The government’s persistence in boosting public wages and the minimum wage, with productivity failing to keep the pace, the consequence is a hit to competitiveness, says Lucian Croitoru, monetary-policy adviser to central bank Governor Mugur Isarescu, in an interview granted to Bloomberg.
“To think you can force your way out of the category of countries with a cheap labour force is an illusion,” he said. “The country’s economic competitiveness is being eroded.”
While economic growth has surged beyond 5 percent thanks to the pay increases and several rounds of tax cuts, the central bank and analysts complain the measures come at the expense of investment spending, crimping future expansion.
The Romanian Council for Small and Medium-Sized Companies says that about a quarter of the firms it represents have scaled back or ended operations since October 2015, months after the wage initiatives gained traction. It cited rising labour costs among the biggest issues, along with a shortage of workers, bureaucracy, high taxes and corruption, the same source informs.
One example is U.K. apparel manufacturer Alison Hayes, which closed a factory in Romania in March citing, among other things, increased costs of labour. And it’s not going unnoticed. Romania halted four years of competitiveness gains in 2016, slipping nine places to 62nd of 138 countries the World Economic Forum’s global ranking.
On May 29, the National Small and Medium Sized Enterprises Council (CNIPMMR) representatives have calculated the impact of the unitary wage bill to the public servants and on budget expenditures that could reach RON 34 billion by 2020, as ‘Romania Journal’ informed at the time.
They said the impact could surge to RON 42 billion by 2022. “We call on the Chamber of Deputies to attentively analyse the impact on investments, which might fall dramatically, and on the private environment,” CNIPMMR chairman Ovidiu Nicolescu said.
President Klaus Iohannis signed on June 28 the decree of promulgation of the framework law on the remuneration of staff paid from public funds. By promulgating this law, the head of state “supports the need to sustainably increase salary incomes, in order to improve the Romanians living standards.”
The Chamber of Deputies passed the controversial public salary law on June 7, despite the trade unions’ discontent against the delays of the pay rises for certain public employees such as teachers and doctors.
The law was passed by 188 votes to 28 and 47 abstentions.