Measures and Policies to Enhance Labor Market Flexibility in Romania

1. Measures and Policies to Enhance Labor Market Flexibility in Romania Dr. JungyollYun (Professor, EwhaWomans University)

2. 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

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

8. Unemployment Rate

9. Labor Force Participation Rate

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

11. Youth Unemployment (Relative: u-youth/u)

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

17. Temporary Employment (Relative)

18. LM Flexibility in Romania and Korea Source: OECD(2004) 1) EPL index values for 2011 are the ones estimated by consultants 2) 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 isincreasing in EPL when EPL is low <= Productivity Effect FDI isdecreasing 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 FDI EPL 0

22. FDI(% ofGDP)

23. 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)

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) SP year Source: Eurostat

28. People at Risk of Poverty (%) Source: Eurostat

29. Expansion of SP Against Unemployment in Korea Source: Korea Labor Institute (2005) (Million US$) 160 140 120 100 80 60 40 20 (year) Jab Stabilization Program Jab Training Program Unemployment Insurance Benefit

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 policy