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Cablegate: Romania: Labor Shortage Crisis and Soaring Wage Inflation

VZCZCXYZ0001
PP RUEHWEB

DE RUEHBM #0818/01 2980616
ZNR UUUUU ZZH
P 240616Z OCT 08
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 8806
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS BUCHAREST 000818

STATE FOR EUR/CE: ASCHEIBE
ALSO FOR EUR/EX AND HR/OE

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ELAB AFSN RO
SUBJECT: ROMANIA: LABOR SHORTAGE CRISIS AND SOARING WAGE INFLATION

REF: BUCHAREST 789

Sensitive but Unclassified, not for Internet Distribution.

1. (SBU) Summary: Romania has one of the most acute labor shortages
in the European Union (EU), which has led to rapidly rising wages.
The construction industry has been the hardest hit, with skills and
talent increasingly moving west following Romania's EU accession.
Since 2005, the overall average monthly gross wage increased by 84
percent to a national average of 1,844 RON (785 USD), with
additional increases expected in the coming months. Additional
raises will likely be needed before salaries rise to a level where
they entice Romanian expatriates to return. End Summary.

LABOR SHORTAGE CRISIS

2. (SBU) Even under communism, Romania had a history of sending
workers abroad, however, the outflow of economic immigrants
accelerated following the end of communism and increased further
after Romania joined the EU in 2007, creating serious labor
shortages in Romania. This shortage has been exacerbated by the
high rates of job creation in a booming economy, which makes it
increasingly difficult for companies to find and employ skilled and
highly skilled workers. According to a recent Manpower study, which
covers data from temporary and permanent employment placement by
Manpower branch offices throughout country, 73 percent of employers
in Romania said they have difficulty filling positions, which is the
highest percentage in all of Europe, the Middle East and Asia.

3. (U) The top ten hardest jobs to fill include: engineers, skilled
manual trades, management/executives, accounting and finance staff,
sales representatives, drivers, mechanics, restaurants and hotel
staff, laborers and technicians. According to Manpower's survey of
several major employers in each sector, 37 percent of employers
expected to increase headcounts in the third quarter of 2008, which
would lead to a 26 percent increase in the overall net employment
outlook for Romania. Most sectors predict booming recruitment
activity with the highest demand for workers in construction, which,
according to the Manpower survey, may need to add up to 50 percent
more jobs in the coming months.

4. (SBU) An estimated 2 to 2.5 million Romanians live abroad, with
the largest number (approximately 1 million) in Italy, and at least
half a million in Spain. While many of these left Romania during or
immediately after the end of communism, Romania's membership in the
EU has provided new opportunities for all Romanians to move westward
for work. Despite the increase in the number of jobs and rising
salaries in Romania, Romanians abroad can still at least double, if
not quintuple, their earnings. An additional advantage arising from
work abroad is a generally higher standard of living. Poor
infrastructure, rising costs, and substandard healthcare all combine
to make remaining in Romania an increasingly unattractive option.

THE HARD HIT CONSTRUCTION INDUSTRY

5. (SBU) Romania's construction industry has among the highest
growth rates in Europe. However, many skilled Romanian construction
workers have left Romania to work in Italy and Spain. Local
construction companies have difficulty meeting demand with the few
skilled workers remaining in the country. According to the
construction trade association, Romania needs at least 300,000
workers. Approximately 700,000 to 800,000 workers are needed to
meet demand, but there are estimated to be only about 400,000 to
450,000 construction workers available. As a result, Romania has
had to import at least 10,000 foreign workers, mostly from China.
It is likely that many other undocumented workers from Moldova,
Turkey and Ukraine make up some of the remaining deficit, but a
substantial shortfall still exists on the market.

SOARING WAGE INFLATION

6. (SBU) Wages in Romania have increased significantly every year
since 2005. According to the National Institute for Statistics, the
average nominal monthly gross wage in June 2008 increased 26 percent
from the previous year and over 84 percent since 2005 to reach a
current national average of 1, 844 RON (785 USD). Adjusted for
inflation, real wages have increased 14.5 percent last year and 46
percent since 2005.

7. (U) This trend can be seen across several sectors. For example,
in the industrial sector nominal wages grew by over 24 percent in
the previous year, with an overall increase of 72 percent since
2005, to reach 1,594 RON (678 USD). Similar wage gains have brought
salaries in the construction sector up 25 percent this year and
nearly 82 percent since 2005 to the current average of 1,436 RON
(611 USD). While there was no wage growth in the finance and
banking sector last year, wages have already risen nearly 68 percent
since 2005 for a sector average of 4,513 RON (1,920 USD).
Meanwhile, Romania's research and development and IT sectors have
experienced 73 percent wage growth in the last two years to reach a
present average of 3,024 RON (1,287 USD).

8. (SBU) Somewhat unusually, the public sector accounted for the
highest wage growth, although wages in this sector were held
artificially low throughout the 1990s and started gaining from a
very low initial level. Professionals in public administration and
national defense have seen incomes rise only 21 percent in the last
year, but considering that they have increased 113 percent since
2005, they still average 2,964 RON (1,261 USD) per month. Education
sector wages increased by nearly 41 percent since last year and are
up 94 percent since 2005 to reach 2,042 RON (869 USD) this year
(Comment: This is before the 50 percent raise recently approved by
Parliament. End Comment). Similar trends exist in the health and
social assistance sectors, where wages increased by 59 percent last
year and 130 percent since 2005 to 1,844 RON (785 USD), but which
still suffered from a net outflow of medical professionals seeking
more lucrative careers in western Europe.

SALARIES AND BENEFITS

9. (SBU) Wages alone fail to account for the total compensation that
Romanian workers expect. There has been a significant increase in
all pay packages, especially for workers with high school diplomas
or college degrees. Salaries and benefits for high school graduates
increased 74 percent in 2007 and another 80 percent in 2008.
Meanwhile, demand for highly skilled workers accelerated even
faster, with pay packages for college graduates shooting up 105
percent in 2007 and 121 percent in 2008.

10. (U) However, salary raises lagged behind the increases in
benefits. In 2004, for example, salaries accounted for 75 percent
of the overall pay package. This fell to 65 percent in 2008 with
bonuses and other benefits accounting for the remainder. At a
minimum, benefits typically include: performance bonuses, lunch
coupons, mobile phones, gasoline coupons, holiday gifts, life and
medical insurance; with computers and cars even thrown into the mix
for certain workers.

11. (SBU) Company loyalty is not seen as a highly valued trait among
young Romanians, and employers complain these workers will
frequently leave for higher salaries and better benefits, even after
the company has invested in expensive training. The siren call of
higher wages is felt even in our own Embassy, which has already
suffered a loss of 70 people in 2008, which comes on top of 42
separations in 2007. The reason given for leaving is often nothing
more than the ability to double or triple a salary while also
receiving much better benefits from the new employers (septel).

12. (SBU) Comment: High wage growth is a normal feature of a rapidly
growing economy. However, EU membership has exacerbated the problem
in Romania as large numbers of Romanians seek a better quality of
life in the West. The upward pressure on wages is unlikely to end
in the near term, and it will have consequences for a Romania that
is still heavily dependent on foreign direct investment (FDI)
inflows to cover the high current account deficit. Post concurs
with the observation of the IMF regional director, Juan Jose
Fernandez Ansola, who has repeatedly stated that the problem is less
one of pay, but rather the package. Until sorely needed investments
in infrastructure, health care, and education are completed, wages
will have to rise to compensate workers for agreeing to accept the
reduced quality of life on offer at home. End Comment.

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