Increase in the gross minimum basic salary – proposal launched by the Ministry of Labor on December 28, 2020

Near the end of 2020, the Ministry of Labor and Social Protection launched into public debate a draft Government Decision regarding the increase of the minimum gross basic salary per country guaranteed in payment from 2,230 lei to 2,300 lei per month starting January 1, 2021. This proposal would bring a 3% increase compared to December 2020.

Such legislative initiatives are aimed at economic growth by stimulating the increase in the purchasing power of employees and the reduction of undeclared work, thus having an impact on the increase in consumption and on the import of consumer goods. The true impact of this salary increase, which at first sight does not seem to be significant, remains to be seen, but what is certain is the percentage of active employees in Romania who benefit from this increase. Thus, according to the data provided by the Ministry of Labor and Social Protection in the project’s substantiation note, a number of 1.4 million employees will benefit from such a measure out of the total of 5.3 million active employees in Romania, i.e. a approximately 26.4% will be direct beneficiaries of this measure.

As an indirect impact, the effect of this increase on certain economic sectors should not be ignored, such as the trade sector, transport and that of small and medium enterprises where the level of wages is lower than the average, and this increase would influence the increase in expenses allocated to the workforce. In addition, we should not ignore the indirect effect of this increase on certain rights or obligations that are related to the minimum income per economy as a basis for calculation, such as the social insurance contribution and social health insurance, which will thus be increased since these ceilings it is determined according to the level of the gross minimum basic salary per country in force at the time of submission of the single declaration.

Establishing a basic minimum wage is a method used in most countries around the world, Romania being one of the 116 states that have ratified the Conventions of the International Labor Organization (ILO) regarding the setting of the minimum basic wage. However, although the related conventions encourage, in order to establish the level of the minimum wage, the use of criteria such as the general level of wages in the country, the cost of living, social security benefits and the relative standard of living of some social groups, or some economic factors, such as the requirements of economic development, productivity levels and the desire to achieve and maintain a high level of employment, the legislative project proposed by the Government of Romania does not seem to take into account any such criterion, there being no argumentation in this sense in the project’s substantiation note, thus making it difficult to assess the true impact of such a measure on the labor market.

Although, at first glance, such a salary increase can only be a good omen if it ends up being adopted, Romania still remains among the countries with the lowest minimum basic salary in the European Union, alongside countries such as Bulgaria , Lithuania or Hungary. According to statistics published by the European Commission, the minimum salary per economy in the member states of the European Union varied in 2020 from 312 euros to 2,142 euros per month, Luxembourg being the country with the highest minimum basic salary followed by other countries such as Germany, the Netherlands , Belgium or France.

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