Study: Minimum wage increase will discourage entrepreneurship in Romania

The minimum wage increase included in the governing program will up youth unemployment, discourage entrepreneurship and further widen the gap between small and large companies, according to an impact study by Iancu Guda, the president of the Financial Banking Analysts Association in Romania. The current governing program foresees the increase of the minimum wage from RON 1,450 (EUR 322) to RON 2,000 (EUR 444) by 2018 and to RON 2,400 (EUR 533) by 2019. In 2015, salaries accounted on average for 11% of the total expenses of companies, with significant differences depending on their size. For companies with a turnover of at most EUR 100,000 per year, salaries take up 21% of total expenses. For companies with a turnover of over EUR 100 million, salaries take up only 8% of total expenses, the study shows. Salaries account for over 20% of expenses in five key sectors of the Romanian economy: services (39%), textile industry (29%), IT (28%), sanitation (22%), and transports (21%). The IT sector is the only one where salary increases were generated by an excess demand. The remaining sectors reported higher costs mostly as a result of the increase of the minimum wage. The minimum wage stood for 43% of the average wage in 2016 and will climb to 63% by 2020 if the increases foreseen in the governing program go through. In such a case, many companies could encounter financial difficulties or even stop their activities, the study argues. It gives the example of the textile manufacturing sector, which has seen in the past three years the highest percentage of insolvent companies against active companies. The minimum wage increase would also impact youth unemployment, where Romania posts the third highest level in EU in the 20-25 age group, of 24.2%. The announced measure would also discourage entrepreneurship, especially when the fiscal framework is unpredictable. editor@romania-insider.com