Romanian employers paid EUR47 billion worth of salaries and payroll taxes last year, EUR11 billion less than in 2008, according the latest Eurostat data. The loss of more than 400,000 jobs in 2008-2013, the decline of some salaries and the replacement of ‘expensive’ employees with unexperienced personnel have led to the decline of an indicator used as a slogan to promote Romania to foreign investors; the cheap labor.
“Romania stands out in Central and Eastern Europe with its low workforce employment and with its low-paid employees, which is why the total salaries are low compared with other countries,” said Ionut Dumitru, chairman of the Fiscal Council.
“Our competitiveness comes from the price component first of all, but this policy cannot go on forever, because there will always be cheaper destinations in terms of labor costs.”
The decline in salaries was quick to show in consumer spending, considering this indicator dropped about 15% in 2009-2012 and was flat last year, while the first growth, 5%, came as late as this year.
An explanation for the lower total salaries compared with 2008 is the decline in the number of public sector employees. In 2007 and 2008, the public sector hired many people for a total of 1.4 million and gave unsustainable raises, explains Cristian Parvan, general secretary of the Association of Businesspeople in Romania (AOAR).
“In 2009, they had to do some serious slashing so this is when the total salaries started to decrease because of the inflation in the numbers and the structure of the income of public sector employees,” Parvan said.
The number of public sector employees now stands at 1.2 million and the salary spending thereon fell by EUR1.3 billion in 2013, which means the massive decline in the total salaries was because of private sector companies.
With a population of 20 million people and fewer than half of those fit for work actually employed, a breakdown of employees by income shows more than two thirds of Romania’s employees earn less than 2,000 lei (EUR456) in gross amount per month and only 5% more than RON5,000 in gross amount per month.
In other parts of the country but Bucharest, where hiring was done mostly by industries such as automotive component manufacturing, employers have an unwritten agreement not to raise their employees’ wages and to keep them at the minimum level if possible, to preserve or boost profitability. Wages increased significantly only where powerful unions exist, such as Automobile Dacia, and the statistics showed a higher average wage level in the Arges County (where the Dacia plant is) compared with the neighboring counties.
The low number of employees (4.3 million) compared with the total population has an impact on the total salaries, as well. Romania has almost the same salary spending as Hungary, even though Hungary has half the population.
“The solution to increase the total salaries is to create jobs that pay better, because creating a job in retail while firing a higher skilled industrial employee doesn’t help,” AOAR’s Cristian Parvan added.
Only several countries in the EU besides Romania saw decline in total salaries in 2013 compared with 2008: Spain, Greece, Portugal, Ireland and Hungary.
“Total salaries cannot increase arbitrarily. For about one million employees making the minimum wage, the wages have gone up by RON200 in the last couple of years, while the budget revenue from payroll tax has not, which means more experienced people who had been employed for a longer time were fired and replaced with new less skilled employees who are paid less,” Parvan said.
Total salary spending of Romanian employers, EUR47 billion in 2013, accounted for one third of the gross domestic product, while in countries like Austria, Sweden, Germany or Belgium, total salaries are worth more than half of the GDP.
(English version by Loredana Fratila-Cristescu)