“In general, structural reforms are critical for strengthening convergence, ensuring durable growth and making the economy more flexible in order to benefit from euro area entry, as the advantages of euro adoption are not unconditional. (…) One area that would definitely benefit from the implementation of such reforms is the labor market, at a time when the Romanian one faces challenges that are certainly not new or uncommon,” Isarescu said in a keynote speech at the “Convergence towards euro enlargement” conference.
He said there are various opinions in Romania’s economy about where wages should be: on the one hand, they should be governed by productivity dynamics, so as not to lead to an erosion of the competitive position, yet on the other hand, they cannot be significantly below what is available in other economies, as it would simply lead to a labor force drain, with dramatic consequences if not addressed quickly.
Isarescu added Romania is currently dealing with an emigration problem today, as more than three million Romanians (a significant percentage of the population) have left their homeland for other EU Member States.
“In order to mitigate this, wages should go up. As noted above, the only way to do that without upsetting competitiveness is to boost productivity. This can be done along a number of avenues, many of them involving, however, a significant amount of time. For example, one cannot solve the population-aging problem overnight,” Isarescu said.
The central bank governor added foreign direct investment in recent years helped total factor productivity, but employers are currently being challenged by the shortage of labor force, in part determined precisely by the significant emigration. As a result, we can even talk now about discouraged employers, as opposed to the periods that follow a crisis, when the employees are the discouraged ones, he said.
ensuring that wage levels are compatible with attracting investors, but acknowledging that, at least in certain areas, wages need to come up at present, in order to mitigate the labor force drain, which affects the private and public sector alike.
“The key is, in my opinion, to increase wages at an adequate, sustainable pace, so as to ultimately benefit from an improved living climate reflected in a higher purchasing power, but also from preserved macroeconomic equilibria, as well as higher-quality public goods – roads in particular –, because, after all, wages are not the only part of the emigration story, said Isarescu.
He underlined infrastructure is essential for connecting different regions of Romania and promoting cohesion. “This is all the more important that, even though EU membership has acted as a catalyst for country-level real convergence, the development gaps across the regions of the New Member States, including in Romania, have not diminished significantly,” he said.