Last week the president of Romania came out asking the parliament to increase public salaries to the 2010 level. He saw it as their duty to do it. A week later the ruling coalition, supporting the president, decided to go ahead with the increase. Then the prime minister, “independent” supported by the ruling coalition, endorsed it. As of today on June 1st this year public sector wages will return to their 2010 level.
I made my view clear on this subject last week, albeit in Romanian. However, there is too much BS going around in support of this increase not to come back to the issue. I am very bothered by one particular reason put forward by the President, Prime-minister and the ruling coalition, to justify the wage increase: the public sector has “paid” the bill from the Romanian recession.
This statement is simply not true.
Let’s start with an overall view at the labor market. In 2001 the economy was employing 4.4 million people. Today this number has dropped to 4.2 million. In 10 years Romania did not manage to add new jobs instead it killed 200 thousand jobs.(more on this later)
Graph 1: Total employees in the economy (thousands)
Now, let’s look at how these employees were distributed in the economy. At the end of 2004 the public sector was employing a little over 800 thousand people while the private sector 3.6 million people. Then, the “golden age for Romania” started with average real economic growth around 5%. At the end of 2008 Romanian economy was employing 4.8 million people, 400 thousand jobs were created between 2005 and 2008. But here comes the kicker: none in the private sector. At the end of 2008 the public sector was employing 1.4 million people, 600 thousand more than in 2004, while the private sector was employing 3.4 million people, 200 thousand less than in 2004. The economic boom was entirely “confiscated” by the public sector.
And now let’s move to the 2009-2011 period, the recessionary growth period. In 2011 the number of public employees is 130 000 less than in 2008 at 1.27 million. In the same time by 2011 the private sector has lost 470 thousand people relative to 2009, four times as much as the public sector.
To conclude, over the business cycle the public sector added 400 thousand jobs while the private sector lost 670 thousand jobs. This means that the now the public sector employees represent 30% of the work force relative to 18% in 2004.
It should be clear now that the public sector benefited from both boom and recession while the private sector has been shrinking. Does the wage increase for the public sector seem fair anymore Mr. Prime Minister?