Romania: latest working life developments Q2 2018

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Labour market developments, the impact of the so-called ‘fiscal revolution’ and new conditions for beneficiaries of the guaranteed minimum income are the main topics of interest in this article. This country update reports on the latest developments in working life in Romania in the second quarter of 2018.

Employment levels peak while minimum wage jobs rise

On 31 May 2018, the overall number of active employees in Romania reached 5.5 million. This is the highest number of employees since 1998 and is due to the new jobs in manufacturing, commerce, health and social assistance, hotels and restaurants and information technology and communications.1

There was also a noticeable increase in the number of full-time work contracts: 5.2 million at the end of April 2018 (290,000 more than the same period in 2017). At the same time, the number of part-time contracts decreased (273,000 compared to 645,900 in April 2017). This declining trend is thought to be due to the legislative changes from the last year, which require employers to pay pension and healthcare contributions at the level of the minimum wage – currently RON 1,900 or €409.2 – for employees hired on part-time contracts, even if their salaries are below the minimum wage.

The share of high wages also increased by 80% between April 2017 and April 2018, when the number of employees earning more than €1,000 net reached 217,402 (4.14% of all employees).2 However, the proportion of minimum wage earners increased too – the share of labour contracts on minimum wage was 47% in May 2018, compared to 44% in 2016. Administrative data from the Labour Inspectorate reveal a striking contrast between the public and private sectors: whilst in the public sector the share of high-wage contracts and low-wage contracts is similar (with 23% of contracts earning over €1,000 gross versus 24% on minimum wage), in the public sector 54% of contracts are on minimum wage and only 9% are higher than €1,000 gross.

Impact of the ‘fiscal revolution’ starts to show

The impact of the so-called ‘fiscal revolution’ in January 2018, which transferred the responsibility for social security contributions from the employer to the employee, started to become quantifiable in Q2. According to official statistics provided by the Ministry of Labour and Social Justice in April, 1.9 million labour contracts (30%) were not subject to any wage increase between 1 January and 31March 2018, meaning that the net earnings of the contracts’ beneficiaries decreased. Data also indicate that 28% of employers did not increase wages. The gross wage increase was optional for employers, but in order to maintain employees’ net earnings after the social contributions transfer, the gross wages had to be increased by some 20% – otherwise it would be a net loss for the employee. The main trade union confederations opposed the new fiscal regulations upon their adoption in 2017 and continue to criticise their impact, pointing to the drop in employees’ income as well as the losses for the state budget.3

New conditions for welfare beneficiaries

Finally, the Romanian Parliament approved a legislative project aiming to address Romania’s workforce crisis. The new law abolishes the right to a guaranteed minimum income when just one offer of work is rejected – previously, beneficiaries had the right to refuse up to three job offers. It also obliges social welfare beneficiaries to undertake casual work for private enterprises – previously, they were only obliged to participate in community service work. Several employer organisations had requested the elimination of social welfare programmes as a solution to the workface crisis, although data show that Romania had only 218,000 beneficiaries of guaranteed minimum income in 2018.

Commentary

In the second quarter of 2018, employment reached a peak in Romania, but most of the jobs are at the level of minimum wage; the share of contracts on minimum wage has constantly increased since 2011. As an effect of the so-called ‘fiscal revolution’, a third of all labour contracts suffered a loss of net income. Low wages coexist with the workforce crisis, pushing the authorities to undertake various measures aiming to fix the problem of labour shortages.

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