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de Marin Pana , 12.3.2018
Hourly labour costs had increased by 14.29% in the fourth quarter of last year, in gross terms, compared to the same period in 2016, according to data announced by INS. It is more than double the currently estimated economic growth rate of about 7%, which shows this labour cost trend is unsustainable, generates inflationary pressures and reduces the competitiveness.
Although, beyond the value of the indicator that gives, by and large, the picture of the whole economy, there can be detected significant differences in the structure of wage increases. Differences with not very favourable implications for the prospects of the Romanian economy.
That is why we present how much the labour cost has increased in various branches of the economy, structured according to international norms (see table).
- Quarterly indices of hourly labour cost in the fourth quarter of 2017 (% compared to the fourth quarter of 2016, adjusted by the number of working days)
- Economic activities total labour cost
- Arts, entertainment and recreation
- Defence and public administration; social insurance
- Extractive industry
- Health and social assistance
- Administration and support services
- Retail and wholesale trade, auto repairs
- Industry, and services
- Transport and storage
- Hotels and restaurants
- Manufacturing industry
- Other service activities
- Water supply, sewerage, waste management
- Financial intermediations and insurance
- IT & C
- Real estate
- Professional, scientific and technical activities
- Energy, natural gas and water production and supply
It can be easily noticed that the public sector is already positioned significantly above the national average. And, after the “liberalization” of wages at the level of administrative-territorial units, we found ourselves at the end of last year in front of the salary increases of civil servants much more than in the health and education sectors.
The rankings by categories of personnel in the Romanian economy appear almost like some sui-generis joke, with the staff from the public administration positioned between the staff from the entertainment, cultural and recreational activities and the one from the extractive industry.
In the middle of the ranking, going back to the technical side of the topic, we can notice the overall compliance with a theoretical principle of a faster wage growth in the service sector compared to the manufacturing sector (the so-called Balassa- Samuelson effect).
Despite an unsatisfied demand of skilled staff, the manufacturing industry appears below the national average, despite the significant productivity gains, and the successful IT & C sector appears, as it was normal, close to the general economic growth, which it silently supported.
The issue is whether this structure of cost increases in the economy is alright and whether the economy can accommodate the salary advance without losing the economic balance, hardly stabilized during this decade. Even though the labour market is becoming more and more affected by the lack of available workforce, following the years of departures to the West because of the lack of jobs.
Double-digit wage increases are extremely rare in a stable economy. The share of wages in the cost of products has already led, by the salary increases, to a 4.4% increase in the industrial production prices that is already visible, including in the stores and in the exchange rate.
Prior to this wage assault, there was a buffer (in a depleting process, if not already deleted) from the relatively low share that was due to the employees from the economic outcome, compared to the practices of the Western economies. It is noteworthy that this is a rapidly depleting resource, which can no longer be used in the next years.
Fortunately, we had a robust advance in the industrial work productivity in 2017 (the benchmark for the entire economy, because it is the only sector where it can be accurately calculated) after four years of successive decreases, and after it even entered the negative range in 2016:
- Work productivity in industry
- Work productivity
Therefore, for 2018, it is important to maintain this robust growth in the labour productivity. But we should render unto Caesar the things which are Caesar’s, that is, stop maintaining the wages in the manufacturing industry to just 90% of the national average, which is totally atypical for a European country. It would be an extremely important change, even from the social equity’s perspective.
Symmetrically, in some form or another, it might be necessary to refine the evaluation modalities in this respect in the public sector as well, where measuring the social productivity of the work done is more difficult and subjected to increasingly subjective criteria.