Labour

In 2011, major modifications were made to the Labour Code to make labour legislation more flexible and better adapted to the socio-economic realities and needs of the present, as well as to provide the right conditions for the development of the business environment, while also providing a good level of protection for employees. These changes have had a positive impact on the dynamics of the labour market. 

The impact of the amendments made to the Labour Code on the flexibility of labour relations and the dynamics in the labour market will only be fully appreciated in the longer term. However, already some indicators are beginning to demonstrate that the modifications have begun to produce positive results. 

For instance, according to National Institute of Statistics (INS) data, from November 2010 to November 2016, the number of active employees increased by 14% up to 4.7 million, representing approximately 600,000 new employees.

NUMBER OF EMPLOYEES (THOUSANDS) NOVEMBER 2011 - NOVEMBER 2016

Source: INS

Some improvements were recorded with respect to the number of people employed informally, the official figures showing a decline to 10.332 persons in 2015 (vs. 29.095 in 2011). However, due to the extent of undocumented labour in the countryside, some estimates are that in reality over 1.5 million people are working on the black market. The use of undocumented labour has negative consequences, not only for the employees, who do not benefit from all their legal rights, but also for the state, as the budget is deprived of significant amounts of revenue. Undocumented labour also undermines the social protection system.

The unemployment rate has also improved significantly. As shown in the charts below, unemployment dropped below 5% in 2016, with approximately 418,000 people registered as unemployed.

With higher demand for work concentrated in a few regions where new businesses have developed or existing ones expanded, the market has started to see low or no supply of employable workers. To address the polarization of supply and demand on the labour market, several measures have been taken to encourage cross-regional labour mobility and attract people to where they can find jobs. 

Wage increases have been recorded throughout the 2010-2016 period. The gross average wage has increased by 43% over the last 6 years, while the minimum salary has more than doubled during the same period. 

While increases in the average wage are a good indicator of improving employment conditions, recent rises in the minimum wage at a higher rate than the growth in labour productivity and without impact analysis could have a negative impact on the viability of certain business sectors/industries. Moreover, these measures, especially when correlated with recent fiscal changes eliminating caps on social contributions, are generating an unsustainable trend of more and more labour contracts being registered with the minimum salary. 

* Starting from February 1st, 2017
Source: Ministry of Labour and Social Justice

Given the rise in demand for labour, and consequent increase in its costs, in the medium-term it is important to avoid any measures that could destabilize the labour market or have negative effects on progress registered and on the trust of foreign investors in the Romanian business environment. In its current form the labour legislation is likely to continue to bring growing benefits. 
The intelligent use of human resources is at the backbone of an ambitious plan the FIC has proposed for Romania to become the 10th economy in the EU in 2036. In order to achieve this goal, in the long term, the attractiveness and sustainability of the domestic labour market should be consolidated. It is essential for labour policies to take into consideration demographic trends and be closely integrated with educational policies. The work force can be a strong enabler of economic development in Romania if the related policies are designed in an integrated manner to respond to the impact of computerization, digitalization.

Following the 2011 labour law modifications, social dialogue in Romania has registered steady progress in terms of institutional exposure. 

Various official social dialogue assemblies have either been set in motion, or reorganised, in order to streamline tripartite dialogue on issues concerning labour legislation. 

The Tripartite National Council for Social Dialogue, the Social and Economic Council, and the Social Dialogue Commissions are the most relevant institutions but there are numerous other assemblies, formal or informal, on this issue, most of which bring the same actors to the table (e.g. the ad-hoc tripartite social dialogue meetings at the Ministry of Labour, the tripartite meetings organised by NGOs on specific social topic etc.).

However, the institutional development of social dialogue has been carried out at the cost of jeopardizing the fluency and ultimately the efficiency of the institutions mentioned above.
In some cases, social dialogue is hindered by the slow dynamic of the legal framework. In others, the problem lies with the incapacity of the social actors to come together around a common interes.

Another problem is that certain social partners impede active and efficient social dialogue by organising very important meetings at very short notice. (In some cases the invitation is sent only a few hours ahead of the event).

The minimum wage has increased every year since its introduction in 2000, through HG 296/1999. On average it has increased by 17% annually and in many cases twice per year. 

From 1 February 2017, a further increase was made to the minimum wage, based on HG no 1/2017 (MO 6.01) to 1450 lei gross per month, the second increase in less than 12 months. Negotiations on raising the minimum wage were initiated by the Trade Unions in 2016 but the Government rejected their proposals due to concerns about the possible negative impact on SMEs.

Research carried out by the National Research Institute for Labour and Social Protection (Institutul National de Cercetare Stiintifica in domeniul Muncii si Protectiei Sociale INCSMPS) at the request of the Ministry of Labour, Family and Social Protection revealed the negative consequences of a rise in the minimum wage for the competitiveness of Romanian companies, especially those with tight cost margins. 

In 2015, almost 1,1 million employees (out of 4,662,017) were paid the minimum wage in the private sector and 40,000 (out of 914,559) employees in the public sector. (INS, May, 2015).

One of the pillars of flexicurity in social relations is the implementation of ways of working which are flexible, both in terms of the location in which the work is carried out and in terms of the duration or flexibility of working hours. The challenge is to meet employers’ increasingly diverse needs, as well as employees’ needs to balance work and family responsibilities.

At European level a framework agreement on teleworking has been adopted by social partners, and most European countries have legislation on this form of work. Many European countries also have legislation expressly regulating other atypical ways of working, such as on-call employment contracts or job sharing. These are not yet covered by Romanian legislation.

In recent years, the state’s spending on social security services has reached a third of all general government revenues, making it the main cost in Romania’s budget, amounting to 11% of GDP. Consequently, maintaining a sound, coherent and, most importantly, a sustainable system of social security services is of paramount importance for the health of public finances and that of the general macroeconomic balance.

Public pensions make up almost 75% of all social expenditure, and the pay-as-you-go system’s considerable financial deficit is a serious cause for concern. In the long term, the sustainability of the public pensions system is still precarious and demographic forecasts are adverse: Romania is set on the path of a rapidly ageing and shrinking population, and, based on current trends will become one of Europe’s “oldest” nations by 2050. Unfortunately, the major pension system overhaul in 2010-2011, which helped stabilise this situation, has been completely rolled back in recent years.

All positive measures contained in Law 263/2010 has been reversed in several ways which effectively turn the PAYG system back to its 2009 state, when it was considered by independent research to be the most unsustainable among EU member states.

Consequently, the public pension system on its own is not enough to secure adequate pensions for future generations of Romanians. Therefore, the continued development of the private pension system launched in 2007-2008 is essential to improve the general capacity of the pension system to meet the expectations of the active population.

Meanwhile, private pension schemes have continued to grow and consolidate and have even started to make a considerable positive difference in the country’s growth and the development of capital markets. Mandatory private pension funds (2nd Pillar) have benefited from a steady statutory contribution increase from 2% in 2009 to a current 5.1%, while the less developed voluntary private pension schemes (3rd Pillar) have registered a constant increase in membership and contributions, partly encouraged by the tax deduction of EUR 400/year. A major drawback for the development of the 2nd Pillar was the Government's decision to stall the contribution level at 5.1% for 2016 and 2017, instead of enabling the legal, statutory increase to 6% due from 2016 to take place. 

Since their launch in 2007-2008, private pension schemes in Romania have earned in excess of 7 million members (individual accounts), reached combined net assets under management of more than EUR 7.3bn and posted robust investment performance. The 2ndmandatory pillar recorded an average annual return of more than 9.3% from the date it was set up until the end of 2016 whereas the average annual return of 3rd pillar voluntary funds exceeds 7%. 

One of the fundamental components of flexicurity is professional training, which is inextricably linked to a healthy labour market. Current legislation fails to do enough to encourage companies' involvement in initial training (which for a long time was the exclusive prerogative of the national education system), nor does it adequately involve the state in supporting training organised by employers through incentives or the provision of facilities.

Investment in Human Capital is a priority for the EU, as it is the main instrument for ensuring competitiveness and economic growth. Although all Member States have identified common challenges in this area like ageing societies, skills deficits in the workforce and global competition, it is the responsibility of each Member State to adopt the best policies for training and education. 

Romania currently has a deficit of qualified workers in certain regions, and although a legal framework currently exists for apprenticeships, the number of participants in this type of vocational training is very low.  

A further challenge is unemployment among higher education graduates (especially young graduates) and difficulties in securing their professional inclusion.