Measures and Policies to Enhance
Labor Market Flexibility in Romania
Dr. Jungyoll Yun
(Professor, Ewha Womans University)
Overview of Romanian Economy
▶Maintaining
relatively high growth before financial crisis (esp. after 2002)
: domestic demand and foreign K. inflows
▶Sluggish
Growth after Crisis
=> Need momentum for sustainable growth
2
GDP Growth
3
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
4
KSP with Romania
5
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
6
Employment Rate
72
70
68
66
EU
ROM
64
62
60
58
2000
2001
2002
2003
2004
2005
2006
7
2007
2008
2009
2010
2011
Unemployment Rate
12
10
8
EU
6
ROM
4
2
0
2000
2001
2002
2003
2004
2005
2006
8
2007
2008
2009
2010
2011
Labor Force Participation Rate
80.0
77.0
74.0
71.0
68.0
EU
65.0
ROM
62.0
59.0
56.0
53.0
50.0
2005
2006
2007
2008
2009
9
2010
2011
Long-term Unemployment Rate
(Relative: u-long/u)
0.7
0.6
0.5
0.4
EU
ROM
0.3
0.2
0.1
0
2000
2001
2002
2003
2004
2005
2006
10
2007
2008
2009
2010
2011
Youth Unemployment
(Relative: u-youth/u)
3.5
3
2.5
2
EU
ROM
1.5
1
0.5
0
2000
2001
2002
2003
2004
2005
2006
11
2007
2008
2009
2010
2011
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
12
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
13
LM Rigidity (EPL Index) of Romania
14
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)
15
Vacancy Rate
1.8
1.6
1.4
1.2
1
EU
ROM
0.8
0.6
0.4
0.2
0
2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2
16
Temporary Employment (Relative)
16.0
14.0
12.0
10.0
8.0
EU
ROM
6.0
4.0
2.0
0.0
2002
2003
2004
2005
2006
2007
17
2008
2009
2010
2011
LM Flexibility in Romania and Korea
Regular
Temporary
Collective
2003
Total
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 consultants
2) EPL index for temporary employment prior to crisis
18
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
19
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
▶High
<= Cost Effect
Level of EPL and Low Level of FDI in Rom.
=> Need to enhance flexibility
to induce FDI inflow into Romania
20
LM Flexibility and FDI
FDI
EPL
0
Romania at High EPL and Low FDI
21
FDI (% of GDP)
5
4
3
EU
2
ROM
1
0
2004
2005
2006
2007
-1
22
2008
2009
2010
LM Flexibility and Employment
▶Increasing
LM flexibility for Temporary Employment
and Collective Redundancies
=>Increase domestic youth employment
Facilitate returning of emigrants
(Directly and through its effect upon FDI)
23
How to Enhance LM Flexibility
▶Social
Protection
Flexicurity
▶Social
Dialogue (Labor-Management-Gov’t)
: Economic and Social Development C.
24
EPL VS. Social Protection
▶Lower
social protection for the unemployed
=> stronger employment protection
▶Expanding
social protection
=> Reduced burden of LM Reform
for Labor
25
A trade-off between EPL and
Unemployment
26
Social Protection Expenditure
(% of GDP)
SP 35
30
25
20
EU
15
ROM
10
5
0
2005
2006
2007
Source: Eurostat
27
2008
2009
year
People at Risk of Poverty (%)
2005
2006
2007
2008
2009
2010
2011
-
-
44,8
23.9
42,4
22.8
40,9
22.4
39,7
22.5
38,4
23.4
-
-
71,6
63.8
71,8
64.3
72,2
63.5
73,3
63.8
73,0
65.2
-
-
Total population
EU
Unemployed persons
EU
Source: Eurostat
28
Expansion of SP Against
Unemployment in Korea
(Million US$)
160
140
120
100
80
60
40
20
Jab Stabilization Program
Jab Training Program
Unemployment Insurance Benefit
Source: Korea Labor Institute (2005)
29
(year)
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
30
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
31
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
32
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)
33
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’
34
Discussion
▶Limitations
Relatively large portion of agricultural sector
=> Need for Industrial Policy as well as LM policy
35