Romania: New law aims to tackle wage inequities in labour market

The Romanian government has proposed a new pay law to address the increasing wage imbalances across sectors. This article looks at the social partners’ views and the relevant regulations.

Wage inequalities in Romania

Wage inequality has been at the centre of the economic and political debate in the last few years. There is a perception that wage inequality is at an historic high and that it is related to the fragility of the country’s economic development. The average net monthly wage in Romania was 1859 lei (€412 as at 26 January 2017), an increase of 9.5% from 2014. If the first decade after 1990 was characterised by economic instability, strongly influenced by the level and the growth of inflation, the second decade was marked by the ending of this transition period to a market economy. Thus, since 2003, the real value of earnings has recovered, with the level reached in 2007 surpassing, for the first time, the level reached in 1990, by 11.8%. Since 2012, the real earning index has grown, reaching a peak in 2015 (144.6% greater than 1990). Thus, according to a report on earnings and labour costs in 2015 from Romania’s National Institute of Statistics (Insee), the real earnings index increased by 13.4 percentage points in 2015, compared with 2014. The figure below shows the average net monthly wages in different sectors. The largest increases in average net monthly earnings, compared with 2014, were found in:

• construction (14.7%);
• information and communications (13.9%);
• other service activities (13.7%);
• administrative and support services (13.2%).

The production and supply of electricity, gas, steam and air conditioning was the only activity that registered a decrease in average net monthly earnings (of 0.5%) in 2015 compared with 2014.

Average net monthly wages, by economic activity, 2015

88576_romania_figure.jpg

Source: Authors’ own elaboration based on data provided by Insee

Sectoral wage inbalance

Wage inequalities exist in every country but, in Romania, they have persisted for years according to activities, regions, ownership type and size of enterprises.

In 2015, the average net monthly wage in certain sectors was higher than the national average – 2.2 times higher in financial intermediation and insurance and 2.1 times higher in information and communications. However, it was below the national average in:

• mining and quarrying (85.8% of the national average);
• hotels and restaurants (41.9%);
• other services (30.2%);
• agriculture, forestry and fishing (26.3%).

Gender wage gap

Gender wage differences in different economic activities are the result of many factors, such as an employee’s skill level, their hierarchical position at work and the occupation performed. Thus, the average net monthly earnings of women in 2015 represented 95.9% of that of all employees. Men received higher average net monthly earnings than women in most economic activities; the largest differences being found in:

• financial intermediation and insurance (41.4% higher);
• other services (28.6%);
• manufacturing (25.0%).

Women’s average net monthly earnings were higher than those of men in administrative and support services (by 21.3%), but their share of employment in this activity is about one-third of the total average number of employees in this activity. The table below shows the differences in average net monthly wages between men and women in 2015 by type and size of enterprise.

Source: Authors’ own elaboration based on data provided by Insee

​Employees in the public sector earned 46.3% more than the national average. Significant discrepancies in wages are also observed by the size of enterprises, with employees in large enterprises having earnings that are 1.9 times higher than those in small enterprises.

In terms of region, in 37 counties the average net monthly earnings in 2015 were below the average of the economy. The lowest level was registered in Neamţ county (RON 1,359, about €305.4), 26.9% less than average. Conversely, the average net monthly salary in Bucharest was 45% more than average (RON 2,696, about €605.84).

New law on unitary payment in the public sector

Discontent about wage levels in Romania and about wage discrepancies between different social groups or different sectors has been the cause and focus of many trade union protests and public debates. In turn, employees in the health, education, public administration and justice sectors have expressed their dissatisfaction with the unacceptably low level of salaries in the public sector.

Remuneration in the public sector is regulated by Law No. 284/2010 and there are several annual provisions regarding its application. The doubling of the minimum wage from RON 600 (€133.33) in 2010 to RON 1,250 (€277.77) in May 2016 has resulted in a series of payment imbalances and inequities, particularly in relation to a worker’s educational level and professional activity. Also, the Romanian authorities felt it necessary to increase wages for disadvantaged socio-professional categories (such as health or education staff) to combat personnel shortages and halt doctors’ migration flows.

The government has tried to correct existing salary imbalances by developing a new law on unitary payment which is based on the following principles:

• public sector reform;
• unitary composition;
• wage equivalence between and within occupational families/categories;
• regulations on bonuses-granting;
• regulations on non-wage benefits;
• reconsideration of the minimum wage as the reference for unitary payment.

Legal regulations on salaries in the public sector were changed twice in the past year, each time requiring new financial resources. In November, the government made an additional budgetary allocation, for the next five years, of RON 14 billion (€3.1 billion), compared with the figure projected for 2016. The share of government spending on public sector wages has increased in the past 10 years from 5% of gross domestic product (GDP) in 2005 to 7.7%–8.0% of GDP today. It is estimated – through the recent project on Unitary Pay Law – that this share will reach nearly 10% of GDP (RON 73 billion, €16.2 billion), which is more than double that of 2005. A quarter of the total number of employees in Romania work in the public sector, which accounts for a third of the country’s total wage bill.

Social partner reactions

Trade unions have organised a series of protests and made several observations on the draft law.

• The Employees’ Federation of Central and Local Public Administration (Columna) has submitted proposals to increase significantly the number of workers covered by the act and to adopt a specific salary scale for employees in local government and social assistance.
• The National Federation of Administration Trade Unions (FNSA) organised a strike in July 2016, demanding a 25% increase in the basic wage, food allowance and holiday vouchers granted on the grounds of performance criteria.
• The National Trade Union Bloc (BNS) has identified some discrepancies in the use of existing financial resources and also some discrepancies in pay between similar functions within the same institution.
• The Sanitas Union Federation has picketed the Ministry of Health many times and has set out amendments on various bonuses (PDF) applied to the basic salary (for night work, for work performed on days off and weekends, for particular working conditions) in order to reduce wage differences between employees doing the same job.
• The Federation of Trade Unions in Education has criticised the low wages for new teachers, proposed by the government and stated that the bill did not solve the major wage discrepancies between education and other sectors.
• Other proposals focused on the existence of five classes of education, on promotion once every three years on the basis of merit, on a periodic review of salary levels and capping increases to 30% of base salary.

Commentary

Discussions between the government and the social partners on the draft unitary salary law continued in December. There are hopes that it could be applied early in 2017. Although wage inequalities will continue to exist in Romania’s labour market, it is expected that the new law will be a step toward attenuating them.​

Documents: 

88576_romania_-_sectoral_wage_imbalances_in_the_labour_market.xls