High growth rates might resume, but key social policy challenges remain
The democratic transition in Romania comprised difficult economic and social reforms including the restructuring of entire industries. Since the 1990s, Romania has seen periods of very fast growth being considered as one of Europe’s few tiger economies. However, this growth track has been very volatile with several setbacks due to inconsistent reforms and recessions of the global economy. Overall, GDP per capita rose from 30% of EU average in 1995 to 72% in 2020. Recently, the country moved from middle to high-income status.
The Romanian labour market benefited from the strong economic growth of the past years before the outbreak of the Covid-19 pandemic. The employment rate is approaching the EU average (67% vs 74% in 2019) and the unemployment rate dropped to 4% (2019), at its lowest level in the last 20 years. However, youth unemployment remained relatively high (17% in 2019) and inactivity remains one of the highest in the EU especially for women (female inactivity rate of 41% vs. EU average of 32%, 2020). The persistent negative population growth and the outward migration of labour have generated significant labour shortages.
The Covid-19 pandemic pushed the Romanian economy into a recession in 2020 with a 4% decline of GDP (EU: 6%). Forecasts predict a very quick recovery of GDP growth (6% in 2021) as the country is an important manufacturing hub for Europe and global trade is quickly expanding. However, uncertainty is high, as these predictions assume that Romania will achieve a high vaccination rate while the current vaccination rate remains one of the lowest in EU.
The short-term impact of the pandemic on labour markets was considerable. ILO calculations show that 9% of all working hours were lost in 2020 as compared to the last quarter of 2019 (EU: 8%). The amount of working hours lost equalled 730,000 full-time jobs. As the digitalization of the country is not advanced and manufacturing is important, only a quarter of workers could switch to teleworking during the lockdowns. However, the loss in working hours did not translate into large reductions of employment in 2020. Firms compensated most of the working hours lost through reducing working time while retaining workers. Government measures such as wage subsidies and other incentives to preserve employment amounting to 5% of GDP helped to mitigate the labour market impact. Social dialogue did not play the same strong role in designing the response package as in other EU countries.
A key remaining challenge for social policies from before the pandemic is the rising inequality, exacerbated by the pandemic. Income inequality has been increasing for years and is among the highest in the EU, while the redistributive effect of taxes and benefits is below the EU average. Romania has one of the largest share of people at risk of poverty in the EU (30% vs 24%), with a high concentration of poverty in rural areas.
The cooperation between the ILO and Romania
Romania was a founder member of the ILO in 1919.
Between 1993 and 2008, the ILO was present in the country through an own office. The ILO supported labour market institutions and reforms of labour legislation. Some of the key achievements were the revision of the Labour Code, the adoption of new legislation on collective agreements and tripartite social dialogue, the modernization of labour inspection services, and new active labour market policies.
After Romania’s accession to the EU in 2007, the ILO provided technical comments on the 2010-2011 labour and social dialogue legislation and supported the establishment of the Office for Mediation of Collective Labour Disputes. Romania funded a technical project on social security implemented by the ILO in Moldova.
Text last updated 8/21.