La imposición de este deber raja tabla es excesivo

The programme reiterates a number of new measures envisaged to be implemented over the coming years, but aims in general at pursuing the active labour market policies already launched. A broad array of these measures are described, including in particular public subsidies aimed at creating and preserving employment, increased education and vocational training aimed at preventing shortage of skilled labour and institutional improvements to the public employment service that could facilitate the matching of supply and demand in the labour market. Moreover, it is envisaged to continue from 2006 the reduction of the still high pay-roll taxes. These measures all seem relevant, and may have had over recent years some impact on reducing long-term and youth unemployment although these improvements may also be of a cyclical nature.

Some of the measures envisaged, such as the modulation of the unemployment benefit according to contribution rate and period, are apparently not yet designed in the detail, and it is difficult to identify potent labour market measures in the programme, which would be able to reverse the steady drop since the mid-1990’s in both female and male employment rates. Tax measures, in particular the reduction in income and social security tax, is the main approach by which the programme hopes to bring back into (formal) activity the large share of the working age population that remains outside the labour market. The tax reform implies an important reduction from 40% to 16% in the highest marginal income tax rate. This step would in general strengthen supply side conditions in the labour market and may in particular give an incentive for bringing into the open unreported salaries, which would generate additional tax revenue over the medium-term. At the same time, the positive effect on labour supply and employment should not be overestimated since part of the observed effect could be mostly statistical due to the shift from informal to formal remuneration for people having a formal work contract. Moreover, a number of obstacles will continue to discourage people working fully in the informal sector from re-entering the formal labour market. High payroll taxes still discourage

employment and official reporting of salaries, and a stronger positive effect of the flat-rate income tax could therefore be expected to occur only when payroll-taxes are further reduced. In the same vein, further progress in placing the pension system on a sound footing could add to the effect of the flat-rate tax by making formal employment more attractive, in particular for the low income groups for which the marginal tax rate was not reduced by the reform. Finally, the significant cut in profit tax from 25% to 16% would be expected to have a positive effect on labour demand, but the programme does not contain any estimate in this respect, and it is debatable to what extent a lower profit tax could instead speed up the structural change towards less labour-intensive production.

Deep-rooted structural problems associated with the transition process itself, such as the mismatch between the labour force’s skills endowment and the requirements of a market environment, seem to explain the continuous decline of the participation rate, which came down to 62.2% in 2003. Although the net replacement rate of various out-of-work allowances is generally low, and therefore the benefit system generally creates few disincentives to labour market participation, the extensive use of early retirement and disability schemes may have played an important role in lowering the participation rate. In particular, this is the case for the advantageous access to early retirement for some professions, the rapid increase in withdrawals from the labour market on disability schemes and the use of prolonged severance payments intended to cushion the effects of redundancies in the state-owned enterprises. In the light of a participation rate for the 55-64 year old that remain below 40%, the programme naturally adheres to the objective of preventing early exit from the labour market, but is particularly weak in addressing specific measures to limit entry into such schemes and falls short of considering stricter eligibility criteria.

The programme sees improved labour market mechanisms and higher flexibility of the labour force as a strategic objective. Labour market flexibility is indeed instrumental to improve the reallocation of resources, strengthen the economy’s resilience to adverse shocks, maintain Romania’s comparative advantage in labour-intensive production and create new jobs. The programme, however, confines itself to shortly mentioning that the Labour Code will be amended in co-operation with the social partners in order to ensure the code’s uniform application. Although the programme does not explain what amendments the government considers inescapable, it states that the revision will address some restrictive provisions, which are considered major impediments to the investment climate, such as the conditions for fixed- term contracts and the requirements for collective dismissals, which are more restrictive than EU obligations imply. It is unclear whether the revision will also deal with the procedures for individual dismissals that are cumbersome and allow for protracted judicial recourse, the difficulties for the employer to redistribute working hours and the limited ability to dismiss personnel, which may serve as a barrier to hiring new employees. The programme would also have gained from discussing the merits of the fairly centralised wage bargaining system and the benchmark role of the statutory minimum wage, which could prevent wages from reflecting productivity differences across regions and skill profiles. In spite of a restrictive wage policy in the state-owned and public sector, only a moderate change in the relative wage structure between sectors has occurred. Moreover, there is some indication of a relatively small responsiveness of wages to unemployment developments in local labour markets, implying that wages do not seem to fully play their role in mitigating regional disparities.