Regional inequalities and wage convergence in Europe June, 12-13 ,2018 , Sofia-Bulgaria

Employment Romania is experiencing the worst staff crisis of the last 4 years. Even though we registered an economic growth, the number of employees has decreased, affecting all areas of the economy. Causes: Active part of the population has decreased from 9,35 mil. to 8,45 mil.; Statistics for 2017 confirm the exodus to the West of more than 3,5 mil. employees, the low level of wages being the main cause (the minimum wage is about 400 euros in 2018); Fast development of the economy due to the foreign investments has led to a high absorption of the workforce . Big companies prefer to qualify their employees only for their own aims due to the dissolution of vocational schools and high schools.

The situation doesn’t seem to have a quick term solution, even though the Romanian Government increased the minimum wage, and the big companies choose to grant the employees various benefits such as transport, meal vouchers, medical insurances. As an attempt to partially solve the workforce crisis, the Government has increased the number of work permits for foreign citizens outside the E.U. In 2018 there are 7000 newly admitted foreign workers, 1500 more than in 2017 (by Government’s Decision).

Unemployment Since 2016 due to the serious economic growth, the unemployment in the euro area is decreasing from 10% to 7,3% in 2018 (Eurostat). In January 2017 the seasonally unemployment level reached 5,4%, (according to NIS). Youth population aged under 25 represents 24% from the total of unemployed. Number of unemployed aged between 25-74 represents 74,6% from the total, (488 000 persons), decreasing by 94 000 y.o.y. (when there were 582 000). Unemployment rate among men exceeded women by 0,9% and the values were 5,8% for males and 4,9% for women.

In January 2018 the seasonally adjusted unemployment rate was 4,6%, according to the National Institute of Statistics. Unemployment rate was 3,8% for men and 2,8% for women. Unemployed aged between 25-74 represents 69,9% from the total of unemployed (424000 persons), decreasing by 64 000 y.o.y. Romania is on the top 10 countries with the lowest level of unemployment in E.U.

Wages Like the other European countries, compared to 2007 (when Romania became EU member) our country steadily increased the average wage. Starting 2007 the wages have a higher growth rate in the public sector than in the private sector (now , the gap is 34%). In 2011 public employees’ wages were 14,36% higher than in the private sector, in 2014 they reached a 24% difference and today, after two years of substantial increases due to the laws issued by the Government, the difference reached 34%. Compared to July 2017 the average net wage increased by 15,1% and the real wage index (in relation to the inflation rate) was 113,5 %. In 2017 average gross salary was approx. 3329 lei (740 euros) and the net of 2334 lei (520 euros). Since January 2018, the minimum wage is 1900 lei (about 408 euros), being the wage of about 1,3 million employees.

Minimum wage. Net salary. 2004-2018

Most significant increases on the net average wage were registered in October 2017 as compared to October 2016, as follows: by 14% in the automotive industry; between 7-10% in the manufacture of electrical equipment, computers, electronics and optical products, machinery and equipment manufacture, extractive industry. Over the same period (2016 -2017) there were also decreases in the net average wage: - by 3,6% in metal industry - between 1 and 2,5% in the manufacture of coke oven products, products obtained from forestry, fishing. Gross average earnings per economy in January 2018 was 4 143 lei, plus aprox 30%, and the net salary was 2 484 lei plus 8% (compared to 2017). From the wage point of view Romania is at a fairly large difference from the EU average (where the average salary is 23 euro/hour, 4 times higher than in the Romanian economy – 5,5 euro/hour) and we are far away from the wage convergence.

Poverty rate Relative poverty rate represents the proportion of poor people in the total population. Poor people are considered to be those who have an income per adult - less than the poverty threshold, which is 60% from the national average of adult incomes - equivalent (after social transfers). Poverty level for 2017 was calculated at 6 530 lei / person (about 1 450 euro), which means monthly incomes less than 544 lei / person (about 121 euros). In 2013-2016 relative poverty rate has evolved from 23% to 25,3% from the total population, which corresponds to about 5 million people according to the National Institute of Statistics. In 2018 according to Eurostat, the risk of reaching the poverty line was 38,8% of the total population. In 2018, Romania reaches the highest poverty level among children across the European Union: 49,2% of children aged 0-17 years (1,88 million) were at risk of poverty far above the EU average, 26,4% higher than in 2010 (48,1% - 1,859 mil) - NIS

Poverty rate among the elderly (65 years and over) increased by 4,6% in the period 2013-2016, but this social category is less affected than the rest of the population. In 2016, without the support of pensions and social aids, 49,6% of the population would have reached the level of relative poverty. The situation would have been worse for the elderly population (65 years and over) because, according to NIS, 85,3% of them would have reached the level of relative poverty. Education According to the European Commission's Education and Training Monitor 2017, Romania is on the last place regarding: money allocated to education (e.g.: 3,1% of GDP in 2015 4,9% of EU average); ignorance towards children from rural and gypsy ethnicity areas; customized programs for disadvantaged school. A concerning trend is represented by the pupils which are not interested in going to universities no more (e.g.: the dropout for youth aged 18-24 has increased over the past 3 years from 17,3% to 18,5%), influencing the labor market and economic growth.

Other issues identified by the EU Education Monitor are: Number of higher education graduates is the lowest in the EU, although between 2006 and 2016 it has grown from 12,4% to 25,6%, so the target of 26,7% seems achievable by 2020. However, meeting the EU average of 39,1% represents a challenge on medium term; Besides the fact that high educated workers leave the country, the low number of college graduates risk to create a lack of workforce in sectors that require a high level of knowledge and, ultimately, to limit the economic growth; According to the PISA test, Romanian pupils are among the weakest in the basic skills (more than half of the youth population aged around 15 do not possess the minimum level of knowledge when it comes to science, reading or mathematics). Teachers are poorly trained; their basic training offers a low quality of teaching than the other E.U. countries, especially in practice areas and in particular education; the number of teaching staff is too high. Number of schools, kindergartens and nurseries is insufficient;

Adults’ continuous participation in the learning process for updating their skills is well below the European average – 1,2% in 2016 compared to 10,8% . Summing up, the current education system has serious issues of efficiency, equity, quality and relevance, being unable to deliver according to the E.U. standards. Purchasing power According to a GFK survey (Germany market Research Institute) in 2016 Europeans recorded a purchasing power per person slightly higher than in the previous year, with net income substantially varying between the 42 countries that were surveyed. With average purchasing power or available income per person of 4 181 euros, Romania is situated on the 33th place in the European ranking. The income represents approx. 1/3 of the European average. Compared to 2015 Romania increased its nominal purchasing power per capita by almost 12%. Comparing Romania’s 42 counties it can be seen that inhabitants of Bucharest hold the highest purchasing power - 6288 euro / capita, 50% over the national average. This figure places the Capital inhabitants at about the same level as the inhabitants of Poland (29th rank in Europe).

The top 10 counties of Romania are the only ones that hold a purchasing power above the national average, all the other 32 counties lying below it. Vaslui County is the last in ranking, with a purchasing power of 3054 euros, 28% below the country average and lays almost at the same level like the inhabitants of Serbia or Macedonia (position 35 and respectively 36 in European ranking). Rank 2016 Country Nr. of inhabitants GfK Purchasing power per capita in 2016 (€) 30 Hungary 9,830,485 5,549 31 Turkey 78,741,053 4,941 32 Montenegro 622,218 4,874 33 Romania 19,861,408 4,181 34 Bulgaria 7,153,784 3,440   Europe (total) 673,454,759 13,672

In conclusion, we can observe that besides unemployment, which is below the European average, at all the other points presented (labor force, wages, education, purchasing power) data show that Romania is far from the developed E.U. countries, and convergence in this respect could not be an easy objective if the previously presented parameters are kept the same.