measures and policies to enhance labor market flexibility in romania

Dr. Jungyoll Yun(Professor, Ewha Womans University)

Measures and Policies to Enhance Labor Market Flexibility in Roma-nia

2

Overview of Romanian Economy

▶Maintaining relatively high growth before financial crisis (esp. af-ter 2002)

: domestic demand and foreign K. inflows

▶Sluggish Growth after Crisis

=> Need momentum for sustainable growth

3

GDP Growth

4

KSP with Romania

▶Policy Suggestions focusing on Human Resource Development

our experiences of crisis management

our efforts for structural reforms (since early 90’s)

▶Policy Objectives of KSP

Reducing youth and long-term U.

Inducing emigrants to return

▶Policy Tools of KSP

LM flexibility

ALMP

Government Incentives

5

KSP with Romania

6

Labor Market in Romania (I)

▶Relatively lower employment rate

Relatively lower unemployment rate

=> Relatively lower Participation Rate

▶Relatively High

Youth Unemployment Rate

Long-Term Unemployment Rate

7

Employment Rate

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201158

60

62

64

66

68

70

72

EUROM

8

Unemployment Rate

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2

4

6

8

10

12

EUROM

9

Labor Force Participation Rate

2005 2006 2007 2008 2009 2010 201150.0

53.0

56.0

59.0

62.0

65.0

68.0

71.0

74.0

77.0

80.0

EUROM

10

Long-term Unemployment Rate (Relative: u-long/u)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

EUROM

11

Youth Unemployment (Relative: u-youth/u)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

0.5

1

1.5

2

2.5

3

3.5

EUROM

12

Causes for Low Rate of Employment & High Rate of youth and Long-term Unemployment

▶Large Size of Outflows of High-Ed. Young Workers

▶LM Rigidity for Temporary and Part-time Employment

13

Effects of LM Flexibility

▶No clear relationship between flexibility and (un)employment

* open LM

▶LM rigidity

=> higher long-term unemployment and

lower turnover rate (OECD 2004)

higher youth unemployment

(Nickell 1997)

lower FDI

14

LM Rigidity (EPL Index) of Romania

15

EPL in Romania

▶EPL index has been reduced over years

3.2 (2003) => 2.8 (2005)

3.0 for non-regular

4.8 for collective redundancies

▶2011

Reduced further

* Changes in EPL for Temporary Emp.

and for Collective Redundancies

Not accompanied by changes in LM structure

(turnover rate, portion of temporary employment)

16

Vacancy Rate

2009Q32009Q42010Q12010Q22010Q32010Q42011Q12011Q22011Q32011Q42012Q12012Q20

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

EUROM

17

Temporary Employment (Relative)

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

EUROM

18

LM Flexibility in Romania and Korea

Regular Temporary Collective Total

2003 3.2

2005 2.2 2.9 4.4 2.8

20011) (1.8) (2.0) (3.4) (2.2)

Korea(2003) 2.4 1.2(2.4)2) 1.9 2.0

Source: OECD(2004)1) EPL index values for 2011 are the ones estimated by consultants2) EPL index for temporary employment prior to crisis

19

LM Flexibility in Korea

▶More flexible After Crisis

Especially for Temporary Employment

Introducing Collective Redundancies

Little Changes for Regular Employment

▶Substantial Increase in Non-regular Employment

Peaked at 50% during early 2000’s

before it has recently been lowered

Too flexible for temporary employment

20

LM Flexibility and FDI

▶Non-linear relationship (Parcon (2008))

FDI is increasing in EPL when EPL is

low <= Productivity Effect

FDI is decreasing in EPL when EPL is

high <= Cost Effect

▶High Level of EPL and Low Level of FDI in Rom.

=> Need to enhance flexibility

to induce FDI inflow into Romania

21

LM Flexibility and FDI

Romania at High EPL and Low FDI

0 EPL

FDI

22

FDI (% of GDP)

2004 2005 2006 2007 2008 2009 2010 2011

-1

0

1

2

3

4

5

EUROM

23

LM Flexibility and Employment

▶Increasing LM flexibility for Temporary Employ-ment and Collective Redundancies

=>Increase domestic youth employment

Facilitate returning of emigrants

(Directly and through its effect upon FDI)

24

How to Enhance LM Flexibility

▶Social Protection

Flexicurity

▶Social Dialogue (Labor-Management-Gov’t)

: Economic and Social Development C.

25

EPL VS. Social Protection

▶Lower social protection for the unemployed

=> stronger employment protection

▶Expanding social protection

=> Reduced burden of LM Reform

for Labor

26

A trade-off between EPL and Unemployment

27

Social Protection Expenditure (% of GDP)

2005 2006 2007 2008 20090

5

10

15

20

25

30

35

EUROM

SP

year

Source: Eurostat

28

People at Risk of Poverty (%)

Source: Eurostat

2005 2006 2007 2008 2009 2010 2011

Total populationEU

- -44,823.9

42,422.8

40,922.4

39,722.5

38,423.4

Unemployed personsEU

- -71,663.8

71,864.3

72,263.5

73,363.8

73,065.2

- -

29

Expansion of SP Against Unemployment in Korea

Jab Stabilization ProgramJab Training ProgramUnemployment Insurance Bene-fit

(year)

20

40

60

80

100

120

140

160

(Million US$)

Source: Korea Labor Institute (2005)

30

Social Dialogue (Romania)

▶The Economic and Social Council (ESC)

Social Consultation for Fair Allocation of Burdens

Inducing Parties to Actively Participate

in Gov’t Policies (Enhancing Enforceability)

▶Development of ESC (3 Stages)

1st Stage : 1990-6

Strong Union and No Employers’ Org.

2nd Stage : - 2008

Economic Growth and Strong Union

3rd Stage : 2008 –

Economic Crisis and Weakened Union

31

Social Dialogue in Korea

▶Economic and Social Development Commission (ESDC)

Founded during the crisis

Effective by the crisis

▶‘Social Pact’

Reduction in EPL

Expansion of SP against Unemployment

Others: Work-hours Reduction

Strengthening Trade Unionism

32

ESC for LM Reform

▶Economic Crisis and Establishment of Employers’ Org.

=> favorable environment for LM Reform

: Changes in Labor Code in 2011

▶Fair Allocation of Burden bet. U and E

=> Larger Contribution of E to Social

Protection Expansion in return for More

LM flexibility

▶Enhance Enforceability

33

Conclusion (Policy Suggestions) I

▶Increasing LM flexibility (esp. for Tem. and Part-T. employment):

Reduce long-term & youth unemployment

(and possibly total unemployment)

(directly or through the increase of FDI inflow)

34

Conclusion (Policy Suggestions) II

▶To effectively reduce employment protection,

Increase SP expenditure for Unemployed

Social Dialogue (ESC) for LM Reform

(changes in labor laws for LM flexibility)

through ‘Social Pact’

35

Discussion

▶Limitations

Relatively large portion of agricultural sector

=> Need for Industrial Policy as well as LM pol-icy