Romania’s wages still super strong, but not for long

Romania’s wages still super strong, but not for long
The average net wage in Romania rose by 17.9% y/y to RON 2,933 (€618) in February, one of the fastest growth rates in Europe, but growth will slow over the rest of this year
By bne IntelliNews April 9, 2019

The average net wage in Romania rose by 17.9% y/y to RON 2,933, or EUR 618 at the average exchange rate in February, the statistics office (INS) informed on April 8. But given the wage dynamics last year and because no more wage hikes are planned in the budgetary sector this year, the nominal growth rate will likely halve in March to remain in the single digit area for the rest of the year. 

Notably, despite the super strong advance, wages in Romania are second-weakest in Europe after Bulgaria. The labour cost per hour is one quarter of that in EU28 on average, while the GDP per hour worked is more than half of EU28 average., suggesting significant room for further wage hikes that nonetheless need time to be absorbed by management. 

The employees in the health care system for instance, where among the highest pay hikes were reported in February (+31% y/y), received €691.1 in the month on average. Those in constructions, where the wages rose by 43% thanks to fiscal allowances and preferential minimum statutory wage, earned €582.0 in the month. Wages above €1,000 on average were earned in the oil industry (upstream and downstream), airlines, communications and financial services while the wages in the IT services exceeded €1,400.

Pressures for higher wages are expected, possibly leading to higher overall wage growth rates, in several low-income manufacturing sectors, where tensions are accumulating. The employees of Electrolux plant in north-east Romania entered the sixth week of strike while those of Alro aluminium maker are on the verge of going to strike as well. Investment in technology can help manufacturers cut employment, but will not help them retain trained workers for average net wages of €524 as paid on average in February by the manufacturing companies. On the upside, redundant workforce will predictably be absorbed by other companies in need of workforce. 

“Wage in the manufacturing sector rose by 12.1% y/y, below the national average, reflecting competitive constraints as the sector is forced to cut jobs (employment down by 1.0% y/y in manufacturing) and automate to keep up with regional competition, especially given the relative infrastructure disadvantages”, ING said in a comment. 

Real average pay in Romania has been growing at double-digit rates for the past three years, mainly supported by increases in public sector salaries and the minimum wage. The same drivers remained in place in 2019: the minimum wage increased by 9% and 23.5% for the employees with higher education as of January this year. For comparison, the government operated no wage hike in January 2018, while the wages of teachers and medical staff were increased in March 2018 instead -- which explains why the wages increased at abnormally-high rates in January-February 2019 (on low base) and why these high rates will moderate later in the year.

In real terms, the trend toward more sustainable growth rates will predictably continue, aided by the higher than planned inflation partly generated by exchange rate re-alignment. The net average wage increased by 13.6% in real terms in February, which is an impressive growth and significantly above the medium-term trend.

The average net wage increased by 14.7% y/y in 2016, by 12.6% y/y in 2017 and by 8.1% y/y in 2018. Despite impressive start, the full year growth rate is likely to further ease while remaining at a significant rate supported by real GDP growth