Romania: Increase in minimum wage sparks debate

In 2015, the national minimum wage in Romania increased for the fifth consecutive year, but it is still far from ensuring a decent standard of leaving.

The base national minimum salary guaranteed in payment increased from 1 January 2015 to RON 975 gross per month and from June 2015 to RON 1050 gross per month (approx. EUR 217) for a full-time job of 169 hours per month, according to law 1091/2014.  This is the fifth year of consecutive increase in the minimum wage, resulting in an increase of about 40% from 2010 to 2015. Despite this significant increase, the share in GDP of employees’ compensation is only 31.3 % (2014) as compared to 39.3 in 2008 and to 31.5 in 2013, one of the lowest in EU according  to Eurostat. Although the number of employees has increased in the last five years (by more than 300,000, according to NIS data), the wages share in the GDP declined by four percentage points since 2010, most likely due to an increase in the precarious and low wages employment. Analyses indicate  the sharpest decline of the wages share in GDP was registered in the private sector: from 30.1% in 2009 to 24.4% in 2014. Remuneration in the public sector decreased by two percentage points: the public wages’ share in GDP was 9.1% in 2008 and decreased to 7.1% in 2014.

The increase in the minimum statutory wage by the government, beginning on 1 January was criticised publicly by a group of academics,  representatives of the business community and intellectuals, who claimed, in an open letter addressed to the Prime Minister Victor Ponta, that the successive and unsustainable increase in the minimum wage will negatively impact on the economy by generating an increase in youth unemployment and a rise of the informal economy/informal work. In reaction, others have argued that the empirical data do not indicate any correlation between the minimum wage increase and the unemployment increase but rather the opposite: there have been years in which the increase in the minimum wage was accompanied by a decrease in the unemployment rate. Some economists have even argued that as long as the minimum wage remains under the effective wage, a 10–15% increase in the minimum wage would not hamper the country’s economic competitiveness or its economic growth, as the minimum wage’s critics have claimed.

On the other hand, the European Committee on Social Rights (Council of Europe) 2014 conclusions claim that Romania does not respect the right to a decent remuneration and that the national minimum wage is not sufficient to ensure a decent standard of living. The ratio between the gross national minimum wage and the average basic wage did not exceed 33%, while the Committee points out that, in order to ensure a decent standard of living within the meaning of Article 4§1 of the Charter, wages must be above the minimum threshold, which is set at 50% of the average net wage. This is the case when the net minimum wage is more than 60% of the net national average wage. After the combined amount of all deductions are taken into account, the wages of workers with the lowest pay are insufficient to provide for themselves or their dependants. The European Committee on Social Rights 2014 conclusions have been used by the trade unions as an argument in support of the minimum wage increase.

According to Eurostat, the in-work poverty rate in Romania was 17.7% in 2013, the highest in the EU28.

 

 

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