From the latest Eurostat data on the monthly minimum wage, it appears that Romania (with just over EUR600) ranks among the last countries in the EU, in 20th place out of 22, just ahead of Hungary and Bulgaria, on a scale of this indicator comprised between EUR2,387 in Luxembourg and 399 euros in Bulgaria. Although it represents a pressing problem only for part of the member countries, the theme the minimum income is still positioned as a priority on the work agenda of the European institutions.
An important step in this regard was the adoption by the European Parliament, last fall, of Directive 2041/2022 on the appropriate minimum wage in the EUand from the moment of its entry into force (October 2022), the member states have two years to transpose its provisions into local legislation.
How did the initiative come about and how does it materialize?
The “zero” moment of the initiative was 2017, when the entire institutional ensemble of the European Union proclaimed the European Pillar of Social Rights. Its principle number 6 refers to the “adequate minimum wage” (“fair minimum wage”), with the express mention that in the EU there is a need to ensure a decent income for all workers, considering that adequate minimum wages have an important role in protecting vulnerable categories.
Through this Directive, it is aimed that the minimum income can be determined transparently and predictably by each member state, in accordance with social reality and in accordance with national legislation. This is because, despite the fact that all EU countries have one form or another of minimum income assurance through different social protection systems, in most cases this remuneration does not cover all the costs of a so-called decent living.
Digitization, new atypical forms of work, globalization, along with exacerbated consumerism, have eroded and reshaped the labor market, generating large discrepancies between certain fields when it comes to income.
The role of these minimum income thresholds becomes even more important in the current economic and social context, both complicated and complex, after years of pandemics, health crises, mobility and rising inflation, plus a regional war in Europe. Thus, this initiative is characterized by the ambivalence given primarily by the need to improve living and working conditions in the European Union, but also by the idea of ensuring economic and social progress within it.
Very important to remember is the fact that not all EU countries will have the same adequate minimum income! Each state will establish its level depending on social and economic conditions, purchasing power, productivity level and the evolution of macroeconomic indicators at the national levelbut having as a guide precisely the provisions of the European directive and the principles it includes.
Thus, the countries that already have a minimum wage per economy are committed to changing its level according to a formula that ensures a decent living, is in line with the inflation rate and can cover the minimum shopping basket for various necessary goods and services ( without, however, being limited to the list of essentials, but can additionally cover even certain expenses dedicated to well-being and the running of recreational, cultural, educational or social activities).
Last but not least, the directive specifies that the states that have already implemented social protection policies regarding the guaranteed minimum income through collective agreements, will not be obliged to introduce this new set of rules regarding the adequate European minimum income, provided that they have already provided, through national legislation, conditions and standards more advantageous than what would result from the implementation of this concept.
On the other hand, it is desired to encourage collective negotiations on the level of wages, but also to monitor working conditions through a system of checks and inspections on the ground to avoid either abusive subcontracting, fictitious independent activity or non-declaration of overtime. Thus, it is recommended that member states update their minimum wages at least once every two years, and in countries that use an automatic indexation mechanism, at least once every four years.
In order to correctly calculate this income, European officials recommend that member states take as a starting point the value of the expenditure basket (as provided by the national statistical reports), or to set this income at 60% ofthe median salary or at 50% of the average gross salary in the economy. For example, an expenditure basket for a decent living can be composed of costs for: food, clothing and footwear, housing insurance, furnishing and maintenance, household products and personal hygiene, services, education and culture, health care, recreation and vacation, savings fund.
Where is Romania at the present time?
Romania is part of the group of countries with statutory minimum incomes, that is, in the majority group of states with incomes regulated by laws or statutes. In contrast, collectively negotiated minimum incomes are found in the European Union in only 6 countries, namely: Austria, Cyprus, Denmark, Finland, Italy and Sweden (where they are established through negotiations between unions and employers). Unfortunately, Romania is not in an advantageous position when we talk about the guaranteed minimum wage at the national level, but also when it comes to the price level index for the final consumption of households – currently, 55% is the point at which our country is.
Regarding average incomes, Eastern European countries are still in the bottom half of the ranking. Some have registered significant increases in this direction (for example, Latvia, Slovakia, Bulgaria and Lithuania), while Romania and Estonia show slower developments, according to a Eurofound Report for 2021.
However, it is important to take into account the great differences between the economies of the member countries, on essential indicators, such as the gross domestic product (GDP) and the level of consumer prices. For example, in 2021, Ireland recorded the highest level of prices among the member states, with 44% over the EU average (which was set at 100%), while in Romania the price level was 45% under the EU average.
Separately, according to the latest statistical data available for the year 2022 in our country, we observe the following series of relevant data:
1. Average gross salary: RON6,430
2. Average net salary: RON3,974
3. The value of the minimum expenditure basket for a decent living for a single adult: RON2,708 per month(as set out in the Ombudsman’s Report)
4. The minimum gross monthly salary at national level (from 1 January 2023): RON3,000 (to whom, depending on the deductions, a net of approximately RON1,900)
Therefore, we note how in Romania today, the minimum guaranteed salary is much lower than the minimum income necessary for a decent living (as stipulated by the Directive), and the discrepancies can be highlighted as follows:
Making an exercise of imagination, if today it were determined depending on the daily expenditure basket for a decent livingthen the guaranteed minimum (net) income in Romania should be higher by at least RON800 net. Moreover, if the guaranteed minimum income in Romania were calculated using the equivalent of 50% of average gross profit on the economy – one of the calculation alternatives proposed by the Directive – (ie, 50% of RON6,430 to RON3,215), we note that the gap would increase by approximately RON500 net and therefore the guaranteed minimum income in Romania should increase by approximately RON1,300. Thus, we can consider that the minimum income received today (ie, RON1,900) by a Romanian is 50% lower (RON1,000, on average, in absolute values) than the threshold that is supposed to ensure a decent living.
The calculations above are examples for a single adult. If, on the other hand, we talk about a larger family, which possibly includes children and/or other dependents, then the discrepancies become even greater and we realize that the standard of living in Romania (for a good part of the population) is far from “decent”.
It is one of the calculation formulas “perfect“, so as to ensure the targeted equity? Hard to say. However, the State will have to find (with the transposition of the Directive) the most suitable calculation formula adapted to the daily reality in Romania. Apparently, in any calculation hypothesis (as shown by the simplistic calculations above), the Romanian employee will only have something to gain, because his minimum income would increase significantly.
However, the impact of the directive will be able to be measured many years from now, after a period of implementation, probably gradual, by the member states. The hope is that this EU normative act will generate greater transparency, certainty, stability and predictability on the labor market, and in times of crisis it will become an anchor for vulnerable citizens from EU countries, implicitly also for those from Romania.