Ben Conigrave
OECD
OECD Economic Surveys: Romania 2024
OECD Economic Surveys: Romania
Abstract
Strong economic growth over a number of years has helped lift average living standards closer to outcomes in more advanced economies. Yet socio-economic disparity within Romania remains wide. Poverty risk is particularly high in rural areas and in Roma communities. Ongoing cost-of-living pressures should focus attention on the need to improve social protection. Better health care and schools would enhance opportunities across the country and encourage young people to stay in Romania rather than emigrating. Policies can also do more to encourage formal employment, including among women and older Romanians.
Disparities in socio-economic outcomes across Romania remain wide (Figure 4.1). Big cities such as Bucharest are prospering, with low unemployment and per capita real incomes above EU average levels. Yet in other parts of the country living standards are lower, and economic opportunities more limited. Poverty rates are particularly high in rural areas and Roma communities, many living in substandard housing in areas lacking basic infrastructure or access to social and health services. The government stepped in to help households cope with high price growth during the energy crisis. Among the most vulnerable were families with low incomes earned outside the formal economy. The energy crisis provided a new reminder of the need to improve social protection. Social policies aimed at clearing paths to employment would complement reforms to ease tax burdens on low-skilled workers (Chapter 2). Too many working-age Romanians are outside the labour market (33% in 2022; 43% of women). Lifting high-school finishing rates and uptake of tertiary education would expand young people’s job prospects and reduce poverty risk in old age. In improving opportunities and living standards, better health care and schools could remove reasons for workers to emigrate, encouraging young families to stay in Romania.
The first section of this chapter assesses progress improving labour market and social outcomes since the previous Survey. The chapter then looks in more detail at policies to lift female employment. The Survey’s social policy recommendations would increase government expenditure. They should be viewed alongside suggested reforms to increase revenues and improve spending efficiency (Chapter 2).
Note: Panel A: Data for the Bucaresti-Ilfov region are for 2021. Panel B: A person “at risk of poverty or social exclusion” either has a disposable income below 60% of the national median after social transfers, or is severely materially and socially deprived, or lives in a household with a low work intensity, where working-age members had a working time at or below 20% of their total work-time potential in the previous year.
Source: Eurostat
Strengthening social protection
Social assistance in Romania is low in value and hard to access. The previous Survey underscored that at current levels, support is too limited to keep vulnerable individuals and families from deep poverty (OECD, 2022[1]). Implementation of a delayed reform to increase the coverage and adequacy of social assistance benefits is due to start in 2024, complementing spending on public services in disadvantaged areas. Responding to past EU recommendations, the Minimum Inclusion Income reform is due to be completed in mid 2025. In the meantime, a welcome decision to index social assistance and unemployment benefits to inflation will avoid price growth eroding the real value of support.
Unemployment benefits are low. While the maximum duration of unemployment insurance in Romania (12 months) is within ranges common of many OECD countries (OECD, 2023[2]), benefit levels are low. In 2023, eligible jobseekers with the minimum contribution period received between EUR 105 and EUR 120 per month in unemployment benefits (as little as 28% of the after-tax minimum wage). At such levels, implied wage replacement rates for low earners are below ranges typical of income protection in OECD countries (50 to 80%) (OECD, 2023[3]). Small unemployment benefits encourage a quick return to work but can cause workers to cut short job hunts. Individual jobseekers’ future earnings may be reduced as a result. There is also a risk of misallocating skills in the labour market. Revenue-raising reforms (see Chapter 2) could create fiscal room for Romania to eventually increase the level of unemployment benefits and ease currently strict eligibility rules. With bigger benefits, it would be important to preserve strong job search incentives. This might be achieved by reducing wage replacement rates as time out of work lengthens (OECD, 2023[3]).
Building a high-quality health system and improving long-term care
The previous Survey highlighted major weaknesses in Romania’s health system exposed by the COVID‑19 pandemic. Estimated rates of preventable mortality in 2021 were high in Romania compared with OECD countries. Unhealthy behaviours such as smoking and drinking are widespread. Too few patients with chronic conditions receive recommended preventive care (OECD, 2023[4]). Financial barriers are larger for the one in seven Romanians without health insurance; people on the lowest incomes are ten times more likely than those with the highest incomes to delay treatment or not seek the health care they need (OECD, 2023[4]). This is an extra reason for reforming taxes to encourage formal employment (see Chapter 2). RRP reforms promise to upgrade health infrastructure and improve management of health care spending. Investments will expand access to primary medical care and screening services in rural areas. More funds for primary care would support prevention, ease strains on hospitals, and start addressing unequal access to treatment. Recent reports of abuse in aged care facilities call for strong quality controls to complement ongoing investments in new facilities and training for informal caregivers. A new national strategy on long-term care appropriately aims to improve the management and financing of long-term care services and address worker shortages in the sector. As part of a transition to a patient-centred health system, a further goal is to empower patients by ensuring their participation in decisions concerning their own health. Achieving the strategy’s objectives could improve access to quality services now and head off potentially bigger future problems as population ageing accelerates (Chapter 2). By reducing reliance on informal support, investment in the long-term care system could also support stronger labour market attachment among people currently caring for relatives at home. The previous Survey identified Romania’s underdeveloped long-term care services as one of many drags on female participation (see below).
An additional challenge is to retain badly needed doctors and nurses. Many health professionals move abroad. Keeping them in Romania may be harder at a time when the government is looking to contain growth in public wages (see Chapter 2). Doctor shortages have in the past contributed to unsustainable workloads for physicians working in Romania (OECD, 2020[5]). The COVID-19 pandemic pushed the health workforce to its limits (OECD, 2023[6]). Staffing challenges make it harder to improve access to primary health care services, particularly in rural areas. EU funding for training will directly boost numbers of health professionals, provided newly trained doctors and nurses remain in the country. Working conditions could also improve with upgraded and better-managed facilities, another objective of EU-funded investments. The previous Survey also identified potential efficiencies in increasing the share of routine tasks done by nurses, for whom training is quicker.
Reducing school dropout rates
The previous Survey noted that large numbers of young people drop out of school early, particularly in rural areas. EU funding is helping to renovate educational facilities, bring IT equipment into schools, including in disadvantaged areas, and develop early-warning tools to lower drop-out rates. Early childhood care is another focus of current investments (discussed below). Better education is the surest path to improving young Romanians’ job prospects and reducing poverty. Quality schools would strengthen incentives for young families to stay in the country. In turn, a larger skilled workforce would boost Romania’s economic potential. The government can also play a role supporting vocational training with better forecasting of skill needs, including as Romania transitions to net-zero emissions (Chapter 5). Skills forecasting can also support planned investments in regional campuses for dual education, providing routes to tertiary qualifications.
Improving outcomes in Roma communities
Data released since the previous Survey show little improvement in Roma living standards (FRA, 2023[7]). Roma outcomes in education, health, and employment remain well below those of the general population. In 2021, the share of Roma in “paid work” – defined to include full and part-time employment, self-employment, occasional work and ad hoc jobs – was 41% (down from 45% in 2016). A large share of young people are outside employment and the education system (59% in 2021). Poverty risk increased in recent years (78% in 2021). Housing remains a particular concern. Two in three Roma were living in unsatisfactory conditions in 2021, many in overcrowded dwellings or homes without tap water (FRA, 2023[7]). As in other countries with large Roma populations, such as the Slovak Republic (OECD, 2024[8]), lack of land title increases housing insecurity in informal settlements. Non-recognition of legal property ownership or occupation can make it harder to connect homes to utilities and may further limit vulnerable people’s access to state support in remote areas.
Greater policy focus is needed to improve outcomes in Roma communities. The previous Survey underscored the challenge of lifting living standards in areas with concentrated poverty and poor public services. EU funds are being allocated to close gaps in basic infrastructure. RRP measures targeting Roma communities and other marginalised areas include spending on integrated social and health services, mobile medical screening, family medical centres, day centres for disadvantaged children, digital training centres, and support for disadvantaged schools. To support direct investments in housing construction and rehabilitation, action is needed to formalise property rights and connect permanent homes to roads, water, and electricity. National efforts to expand and upgrade Romania’s small stock of social housing should aim to improve Roma access to affordable dwellings, while also mitigating segregation. Technical support from the central government could help relieve capacity constraints in local authorities responsible for administering social housing. Effective resource allocation, and proper local planning, will depend on better information on where needs are greatest (Ministry of Development, 2022[9]). Needs mapping is a focus of the RRP and the national housing strategy. Policy continuity will also be important to ensure current measures contribute to lasting improvements in socio-economic outcomes for Roma people. OECD assessments of policy priorities for disadvantaged communities in other countries, such as Canada’s indigenous communities (OECD, 2023[10]), emphasise the importance of self-determination. Involving Roma themselves in policy development would give interventions greater chance of success.
Removing obstacles to regional mobility
The previous Survey underscored the problem of Romania’s low internal labour mobility. High rates of home ownership (Chapter 2) and small official rental markets likely weigh on internal migration (OECD, 2021[11]). Tenancy rules and practices should be reviewed with the aim of encouraging formalisation of unofficial rentals, which are reported to be common, while ensuring adequate and proportionate protection of landlords and tenants’ interests. As the national housing strategy acknowledges, a further priority is to expand and upgrade Romania’s small social housing stock (2.5% of the housing supply), most of which was built before 1990 (Turcu, 2017[12]). Rent subsidies, an alternative form of support, exist but are reportedly hard to access (Includ-EU, 2023[13]). In addition to addressing local government capacity constraints (see Chapter 3) and resource needs for allowances and housing development – for which local authorities are responsible – the central government could be more involved in setting social housing eligibility rules. Ensuring eligibility is transferrable across Romania’s cities and regions would make it easier for those less well-off to move for work. In addition to improving people’s job options within Romania, eliminating barriers to regional mobility could reduce unemployment (Figure 4.2), including following macroeconomic shocks with uneven regional impacts.
Note: In panel B, GDP data are adjusted for price level differences using Eurostat’s purchasing power standard (PPS).
Source: Eurostat.
Reforming minimum wage setting
Romania is changing the way minimum wages are set. A new mechanism is planned to begin operating from 2024. The new system is expected to ensure more objective and systematic procedures for determining minimum wage levels, in consultation with social partners. This welcome development would mark a break with recent history. Past government determinations were made without the benefit of formal independent advice. Until now, consultation has been facilitated through the National Tripartite Council for Social Dialogue – a body that includes trade union and employer representatives. Yet the Council’s role in minimum wage setting has been limited. Decisions have instead proceeded arbitrarily, governments at times pursuing social objectives without proper regard for macroeconomic stability, competitiveness or labour market effects.
How the new mechanism will operate remains to be determined. Trade-offs will have to be navigated – between encouraging labour force participation while avoiding job destruction; and defending decent pay without contributing to high inflation.
Approaches to setting minimum wages vary across OECD countries. Best practice calls for regular adjustments based on objective criteria, particularly if indexation to prices is not automatic (OECD, 2022[14]). In many countries – for instance, Germany, Ireland and Spain – an annual minimum wage determination by the government follows formal consultation with social partners or an independent commission (OECD, 2022[14]). In Australia, minimum wages are set each year by the country’s independent Fair Work Commission. A formal review process draws on submissions by interested parties including government agencies and bodies representing employers and workers. In reaching a decision, the Commission considers the performance and competitiveness of the national economy, effects on workforce participation, and living standards of low-paid workers. Romania could draw on such approaches. Minimum wage determinations should be sensitive to impacts on the economy and labour market while over time aiming to compensate workers for productivity gains and preserving their purchasing power.
In setting minimum wages, decision makers should also consider the structure of Romania’s economy, and the effect on minimum wages of taxes and transfers. Large numbers of workers receive pay close to the minimum wage (13% in 2022). This makes it more likely that large pay increases transmit through the labour market. In the long run, better social protection and targeted transfers could do more in times of high price growth to support households while limiting inflationary effects. Reforms to reduce effective tax rates on low-paid workers could lift take-home pay for those earning the minimum wage (see Chapter 2).
A trend rise in Romania’s employment rate has stalled. At 63% in 2022, the employed share of the working-age population is below the OECD average of 69%. Low rates of formal employment by women contribute to this result. Female employment is low compared with outcomes in higher-income countries and compared with male employment in Romania (Figure 4.3).
Romania’s large gender gap in employment widened in recent years. Despite better high-school finishing rates, reasonably strong participation in tertiary STEM courses (science, technology, engineering and maths) and overrepresentation at university, past time use surveys suggest Romanian women on average spend more time each week on housework and other unpaid activities and fewer hours in paid employment than men (Eurostat, 2019[15]). While full-time work is the norm for people in formal employment, women are underrepresented among those in management positions and on average have shorter working lives than men (Eurostat, 2023[16]). Gender employment gaps affect people without children as well as parents. As in other countries, it is more often mothers than fathers that stop work to care for young children. Gender wage gaps in Romania are small in international comparison but in large part reflect pay differences emerging around the time of childbirth (Ciminelli, Schwellnus and Stadler, 2021[17]). Labour market outcomes are particularly poor in rural areas (Box 4.1).
Policies affect employment incentives at key decision points in life. This chapter considers the role of parental leave, childcare, labour laws, and Romania’s tax and pension systems in influencing female paid work decisions. As well as expanding economic opportunities for Romanian women, and reducing poverty risks, reforms to lift female participation would increase Romania’s economic potential and mitigate fiscal challenges. The policy changes recommended in this chapter would also complement broader efforts to lift participation by older workers (Chapter 2).
Note: Panel A: “Highest five EU OECD countries” is an unweighted average of results for the five EU countries that are also members of the OECD that have the highest female employment rates in 2022.
Source: Eurostat and OECD Labour Force Statistics database.
Employment rates are low in Romania’s rural areas (43% for working-age women in 2022, 68% for men of working age). The previous Survey underscored the overlapping challenges of bad infrastructure, few formal jobs, old populations, and poor social services that impede better socio-economic outcomes outside cities (OECD, 2022[1]). Infrastructure spending, public service upgrades and support for schools in Romania’s Recovery and Resilience Plan aims to lift living standards in rural areas and marginalised communities, including those home to much of Romania’s Roma population (discussed above). Such investments are needed to remove basic impediments to child development, education and better health, and would raise the payoff to the structural reforms proposed in this chapter. The previous Survey also noted Romania’s relatively low internal labour mobility, which is likely influenced by high rates of homeownership and small official rental markets (see above).
Support for parents with young children: parental leave
Generous leave entitlements allow mothers to take long breaks from work after having children. Significantly more parental leave is reserved for mothers (“maternity leave”) than fathers (“paternity leave”) (Box 4.2) (Figure 4.4 Panel A and B). As in other countries, mothers also tend to be the main recipients of shared “child-raising leave”. Paid child-raising leave in Romania is long in international comparison (Figure 4.4 Panel C), allowing either parent to stop work until a child turns two. Evidence of the effect of parental leave policies on female employment is mixed (Olivetti and Petrongolo, 2017[18]). Yet problems can arise when, as in Romania, incentives for returning to paid work are weak, even after accounting for return-to-work bonuses and the possibility of earning small amounts of money while on leave (Box 4.2). For those taking long pauses from jobs, skill decay and slower advancement can reduce lifetime earnings. Lower earners are more likely to stay out of the labour market for good, particularly when affordable childcare is hard to access (see below).
Note: Panel C: The graph shows paid birth-related leave entitlements to care for young children in place as of April 2022. Periods “earmarked” for mothers and fathers refer to individual non-transferable entitlements for paid employment-protected leave of absence for employed parents. This includes maternity and paternity leave (shown also in Panel A and Panel B), but also home care and parental leave, “mummy and daddy quotas” or periods of an overall leave entitlement that can be used only by one parent and cannot be transferred to the other. Weeks of "shareable” leave refer to parental and home care leave entitlements that can be freely shared between mothers and fathers. In Romania, paid child-raising leave is available to either parent but more often taken by mothers. Recent policy changes doubled the child-raising leave reserved for the non-claiming parent, typically fathers, to two months.
Source: OECD Family Database.
Maternity leave for working mothers in Romania (126 days) is close to the OECD average and well paid (85% of income). Mothers enjoy some flexibility in the portions of leave used before and after childbirth. Leave reserved for fathers is better remunerated (100% of income) but much shorter: 10 days, with 5 additional days if the man attends a course on caring for babies. For a first child, the duration of paternity leave amounts at most to 12% of the leave reserved for mothers. For subsequent children, fathers have 8% the leave entitlement exclusively for mothers.
Extra child-raising leave, paid at 85% of earnings, is available to either parent. As with maternity and paternity leave, jobs are protected during child-raising leave. To encourage fathers to help raise children, part of the two-year child-raising leave entitlement is non-transferrable and must be used by the non-claiming parent. In September 2023, the non-transferrable leave quota was doubled from one to two months. Official data on child-raising leave uptake are not disaggregated by gender. Yet reports indicate that, as in other countries, mothers more often than fathers are the primary child-raising leave claimants (Figure 4.5 provides an illustration). In 2022, monthly child-raising leave benefits were capped at RON 8 500 (2.3 times average after-tax earnings) and there was a minimum allowance of RON 1 314 (36% of average earnings) (Popescu and Radogna, 2022[19]). Wage replacement rates are thus higher for low-income recipients.
Note: The figure shows an illustrative breakdown of parental leave taken by working parents around the time of a child’s birth. Shared “child-raising leave” can be taken by either parent. Reports suggest mothers are the primary recipients of child-raising leave in Romania. Secondary recipients, more often fathers, were until recently required to take one month of child-raising leave. Leave durations shown in the graph reflect policies in 2022. In line with EU directives, paternity leave increased from five to ten days in 2023. From September 2023, two months of child-raising leave is assigned to the secondary recipient.
Source: Underlying information taken from the OECD Family Database.
Laws allow parents to earn a small amount of money while on child-raising leave. In 2023 the maximum annual amount is being increased to RON 11 968, roughly EUR 2 400 per year. Separately, government-sponsored reinsertion bonuses partly mitigate disincentives to returning to work early. These fixed value return-to-work bonuses are not taxed and are untied to a beneficiary’s income. As such they are worth proportionally more to low-income earners. In 2022, a parent received monthly bonuses of RON 1 500 (41% of average earnings) if they returned to work before their child was six months old. Afterwards, and up until the child turns two (when child-raising leave ends), parents received RON 650 (18% of average earnings) each month. For those unable to access subsidised childcare, and without relatives to care for children at home, insertion bonuses might be fully absorbed on the cost of paying for a nanny. Indeed, childcare costs could substantially eat into an average wage. A parent with a six-month old child, paying a nanny the minimum wage, would in effect lose half their after-tax earnings and all of their reinsertion bonus on childcare costs. Disincentives to re-joining the workforce can thus be substantial, particularly for second earners with lower potential future earnings.
Proportionally more leave should be reserved for fathers. Continuing to reduce the large gap in leave quotas reserved for mothers and fathers could over time encourage more even division of care responsibilities between parents. This has started to occur in northern European countries including Sweden, where periods of leave reserved for fathers have increased over time (Duvander and Cedstrand, 2022[20]). Romania is taking welcome steps in this direction. From September 2023, two months of the full two-year child-raising leave entitlement are reserved for the secondary recipient. This doubled the previous one-month period of non-transferrable child-raising leave primarily aimed at fathers. More fathers taking time off work could shift employer expectations about the relative cost of hiring young men and women, complementing anti-discrimination laws. On current policy settings, a move to shrink the total period of paid leave available to working parents could cause some to quit jobs to care for young children. Such risks could diminish over time with expanded access to quality formal childcare (discussed below). As childcare access improves, Romania should aim to reduce the duration of paid child-raising leave. Aside from potential influences on work choices, shorter leave periods reduce the fiscal cost of paid leave policies.
Transitioning back to work: childcare
Romania has a shortage of places in public creches and kindergartens. Children are legally entitled to a place in a public kindergarten from age two. In principle this eliminates any gap between the end of child-raising leave (two years from birth) and the start of formal ECEC (Box 4.3). In practice, a shortage of places means parents are not assured a place for their child in creches or kindergartens. Just over 12% of children under age three attend ECEC. Attendance rates are higher for older children (age 3 to 7), but still below the EU average (68% compared with 87%). Use of formal childcare is particularly low among Roma children and in rural areas, where capacity is limited (European Commission, 2022[21]).
Many families fall back on informal childcare, typically help from relatives, to keep parents working. Subsidised private childcare centres expand the supply of preschool places. But the private market is small, accounting for around 5 in 100 institutions (World Bank, 2019[22]). Most children under three are looked after by parents. Many other families instead rely extensively on unpaid care during the week. Typically provided by grandparents or other relatives, informal care supports roughly half (51%) of Romanian children under the age of two, above the OECD average (24% in 2019). To help their working offspring – or care for their own elderly parents – grandparents may seek to reduce work hours, or if that is not possible, retire early (long-term care is discussed above). Some international evidence suggests becoming a grandparent brings forward retirement, particularly for women (Van Bavel and De Winter, 2013[23]). Romania’s lower female pension age reduces financial penalties to early retirement for grandmothers compared with grandfathers.
Early childhood education runs from birth to age six in Romania. As of September 2023 children must attend preschool from age four. In 2030 the starting age will fall to three, matching requirements in many OECD countries. Early education and care is free, as is all education in Romania, a principle enshrined in Romania's constitution. Apart from a small amount for meals for kids attending full-time (up to EUR 4 per day) no fees are payable for children in public ECEC. With places limited, admission to “ante-preschool” (age 0 to 3) is on a first-come first-served basis. For preschool, priority admission goes to children in precarious situations, including orphans and children with disabilities.
Benefits from quality formal childcare are hard to replicate in informal settings. Reflecting differences in standards of care at home, young children from poor families typically reap ECEC’s biggest rewards from stronger cognitive, social and emotional skills. Carry-over benefits continue through school and the labour market (OECD, 2020[24]). Government involvement helps standardise the quality of care and education in creches and kindergartens in a way that is not possible in unregulated settings. Spending on ECEC supports equity and capitalises on positive spill-overs to society from improved child development. In contrast to other parental policies, where evidence is less clear-cut, empirical studies confirm that government spending on ECEC lifts mothers’ employment outcomes (Olivetti and Petrongolo, 2017[18]).
Continuing to invest in ECEC would support child development and higher employment rates among mothers (Figure 4.6). At 0.4% of GDP, public spending on ECEC in Romania is roughly half the OECD average (Figure 4.7). Over 90% is directed at pre-school education (for children 3 to 6). Romania’s RRP and the “Educated Romania” project rightly focus resources on increasing childcare places. With a goal of boosting participation of 0 to 3 year olds to 22% by 2027 under the Protected Children, Safe Romania strategy, the country will build new creches and invest in staff training. Governance arrangements will be important to uphold a high standard of care (OECD, 2020[25]). Expanding ECEC access, and improving the quality of early care, would encourage parents to return to work sooner after having children, reducing need for return-to-work bonuses.
Note: Panel A shows employment rates for women without children and mothers and fathers with one child under 6 years of age.
Source: Eurostat; OECD Family database.
Note: Panel A shows the proportion of children in informal care during a typical week in 2019. 'Informal' childcare refers to unpaid care, often by a grandparent or other relatives. Panel B: Data for Romania are not adjusted for differences in the entry age for primary schooling and cover all public expenditure on childcare and pre-primary education regardless of the age of those enrolled.
Source: OECD Family database.
Career and family: removing obstacles to flexible work hours
Flexible working arrangements can help close gender employment gaps. With more control of their work hours, parents can manage daily chores – creche drop-off and pick-up, dinner and homework – with less impact on career. In contrast, in economies where most firms reward workers for fixed hours every day, and long hours, gender employment gaps will likely remain, based on current attitudes to mothers’ roles at home and work (Goldin, 2014[26]). OECD research suggests just under half of Romania’s gender wage gap (Figure 4.9) can be attributed to male and female choices regarding industry and occupation (Ciminelli, Schwellnus and Stadler, 2021[17]). High rates of gender pooling across occupations likely have more than one cause, but may in part reflect Romanian women choosing jobs with less rigid working arrangements (Figure 4.8). In some circumstances, high taxes and inflexible formal jobs might make informal work more appealing (Box 4.4).
Imperfect capture of informal work could cause official statistics to understate employment among low-skilled men and women. Some international evidence suggests women may be overrepresented in informal work (ILO, 2023[27]). In Romania, agriculture (21% of employment in 2021) supplies large numbers of unregulated jobs through small family farms, which are typically owned and managed by men. Side-stepping taxes and high mandatory social contributions, informal employment leaves workers with inadequate health coverage. With small pensions, households dependent on informal work can also find themselves with inadequate savings for retirement, increasing risk of poverty in old age, which is higher among women than men (Chapter 2). The previous Survey identified heavy bureaucracy and low trust in government as factors contributing to widespread informality in Romania. In rural areas in particular, formal job opportunities are often limited (OECD, 2022[1])
As in other East European countries, formal part-time work is scarce in Romania. Romania’s high rate of full-time work (97% in 2022) contrasts with situations in richer countries where growth in part-time jobs coincided with higher female employment. For low-skilled workers, large tax burdens significantly reduce take-home pay from formal part-time employment, creating incentives for informal employment. For firms, rigidities in the regulation of work hours (Box 4.5) – a reflection of efforts to stamp out tax evasion – can make it harder to reap potential gains from flexible workforces. Hiring part-time workers can also be relatively expensive in Romania. Amendments to the Fiscal Code in 2022 put a floor under part-time employees’ mandatory pension contributions (OECD, 2023[28]). The new minimum is set to equal the contribution payable by a full-time employee earning the minimum wage. For part-time workers making less than that amount, the statutory floor is higher than the contribution an employee would pay based on his or her own earnings. Employers are required to cover the difference, increasing the cost of hiring part-time employees for low-paid work.
Note: Panel B: The indicator is constructed by summing the absolute differences in the distribution of female and male employment across occupations. It ranges from 0 to 2, with higher scores indicating that male or female workers are more concentrated by gender in particular occupations. Estimates are constructed based on ISCO-08 data at the two-digit level.
Source: OECD calculations based on Eurostat data.
Romania should continue to relax rigid regulations on working hours while safeguarding worker protections. Historical reasons for restrictive work hour regulation – notably reducing scope for tax evasion – may diminish in importance with a stronger tax administration (see Chapter 2). A combination of good childcare and more flexible jobs could help working mothers and fathers balance the demands of work and parenthood (Albanesi and Kim, 2021[29]). Over time, this could help lift maternal employment rates – even if the share of those working less than full-time hours in formal jobs would also increase. Greater supply of part-time jobs would also benefit students, as well as older people keen to postpone retirement but scale back hours at work. For low-skilled workers, options to work flexibly in formal employment could reduce the advantages of informal jobs, complementing efforts to reduce tax burdens on low earners (discussed below). Labour laws now allow for individualised work programmes, established with the employer’s agreement, offering flexibility in a worker’s daily start and end times. For those in rural areas, with few local employers, teleworking could expand job options, particularly given Romania’s generally good broadband access. Amendments to restrictive laws on teleworking began only recently (Box 4.5). Macroeconomic payoffs could come from further reform to labour laws. With more flexible rules, employers could better accommodate shifting business conditions by adjusting their employees’ hours. This could reduce firms’ losses during short-lived downturns, or limit job destruction.
Gender earnings gap, % of average female hourly pay, 2018
Note: The graph shows the gap in gross mean hourly earnings for workers with 10 to 14 years of service, for firms with 10 or more employees. A positive figure indicates that men earn more than women.
Source: Eurostat; and OECD calculations.
Labour laws in Romania have been relaxed in recent years. Yet regulation of part-time, temporary and atypical forms of work is still quite restrictive (ILO, 2021[30]) and part-time jobs remain rare (Figure 4.10 Panel A).
Reflecting past abuses of such provisions by employers, overtime is prohibited for part-time workers. Indeed, it is considered undeclared work and subject to harsh fines (ILO, 2021[30]) unless parties to an employment contract formally agree to a variation in part-time work hours. In contrast, many OECD countries allow part-time employees to work beyond their normal hours, often at higher pay. This is possible, for instance, in Australia, the United Kingdom and France (French Government, 2023[31]).
Teleworking is also more tightly controlled in Romania than in many OECD countries (OECD, 2021[32]). Recent steps have been taken to expand teleworking opportunities for civil servants, who can now work remotely up to five days per month. Parents with young children are now entitled to telework a maximum of four days each month without the need to secure their employer’s agreement. In other circumstances, teleworking requires mutually agreed changes to employment contracts. Legislative changes have removed a previous requirement that employment agreements specify the place where work is to be carried out. Yet employers and their workers must still formally modify employment contracts to specify the days when an employee will work remotely.
In practice, relatively few employed persons routinely work from home in Romania (Figure 4.10 Panel B). Similarly, as in some other East European countries, the share of firms offering “flexible working arrangements” – proxied by a worker’s ability to vary daily start and end times and accumulate time off after working long hours – has historically been low (36% in 2013 compared with an OECD average of 53%).
Note: Data are for persons aged 15 to 64 years.
Source: OECD Labour Force Statistics database; and Eurostat.
Incentives for formal work and longer careers: taxes and pensions
Tax reform can strengthen incentives for low-skilled workers to participate in the formal labour market. The main priority is to shrink large tax burdens discouraging those with low-earning potential – men and women – from formal work (see Chapter 2). Introducing an earned income tax credit, as recommended in Chapter 2, would reduce effective tax rates on low-paid workers’ salaries. Such reforms could encourage non-working partners to strengthen their attachment to the labour force. Beyond tax policy changes and stronger enforcement (Chapter 2), institutional reforms to improve trust in government, and reducing the administrative cost of doing business in Romania, could encourage greater supply of formal jobs.
New pension reforms should encourage Romanian women to plan for more time in the labour market. As underscored in Chapter 2, planned increases in Romania’s low statutory female pension age between now and 2035 should help lift employment rates for older women (37% in 2019 among those aged 55 to 64). Policy changes to better match mothers’ and fathers’ leave entitlements (discussed above) could complement pension system reforms. Pursued in parallel, the reforms suggested in this chapter would encourage women to have longer careers with shorter interruptions. Young women expecting to spend more time in the labour market would have stronger incentives to finish school or go to university, expanding their options later on, including after having children (Goldin, Katz and Kuziemko, 2006[33]). This would leave fewer women in vulnerable circumstances in old age. While well down on past rates, 41% of Romanian women over 65 were at risk of poverty in 2022, compared with 32% of men (Chapter 2).
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