BR Analysis. Wages in Romania’s public sector exceed those in private sector by 32 pct, the largest gap since 2009

The wages in Romania’s public sector have exceeded those paid by the private sector by 32.2 percent in April, the largest difference since March 2009, as the government has massively increased the public servants’ wages during the last couple of years, according to Business Review’s calculations based on official data.

In April, Romania’s average net monthly earnings rose by 14.7 percent year-on-year, to RON 2,713 (EUR 583) – a record high.

But the average net earnings in the public sector were RON 3,376 (EUR 725), compared to RON 2,555 (EUR 549) in the private sector.

Around 1.2 million out of 5 million Romanian employees work in the public sector, according to official data.

Compared to January 2017, when the Social Democrats (PSD) came into office, the wages the in public sector rose by 28 percent, while the public sector’s wages increased by 15 percent, according to Business Review calculations.

These numbers come after years of wage-led growth government policy, which stimulated a consumer bonanza in Romania during the last couple of years.

But this model has generated high public spending on wages and pensions and larger fiscal and current account deficits.

In the first five months of this year, budget spending on wages rose by 22.3 percent year-on-year, faster than total public spending (+18.4 percent), while public revenue increased by only 12.7 percent.

Pre-crisis levels

This sharp increase generates concerns among the experts. „Social assistance also increased 10.5 percent YoY (in May 2018), thus bringing the share of public sector wages and social assistance to 62.2 percent of GDP from 61.4 percent in April 2018,” ING Bank analysts warned in a recent report.

According to Business Review’s calculations, public spending on wages and pensions reached a record high of 58.7 percent of total budget spending in 2017 (RON 162.2 billion out of RON 276.1 billion), above the levels seen before and during the financial crisis – 52.4 percent in 2008, 57.3 percent in 2009 (a record high for that time) or 55.1 percent in 2010.

Rising public spending on wages and pensions in 2008 and 2009 was one of the main causes of huge budgetary constraints of Romania during the financial crisis, which ultimately led to the EUR 20 billion salvage-loan from the international financial institutions in 2009 (IMF, the European Commission and the World Bank) and to public wages’ cut by 25 percent in 2010.

„We expect the mid-year budget revision to be quite substantial if the government is to remain committed to the -3.0 percent of GDP deficit, as economic growth is well below what the government expected while salaries and social security spending keep increasing their share in the total GDP,” ING experts estimate.

Romania has the second lowest average wage among the European Union member states, after Bulgaria.

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