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Romania feels heat of East Europe wage pressure

When thousands of workers went on strike last month at Renault’s Dacia plant in Romania to demand a 70% rise in salaries, labor unions across the country sent representatives to join the protest.

The three-week strike led to a 23% pay hike for Dacia workers, more than double the management’s initial offer, and signaled that already strong wage pressures are heating up as seen elsewhere in the region this year.

From miners in Poland to utility workers in Bulgaria, unions across central and east Europe have demanded large pay hikes as they feel the squeeze from record global food and oil prices. In Romania, double-digit wage growth is seen as a key threat to long-term economic stability, as the country struggles with rampant consumption that has bloated its external cash deficit. Elsewhere in the region, worries about inflation and losses in competitiveness are growing fast. “We are not as competitive as we were a few years ago and if labor force costs continue to rise strongly we will become less and less attractive,” said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest.

Poverty, disillusionment with the slow pace of reforms that have brought Romania into the European Union last year and widening wealth differences in the fast-growing economy have powered demands for higher salaries for years. Now, pay claims have received a new push due to infighting among political parties and an upcoming parliamentary election later this year, coupled with rising inflation and energy costs. “The shock in citizens’ pockets will be big,” said Bogdan Hossu, head of the powerful Cartel Alfa, one of Romania’s largest labor unions. “Let’s be realistic, these potential social pressures will be stronger than in the previous year because of the election.”

Ovidiu Jurca, a senior official at the National Union Bloc, warned more labor strikes were likely to follow in “every sector where there is a strong union and an employer who forgets... the good practice at European levels”. “There are a lot of unsolved issues in the public sector, or in transport or manufacturing,” he told Reuters.

 
WANTING MORE
The Dacia protest was followed by a strike at Romania’s top steel mill, owned by giant ArcelorMittal, where a third of the workforce demanded better pay. Truck drivers and police officers also rallied separately in April to demand improved legislation and infrastructure. In Poland, where emigration has tightened the labor market sharply, miners have won a 10% wage increase following a 46-day protest in February. The government sees average salaries there growing 12% this year. In Bulgaria, 2,700 workers at Czech power firm CEZ were given a 25% pay increase after a strike and in Hungary, where average wages have jumped 13% since last year, wage hikes are a key concern for the central bank.

The International Monetary Fund has warned about secondary effects of wage growth on the economy throughout the region and called on governments to shun excessive pay, saying wage demands within the public sector are spilling into private enterprise. But analysts say there is little chance that Bucharest’s minority government will be wage-tight as its public support is at a low level ahead of the ballot, due in the Q4. In particular, observers warn that talks on the 2009 government budget, which should be submitted ahead of the election, may be an opportunity for more giveaways and a new debate on hikes in the minimum wage.

Earlier this year, the transport ministry averted a general rail workers’ strike by consenting to a 13% raise. The government is committed to capping public sector wage growth at 10% on average this year. One way for the government to increase benefits without breaching the salary cap is to grant bonuses, which in turn could increase demands on private employers, observers say. First signs of such spending have appeared in recent months, when parliament employees were given a bonus worth 10% of monthly salaries to compensate for radiation exposure from antennas on large buildings.

The health ministry has also proposed a “stability” bonus for staff in the sector. Local media have reported civil servants in small towns across Romania demanding extra cash for “loyalty” and “confidentiality”. Unions have urged the government to incorporate bonuses in base salaries, making wage policy more transparent. They also demand that wages be linked to productivity gains and inflation, which reached a two-year peak of 8.6% in March. “Such an adjustment mechanism would have reduced social tensions to a large extent,” Hossu said. “Pressure on the wage fund would be a lot more bearable for employers.” Asked for comment on wage pressures, Romania’s finance and economy ministry reaffirmed its cap on wage growth this year.

Investors have complained about wage growth as well as shortages in skilled labor, a problem across eastern Europe, but foreign cash continues to flow into Romania, because of relatively low labor costs. Average net monthly wages in Romania, where an estimated half of the workforce is unionized, stood at 1,134 lei ($481.5) in February, up 20.5% on the year. Minimum wages in Romania last year were the EU’s second lowest, Eurostat data showed. (Reuters)