Annual wage costs rate inched up to almost 15 percent at the end of last year in Romania, according to official data, putting businesses under pressure to remain competitive with growing constraints related to human resources. But business leaders questioned by Business Review warn rapid wage increases will be reflected in high inflation rates, higher interest rates and expensive loans, due to the expanding gap between wage and productivity growth.
The adjusted hourly labour cost (working days adjusted) had a 1.29 percent increase rate in the fourth quarter of 2017 from the previous quarter and a 14.29 percent increase from Q4 2016, according to the National Institute of Statistics (INS).
The lowest increases were registered in real estate activities (6.7 percent), in professional, scientific and technical activities (6.63 percent) and in electricity, gas, steam and air conditioning supply (6.4 percent).
The highest growth ratee were recorded in the public sector, with a 27.5 percent increase in public administration, 18.5 percent in health and social assistance and 16.8 percent in education.
These growth rates are considered difficult to sustain by many business leaders in Romania.
“It has an impact on productivity. On the short term, we can’t imagine that the productivity was up by 15 percent,” Romanian entrepreneur Marius Ghenea, investment director of 3TS Capital, told Business Review.
“In time, this becomes a significant issue,” Ghenea said about the impact of the growth trend of labor costs for the private sector.
Private equity fund 3TS Capital has invested in several Romanian tech start-ups that create Intellectual Property that can be exported across the globe.
Ghenea suggested that only companies that generate significant added value will be able to cover the additional labor costs.
The entrepreneur thinks that one solution to solve the tight labor market would entail a more “aggressive policy regarding the migration of the labor force.”
Ghenea explained that the private sector has engaged the government on matters related to labor immigration policies. Public authorities can increase the annual quota of migration workers that can be accepted in Romania.
The government can also make an assessment of the industries and regions of the country that lack certain skilled employees that can be brought in from abroad to plug the gaps in missing staff.
Both Romanian and foreign companies have cited the lack of specialists in various industries as one of the main challenges of doing business in Romania. The development plans of some companies have been put on hold due to the shortage of labor force, be it blue collar or white collar.
But other business leaders estimate deeper impact of unsustainable wage growth rates.
“The growth is significant – there is no doubt that the boomerang will come back soon despite the government’s calculations. These increases will be reflected in inflation, interest rates will be higher, loans will be more expensive and the lack of interest for financing will lead to a slowdown of sectors like real estate,” Mihai Marcu, MedLife’s president of the board, told Business Review.
Romanian entrepreneurs expect the labour costs to increase even more this year in the public sector, as the state continues to do a lot of hiring, and point out to the lack of predictability of public policy.
“Investors are discouraged more by the endless indecision at the governmental level than by the fact that salaries are growing in Romania, as this is something they expect despite the fact that the growth is sometimes very abrupt. The amateur squabbles of political leaders are more damaging than the laws themselves,” Marcu said.
Sorin Melenciuc, Anca Alexe & Ovidiu Posirca