What will a minimum wage rise do for responsible business in Romania

Isabel Ebert, EU Representative & Researcher at BHRRC

Ten years after the country’s accession to the European Union, what is the key leverage to improve business and human rights issues in Romania?

Over the past few years, reports about low pay and long hours in the shoe and garment industry in Romania have made headlines in international media. In November, colleagues and I met with civil society organisations, human rights activists, and business associations to learn more about these cases and explore a critical question: Ten years after the country’s accession to the European Union, what is the key leverage to improve business and human rights issues in Romania? Romania has the potential to be a key manufacturing centre in the European Union, but increasingly business and other governments will insist on decent working conditions. The requirements under the Dutch and German National Actions Plan on Business and Human Rights requests Dutch and German companies to carry out human right due diligence along their operations and supply chains. As a consequence, human rights and in particular labour rights will increasingly become an investment factor for Romania and having a responsible manufacturing hub in Europe would benefit business.

The debate around the Romanian minimum wage appeared as the most controversial issue in the country. Generally speaking, labour rights are seen as a critical factor for economic development in Romania, including the need to address non-payment of living wages or poverty wages, poor working conditions and long hours, and discrimination against marginalized groups, such as women and Roma people. 

The debate around the Romanian minimum wage appeared as the most controversial issue in the country. Generally speaking, labour rights are seen as a critical factor for economic development in Romania, including the need to address non-payment of living wages or poverty wages, poor working conditions and long hours, and discrimination against marginalized groups, such as women and Roma people. 

The minimum wage in Romania is the second lowest within the European Union - only Bulgaria has a lower minimum wage level and the gap between the current minimum wage and the actual living wage is significant: workers interviewed by Clean Clothes Campaign in Romania state they would need at least RON 3240 (about EUR 710) netto, which is only a third of the current minimum wage of RON 1100 (EUR 238) netto. On a positive note, the minimum wage in Romania has risen notably in the past few years. The government recently announced that in January 2018, the minimum wage will increase by 31% to RON 1,900 brutto (EUR 413.2), from RON 1,450 (EUR 315.3) brutto. However, the social contributions will be shifted from employers to employees, which will result in the contributions for pension, healthcare and unemployment being paid by employees, comprising 35% of their gross wages, up from 16.5% now. This might embody an additional burden for the average worker. 

The minimum wage is clearly not the only tool to improve working conditions in Romania, as views from government, business, academia and civil society stakeholders are split to whether a higher wage level would automatically lead to a better overall situation for the workers. Nevertheless, a minimum wage that does not equal a living wage adds to the vicious cycle of low wages that often result in Romanians choosing to emigrate to find employment in other EU member states, such as Germany or France. While average education levels of Romanians are high, at least in part due to free tuition, emigration results in “brain drain” and a labour shortage in several industries, such as medicine, but also textile or manufacturing. Companies who don’t have enough staff, set high quotas for their workers to keep up with demand. This often results in excessive hours for the workers. According to research by the Clean Clothes Campaign, women workers in the textile industry work to meet very high work quotas, resulting in frequent overtime which often goes unpaid. Other workers issues businesses need to address such as discrimination of marginalized groups, such as women or Roma, that creates additional barriers to accessing the formal labour market and increases risks of exploitation. Adding to this, there are allegations of lobbying by foreign investors leading for changes in laws affecting trade unions that weaken workers’ rights and hence aggravates the situation.

If Romania would like to ensure economic growth and continue to attract investments, how is going to step up on decent working conditions?

In order to keep and attract investments in Romania and retain a talented, diverse workforce, a top priority for businesses should be to pay appropriate wages and respect trade union rights. Ensuring decent working conditions in Romania will help keep and attract further investment in the country, benefiting both companies and workers. Foreign Direct Investments from the Netherlands, Austria and Germany make up to more than 50% of foreign direct investments in Romania in total in the year of 2015 according to the National Bank of Romania. If Romania would like to ensure economic growth and continue to attract investments, how is going to step up on decent working conditions? Business can play a positive role in calling for a better work environment, as we have seen in setting a relatively fair minimum wage in Myanmar.