, and equivalent to about €476. Trade unions had triggered the alarm over this anomaly more than three years before, when they demanded that the pay of public employees should be based on uniform criteria. Due to the budgetary difficulties caused by the economic and financial crisis, Romania had to seek the assistance of international institutions, such as the International Monetary Fund (IMF) and the European Commission. One of the sustainable means of diminishing the budget deficit – which, in 2009, had reached 7.2% of GDP – was to proceed to a reform of the public pay system.

Commentary

The new public wage law aims to gradually reduce the public salary funds from 9.4% of GDP in 2009 to 7% by 2015. The reduction is achievable by cutting the number of staff, by increasing GDP by an estimated 50% from the 2009 level by 2015, or by adopting both strategies.

A crucial issue for the government, trade unions and employers – but also for the macroeconomic balance – will be the amount of the minimum wage, that is, the value of the 1.0 reference base coefficient in the pay grid. The social partners have signed a tripartite agreement on the value of the monthly gross minimum wage in relation to monthly gross average earnings until 2014 (RO0808019I). However, employer organisations will not welcome a fast incremental rate of the national minimum wage, which may render the macroeconomic balance, purported by the law, ineffective and transform it into microeconomic imbalances.

In fact, the essence of the question is not necessarily the high level of average wages in the public sector but the very small, monthly level of wages in the private sector of the Romanian economy.

Constantin Ciutacu, Institute of National Economy, Romanian Academy