Friday, November 9, 2007

Romania and Bulgaria suffer labour shortage

By Thomas Escritt in Avrig
Financial Times
updated 4:41 a.m. CT, Fri., Nov. 9, 2007

With as many as 2m Romanians working abroad and fast economic growth, the country's labour market is growing increasingly tight.

Unemployment in the country fell from 7 per cent in 2003 to 5.2 per cent at the end of 2006 and is nearer 4 per cent today. At the same time, overall wages have grown consistently at or near 20 per cent a year since 2002, according to data from the European Bank for Reconstruction and Development. In these circumstances, it is little surprise that developers in Bucharest are complaining it is hard to find the labour for their building sites.

According to Clemens Grafe, Europe, Middle East and Africa economist at UBS, wage inflation is highest in low-skills sectors where working abroad is an easy option. He said: "In Romania, you see much quicker wage growth in the non-skilled sectors like hotels, restaurants and construction."

Wage growth in the construction sector has outpaced overall wage inflation, with workers earning some 50 per cent more today than a year ago, according to Diwaker Singh, a Bucharest real estate developer.

But the EBRD's employment data shows the story has roots in a period before Romania and Bulgaria joined the EU at the beginning of this year. The single largest decline in the size of Romania's workforce occurred in 2002, when the country's citizens first gained visa-free access to the European Union. In that year, the country recorded a year-on-year decline of 12 per cent in the size of its labour force, since when the numbers have been relatively stable.

The numbers for Bulgaria tell the same story, with unemployment declining continuously from 19.5 per cent in 2001 to 8.9 per cent at the end of last year.

In Mr Grafe's view, wage convergence may remove the economic pressure that is driving migration flows sooner than many expect. He said: "We believe that the speed with which labour costs change will change completely. Migration is driving wage movements. In countries that have seen major migration, wage increases have speeded up dramatically."

Historically, eastern Europe's wage levels had grown relatively slowly. "In countries like Poland, we expect 12 or 13 per cent wage increases. It used to be 2 to 3 per cent [before large-scale migration]."

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