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3.2.2.2 Romania's Labor Market


Update Note:The data on this page is as recent as from 2008. For more recent data please vitis the page on Unemployment and Employment in Romania and Real Wages and Salaries in Romania.

The distribution of total employment in Romania among sectors reveals sharp productivity differences among them when assessed against their contribution to GDP. While initially the sectors’ share of GDP of Romania corresponded more or less with their contribution to total employment the situation changed considerable after the revolution. At least this is true for the services sector and agriculture. Whereas services generated some 61 % of the total output in 2005 their contribution to total employment grew only moderately and reached a share of 39.09 % in the same year (less than 11 % more as at the beginning of transition). The respective EU-27 average amounts to 68.7 % for 2006 (own calculations based on Eurostat 2007: 8). According to the downsizing of the industrial sector employment in industries declined significantly and corresponds now roughly with the industrial contribution to the Romania of GDP.

Employment Structure in Romania by Sector

A somewhat puzzling evolution is that of the immensely growing importance of the agricultural sector for employment, which in turn follows an opposite pattern concerning its contribution to GDP. “Employment” in agriculture rose during the recessions of the nineties from 28.18 % to nearly 41.4 % by 2000 and decreased during the following growth period from 2000 onwards only relatively few by nearly 10 % until 2005.

Image 3.4: Sector’s Share of Total Employment 1990 – 2005
Employment structure in Romania by sectors

Source: INS 2007; own graphic, own calculations

Employment and Unemployment in Romania

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This rising “employment” in agriculture is closely related to the evolution of employment and unemployment in Romania in general and served as a buffer for the massive lay-offs during the nineties. Since the first official tracking in 1990 a massive increase in unemployment from 3 % to a first peak of 10.9 % in 1994 and a second peak in 1999 (11.8 %) had to be witnessed. Anyhow, sheer unemployment rates in Romania do not reflect the actual job destruction sufficiently clear as the decline in total employment reveals. Beginning in 1991 the Romanians had to face a continuous decline in total employment, which did not decelerate even during the freeze of reforms in the early and mid-nineties. Job destruction reached its peak only in 1999 and left the labor market in Romania with some 8.39 million of working persons, followed by only slight fluctuations even during the recovery period after 2000. Overall some 2.42 millions of jobs got lost (that would account roughly for some 10 % of the total population or for 22.6 % of the employed persons in 1990). Official unemployment rates do not reflect this evolution by any means but rather follow the periods of recession and recovery identified in chapter 3.2.2.1. Hence, they build an M-shaped mirror image of the W-shaped GDP evolution in Romania .

Image 3.5: Total Employment and Job Destruction 1990 – 2005
The Romanian Labor Market: Romanian Unemployment Rates vs. Employment Rates and Job Loss

Source: INS 2008; own graphic, own calculations

Participation on the Romanian Labor Market

Academic Research paper and Study of the Economy of Romania and Romanian Business

The relatively low unemployment rates of the Romanian transition economy and their (at a first glance) favorable evolution is mainly driven by three determinants. The first one is the massive and constant decline of the activity rate from about 82 % in 1990 to a mere 64.19 % by 2004 (cf. Figure 3.6). The activity rate regained only precious few, despite the slightly growing share of employable persons in the same period. Second, but to a far lesser degree, long-term migration might contribute to the decline in unemployment in Romania.

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On the other hand net migration is rather low, both in absolute and relative terms. Then again, short-term migration might do a good job in explaining a considerable part of the decline in both, unemployment rates and activity rates. This issue remains to be readdressed in chapter 3.4. Third, the typical mentioned and probably most important buffer for unemployment is a process, sometimes described as “reruralization” (cf. Heller 2006: 44). In 1991 the Romanian government returned agricultural land, expropriated during the communist era, to the former proprietors. (Self-)Employment in agriculture was further facilitated by direct lending (cf. Scrieciu & Winker 2002: 7). Though the refunded properties were rather small – about 2.5 ha on average (cf. Neve & Olteanu 2006: 513) and not sufficient in size for commercial usage – a considerable part of the excess labor force created by the massive deindustrialization was provided with an alternative “occupation” in subsistence culture (cf. Popescu 2006: 89ff). This turn from more productive large-scale agriculture towards unproductive subsistence agriculture explains both, first the countervailing importance of agriculture for GDP, net exports and employment and second, the favorable seeming evolution of unemployment rates.

Image 3.6: Labor Force, Activity and Occupation 1990 – 2006
Occupation Rate of Romania, Activity Rate and Labor Ressources in Romania

Source: INS 2008; own graphic, own calculations

Real Wages and Salary in Romania

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The evolution of real wages in Romania so far contributed few in making the labor market more attractive to the population.[1] Corresponding to the decrease of overall production and the massive inflation dynamics (cf. Figure 3.12, chapter 3.2.2.4) Romanian real wages fell considerable to 58.9 % of the level of 1990 until 1993. After a short make-up until 1996 the next negative peak was recorded in 1997 and even in 2005 they reached just a mere 89.5 % of their starting level from 1990. Again, like unemployment rates, real wages tended to follow the W-shaped GDP evolution but at a lower level. On the other hand, the last years witnessed several rounds of salary growth in two-digit ranges (cf. chapter 3.2.3). Nonetheless, current average gross salaries amounted to some RON 1,340 in 2007 and are expected to reach RON 2,169 by 2013 (cf. CNP 2008 b: 3). This would mean an increase from a gross salary of some 360 € to maybe 600 € at the current exchange rate (own calculations, exact values might differ with the exchange rate).

Image 3.7: Evolution of Real Wages and Real GDP per Worker 1990 – 2005
Real Wages in Romania and the Growth Rates of Romanian Salaries

Source: INS 2008 & PWT 6.2; own graphic, own calculations

Footnotes

[1] Standard neoclassical models of labor-markets, especially the notion of voluntary unemployment often have been criticized as unrealistic. This might be true for Western European labor markets but the data here seems to be in line rather with the neoclassical models. It was not always a lack of jobs but a lack of jobs offering wages the people were ready to work for, which characterized the labor markets during the late nineties and subsequent years. Hence, people better tried their luck with domestic production, illicit work or (short-term-) migration.