The Future of HR and the labor market in times of structural change March 28th, 2017

Key themes for discussion Technology distruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

Fundamental change in services driven by major innovations

Major job losses expected from new innovations

Fundamental change in industry expected

New trends will displace low-skilled labor but will require higher skilled workers

Overall employment will increase due to Industry 4.0...

... however major losses in basic production

What does it mean for Romania? The threat is real... ... however we should not yet panic Largest impact will be in the service sector (mainly outsourcing / call centers and repetitive jobs in large service companies, e.g., banks/telcos) and low-end production – where Romania is positioned now New advanced jobs might be mainly located in developed countries Outsourcing trend might be slowing down due to lower costs in developed markets We are still low cost – first cuts might be in the expensive service jobs in western countries Digital/AI will be a complement to traditional workforce, increasing its productivity, incl. in Romania A reduction over time of 20% of repetitive tasks might free up labor ressources for higher value add services In services and industrial management – location will be increasingly less relevant, giving opportunities to work for larger market out of Romania

Key themes for discussion Technology distruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

Romania job market – rapidly increasing polarization Bucharest, top cities + Transylvania Rural and Moldova/Muntenia Already at or above EU average levels of GDP/Capita – Bucharest above Budapest, Madrid, Rome or Berlin 50% employment level, mainly in Private Sector (in line with EU averages) ´- strong presence of high value-add industries Average salary at 4000+ RON Strongly increasing GDP, investments, salaries and jobs Poorest EU regions – with very low contribution to GDP (most of it coming from taxes collected in the other regions and redistributed) 25% employment level – mainly in public sector, with rest in informal economy, subistance farming, retired and under social support Very high de-population (3-4m people net left to EU and to cities), no investments Insufficient labor force Salaries are too low vs. productivity Top talent leaving to EU Remaining labor force highly unskilled – and generally leaving to EU or RO urban (or get employed by state) No realistic economic prospects

Key themes for discussion Technology distruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

Employee expectations and mentality changing fast, esp. millenials Significantly increasing salary and career progression expectations Job-hopping or job multi-tasking becoming the norm Increasing on the job flexibility expectations (part time, work from home) EU jobs seen as part of the available pool of options, both early on and mid-career Top talent increasingly seeing multinational incumbents as un-attractive Mid to low talent seeking job stability and free time – and increasingly attracted by public sector or low-end jobs abroad

Key themes for discussion Technology distruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

What are the best practice public policies and where do we stand ? Current situation in Romania Invest in modern education, incl. in disadvantaged areas Lowest % of GDP invested in Education in EU Lowest PISA scores (mainly in rural/disadvantaged areas) Education output not syncronized with labor market needs Partner with private sector for tech/on the job skills No clear incentives and plans (e.g., for co-founded vocational schools, joint curricula in universities, tax breaks for investments in educational facilities) Support high value-add job creation in urban hubs and rural-urban migration Investments mainly focused at un-productive projects in low-income areas (that will not increase job prospects there) + pensions and public sector salary increases Fiscal and labor policy supporting job creation (esp. entry level) One of highest rates of labor taxation for low-income jobs – leading to significant number of informal arrangements and high migration Limit jobs in Public sector and introduce meritocratic models of evaluation Incoherent salary structures, generally higher than private sector (for low/mid jobs) Increase of public sector employees by 50% since 1990

Key themes for discussion Technology distruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

What are best practices and where do we stand? Flexible salary grids to attract/retain top local talent Build digital / tech skills of employees and change culture accordingly Significant investments in internships / on the job training and building up vocational channel Invest in building eco-system of start-ups to support overall transformation Flexible arrangements to accomodate other projects or interests of employees Attract eco-system of local freelancers / experts as alternative quasi-labor relationship Significant investments in attracting labor from secondary areas

Key themes for discussion Technology disruption – Services 4.0 and Industry 4.0 Is public policy constructive or destructive ? Job market in Romania increasingly polarized and under tensions What actions should we take? Is the private sector embracing positive change or resisting it ? Change of expectations and mentality of employers

A few suggestions Private sector to get better organized for public lobby / policy shaping Private sector to take responsiblity in shaping the new labor/technology/education ecosystem – and not rely on public sector to deliver Significant investments needed in structurally changing culture and HR trainings / "rules" for the new environment Embrace the opportunity – aggressive local investments in new technologies to make Romania a driving force in the new European game