Minimum wage issue threatens 'social stability pact' prospects

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In October 2003, the Romanian government issued proposals for a tripartite 'social stability pact', covering 2004. By the end of 2003, after several rounds of negotiations, the chances of the trade unions signing such a pact seemed slim, mainly because of a government decision to set a minimum wage rate far below that demanded by the unions.

Since it came to office in late 2000, the current government has concluded a number of tripartite social pacts with the social partners. The first 'social agreement' was signed in 2001 by the government, eight employers’ confederations (out of a total of 12 nationally representative organisations - RO0310103F) and all five nationally representative trade union confederations RO0307101F). The 2002 social agreement was concluded by the government, seven employers’ organisations and three union confederations - the National Confederation of Free Trade Unions in Romania 'Brotherhood', (Confederaţia Naţională a Sindicatelor libere din România Frăţia, CNSLR Frăţia), the Democratic Trade Union Confederation of Romania (Confederaţia Sindicatelor Democratice din România, CSDR) and Meridian- while a separate deal was concluded with the other two representative union confederations - the National Trade Unions Bloc (Blocul Naţional Sindical, BNS) and Cartel Alfa. However, negotiations over a 2003 social agreement ended in failure.

Proposals for 2004 social stability pact

At the end of October 2003, the Prime Minister, Adrian Năstas, launched a plan for a 'social stability pact', covering 2004. The key proposals were as follows,

Wage policies

  • Trade unions should accept a statutory minimum monthly wage of ROL 2.8 million from 1 January 2004. This would represent a nominal increase of 12% from the rate at December 2003, and would cover in advance the 9% forecast inflation rate for 2004 .
  • A schedule would be put in place for the staged introduction of a wage guarantee fund, guaranteeing workers' pay in the event of bankruptcy etc (as stipulated in the new Labour Code - RO0308102N). The relevant legislative proposal would be drawn up in 2004, adopted in 2005 and come into force in 2006, after taxation changes.
  • In 2004, wages in the sector covered by the state budget would increase by 6% in January and by another 6% in October, thus covering forecast inflation fully.
  • The 'social contribution' tax rate would be lowered by three percentage points.
  • As additional measures to increase employees’ incomes, the social partners should investigate the possibility of increasing the number of food vouchers and of introducing vacation vouchers.

Employment policies

  • At least 320,000 new jobs would be created for unemployed people, by implementing active employment measures.
  • Adequate measures would be implemented to cope with youth and long-term unemployment;
  • All kinds of discrimination on the labour market would be addressed, by implementing employment and social inclusion programmes for disadvantaged groups.
  • In 2004, active labour market measures would continue to account for at least 15% of the total unemployment fund.
  • The quality of the public employment service would be improved.
  • The cash flow of the unemployment fund budget would be better managed.
  • Public support would be provided to private companies, employers’ organisations and trade unions for the better integration into the labour market of vocational training graduates, including partial financial support for training courses and programmes.

Social assistance policies

  • The government would continue with its social programme. With regard to low-income groups, over 2002-4 it planned: a 100% real increase in farmers’ pensions; to finalise the recalculation of all pensions, in two consecutive steps; the promotion of alternative pension schemes; increased financial support for families with children and low incomes, by introducing special allocation schemes, depending on the number of children and the average disposable income per family member (approximately 1.1 million families would benefit from such measures); improvements in the aid system for heating costs over November 2003-March 2004; school grants for children from families with low incomes; and addressing social exclusion by granting scholarships to students from rural areas.
  • The public health system would be improved, by increasing the quality of medical services, improving the effectiveness of the national health programmes, developing the national monitoring system for contagious diseases, and building capacity to implement EU norms in the field.
  • Contributions to company-level 'social funds' would be increased (from 1.5% to 2% of payroll) amounts and their management would be made clearer.
  • On agricultural issues, public assistance would be given to farmers owning less than five hectares of land, support would be provided for farmers in livestock production, and subsidies for electrical power supply in rural areas would be continued.

First rounds of negotiations

During the first round of negotiations over the government's proposals, all issues set out in its stability pact project were reviewed. The social partners agreed on issues such as increased contributions to company social funds, but divisions remained on matters such as the minimum wage and the introduction of a wage guarantee fund. The government considered that a trade-off could be reached if trade unions would accept a 'reasonable' minimum wage and employers’ organisations would agree to postpone the amendments they have requested to the new Labour Code.

Three weeks after the negotiations started, only CNSLR Frăţia had agreed to sign the pact, while the other four nationally representative union confederations continued to demand a minimum wage of ROL 3.8 million per month for 2004.

In a press release issued on 12 December 2003, Marian Sarbu, the Minister for relations with the social partners, made public the government's final decision on the minimum wage: from 1 January 2004, the minimum wage would rise to ROL 2.8 million a month, as originally proposed. The official assessment is that approximately 1.3 million employees will benefit from this measure, including 370,000 in the public sector. Trade unions’ reactions were delayed by the Christmas/New Year break, but their final opposition was unsurprising, as most of them had already made it known they would not sign any pact with the government unless the minimum wage increase met their demands. The chances of a pact being agreed thus seem to have receded.

Commentary

At the end of 2003, the gross monthly minimum wage in Romania stood at ROL 2.5 million, compared with ROL 1 million at the end of 2000 - see the table below. In December 2003, the gross monthly minimum wage was, in real terms, 34% higher than at the end of 2000. Of a total of 4.6 million employees in Romania, 1.3 million (28.9%) were paid at the minimum wage rate, which translates as approximately EUR 61 per month, for 170 hours of work - ie around EUR 0.36 per hour. By the end of 2004, according to the government’s programme, the minimum wage should have grown in real terms by at least 50% compared with 2000. This means that the monthly minimum wage should reach approximately ROL 3.1 million (taking into account the 9% forecast inflation rate) by the end of the year. Trade unions had demanded a minimum wage of ROL 3.8 million a month from January 2004, which is approximately EUR 93.

Minimum wage developments, 2000-4
. 2000 2001 2002 2003 2004*
Gross monthly minimum wage (ROL) 1,000,000 1,400,000 1,750,000 2,500,000 3,081,784
Average annual inflation rate (%) - 34.5 22.5 14.1 9.0
Real gross monthly minimum wage (ROL, in 2000 constant prices) 1,000,000 1,040,892 1,062,135 1,326,342 1,500,000
Real increase in gross monthly minimum wage (%, 2000=100) 100.0 104.0 106.2 132.6 150.0
Annual average exchange rate (ROL/ EUR) 24,117.7 27,881.2 34,918.7 41,000.0 -
Gross monthly minimum wage (EUR) 41.5 50.2 50.1 61.0 73.2

* 2004 figures are calculated in line with the requirements of the government's programme.

Source: Institute of National Statistics (Institutul Naţional de Statistică,INS).

Achieving social stability and avoiding any kind of upsurge in wage policies are extremely important in 2004, as the year will see elections and the conclusion (by November) of Romania's accession negotiations with the European Union, which it should join in January 2007. (Luminita Chivu, Institute of National Economy)

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