Wage Dynamics in Romania

Gaetano D'Adamo (), Nora Hesse, Julien Hartley and Nicolae Bîea

No 44, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Economy-wide real wage growth in Romania has been accelerating since 2015. While wages in Romania are low relative to the rest of the EU and they are expected to continue growing faster than the EU average as the economy catches up, wage growth in excess of productivity gains could lead to losses in competitiveness. Overall, the increase in real compensation per employee was broadly in line with that of labour productivity between 2011 and 2016. Already in 2016, however, real compensation started to race ahead and in 2017 unit labour costs expanded by more than 11%. While Romania's exports have fared well in recent years, the current account deficit has been gradually increasing since 2014 as imports accelerated in line with booming private consumption, itself stimulated by a persistently pro-cyclical fiscal policy. Thus, a deteriorating external competitiveness and export performance due to rising production costs could pose significant macroeconomic risks. Against this background, this paper seeks to investigate the role of public sector wages in leading wage changes in the economy as a whole, which in turn might influence Romania's cost competitiveness. The analysis shows that, over the period 2000-2017, the public sector was the leader in the wage setting process while the "tradable" (i.e. manufacturing) sector and the market "non-tradable" (i.e. services) sector have been the followers. These results suggest that, notwithstanding nominal exchange rate developments, spillovers from wage growth in the public sector to the private sector could undermine Romania's external competitiveness. Therefore, a responsible wage setting policy is needed to ensure that overall wage dynamics are attuned to productivity developments in the tradable sector and reflect prevailing conditions on the labour market.

Keywords: Wage policy; wage developments; competitiveness; labour productivity; wage setting policy; Romania; Wage Dynamics; D'Adamo; Hesse; Hartley; Bîea. (search for similar items in EconPapers)
JEL-codes: C32 J31 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019-05
New Economics Papers: this item is included in nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economy-finance.ec.europa.eu/publications/wage-dynamics-romania_en (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:044

Access Statistics for this paper

More papers in European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().