Tripartite agreement on minimum wage rises for 2008-2014

On 25 July 2008, the Romanian government and social partners signed a tripartite agreement on the growth of the gross national minimum wage over the period 2008-2014. The agreement, which is a first in the country’s industrial relations, provides for the minimum wage to rise from 31% of the national average wage at present to 50% in 2014.

The context

In December 2007, the government issued a decision setting the national minimum wage at RON 500 gross per month for the period January – June 2008, with a possible increase to RON 540, with effect from 1 July 2008, contingent on Romania’s economic growth.

The trade unions were dissatisfied with the rise in the minimum wage decided by the government, their initial demand having been a monthly minimum of approximately RON 650 (€185) (RO0711029I). In June 2008, the unions started demanding that the government implement the possible minimum wage increase from 1 July, as announced in December 2007.

Since autumn 2007, Romania has been failing to achieve the inflation target set by the National Bank of Romania (Banca Naţională a României, BNR) in agreement with the government. During the first half of 2008, BNR tried to check inflation by successively raising interest rates. However, prices continued to soar. At present, the annual average inflation rate is above 9%, which is almost double the target of 5%. BNR officials have repeatedly recommended a cautious wage policy, if the country wants to stay within the intended inflation rate.

The unions demanded an increase in the minimum wage owing to price rises, and argued that inflation is being caused by economic factors other than pay raises.

Under growing pressure from all national trade union confederations, several bargaining sessions with the government and nationally representative employer organisations took place in July, and on 25 July, a tripartite agreement on increases in the gross minimum wage for the period 2008 – 2014 was signed, the first of its kind in Romania.

Main provisions of the agreement

The preamble to the tripartite agreement makes reference to the revised ‘European Social Charter’, the European social model, and the enhancement of social cohesion. It highlights the gap between Romania and the other EU Member States in terms of GDP per capita, the level of the gross minimum wage, and the proposition of average national gross monthly pay represented by the minimum wage.

The agreement sets a medium-term objective, in line with the European social model, that the gross minimum wage should be 50% of the gross average wage, an aim that can be reached only if the minimum wage grows faster than average pay.

Under the agreement, the gross monthly minimum wage is planned to grow from approximately RON 500 in the first half of 2008 to RON 600 in 2009, RON 860 in 2011, and RON 1,325 in 2014. The ratio between the gross minimum wage and the gross average wage will rise from 31% in 2008 to 33% in 2009, 40% in 2011, and 50% in 2014.

From 1 September 2008, subject to compulsory consultations with the social partners, the calculation of some social welfare benefits and contributions will be decoupled from the minimum wage (RO0807019I).

The gross minimum wage is to be raised to RON 540 per month with effect from 1 October 2008 (the date initially set was 1 July – see above).

In future, in October of every year, the government, jointly with the social partners, will negotiate the minimum wage for the following year, so that its ratio to the average wage is as planned under the agreement.

The unions and employer organisations have made a commitment to transpose into their national collective agreements the provisions of the tripartite agreement with regard to the annual ratio between the minimum and the average wage.

The agreement was signed:

  • On behalf of the government, by the prime minister, the minister of labour, family and equal opportunities, and the minister of economy and finance;
  • On behalf of the trade unions, by the leaders of the five national union confederations;
  • On behalf of the employers, by the leaders of the 13 representative employers confederations.

Commentary

The conclusion of a seven-year agreement on increases in the gross minimum wage and its relationship to the national average gross wage is a very bold initiative.

If the figures set as targets are reached, in 2014 the average gross wage would be, at the current RON/€ exchange rate, in the region of €757, and the gross minimum wage would be somewhere around €379. However, assuming that prices remained at today’s levels, Romania would still be, in 2014, far from the pay rates in most other EU Member States.

Ciutacu Constatin, Institute of National Economy, Romanian Academy

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