The right employees are increasingly difficult to find, with a direct impact on the economy. What solutions are there?

Opinion by Daniel Anghel, Partner and Leader of the Fiscal and Legal Consulting Department, Francesca Postolache, Partner, Kenneth Spiteri, Partner

The lack of labour and skills is the main concern of Romanian companies, being considered the biggest risk that, in the next decade, could negatively affect the profitability of the industry in which they operate, according to the PwC CEO Survey 2023. The concern regarding the availability and workforce readiness emerges from our analysis and surveys and is a constant on the executive agenda. Lately, demographic changes caused by population aging and migration, as well as the impact of new technologies, have heightened these fears. We see more and more companies having difficulty recruiting and especially recruiting people with the right skills. This discrepancy between the skills of employees and the needs of employers generates a paradoxical situation: there are jobs available, but also unemployment.

An analysis carried out this fall by PwC Romania for AmCham found that the sectors with the biggest staff shortages in Romania are: manufacturing, transport, and IT&C. At the level of the entire economy, the labour force deficit estimated for the year 2022 was 145,000 employees, and in the absence of some measures it may reach 224,000 people in the year 2026. The economic impact at the level of the year 2022, defined as lost productivity, is estimated at 4.4 billion euros and a doubling of this loss of up to 9.5 billion euros is anticipated. In construction, HoReCa, agricultural production and couriers in particular, part of this deficit was covered by foreign workers. The quotas accepted in Romania were 100,000 people in the last two years, double compared to 2021, and will be raised to 140,000 in 2024. But the “import” of workers is not enough for the needs of the economy, especially in fields that require increasingly sophisticated skills.

One of the main conclusions of our analysis is that this deficit can be remedied with measures aimed at activating the labour force from the segment of those not currently integrated into the labour market: unemployed, young people, pensioners, the greatest potential for activation being among the age group between 15–24-year-olds who currently do not follow any form of education and are not employed and number about 350,000 people.

Romania’s ability to maintain and attract capital in the economy will depend on how the structural problems will be solved, but also on the targeted quick remedies.

At the same time, the educational and continuing training system must receive more resources to correct the current trends. Romania is the country with the highest school dropout rate in the EU, namely 15.3% in 2021 compared to 9.7% EU average, while the rate of young people who are not employed or enrolled in a form of education or training remained one of the highest in the EU, at 18%.

Approximately half of the inactive population in Romania consists of high school and vocational secondary education graduates, and 62% is represented by women. Although there are many elements that make up this landscape of reasons for not participating in the labour market, including the degree to which work is legally registered, one aspect that deserves attention concerns the rate of gender inequality at the level of employment and at the level of wages, which in Romania they are some of the largest in the European Union. At the European level, it is proposed to achieve a halving of the gender inequality rate in employment and an increase in the income level of women, aligned with that of men, by 2030, the new rules related to the transparency of salaries being an important step to combat this disparity.

In terms of skills, certainly the rapid advance of new technologies in recent years requires superior digital skills. Romania, however, performs poorly in terms of digital skills, only 28% of the adult population has at least basic digital skills, well below the EU average of 54%, shows the report Europe’s Digital Decade: digital targets for 2030. Moreover, only 9% have digital skills above the basic level, while the EU average is 26%. It is obvious that employers must offer their employees learning and development programs. And the desire to learn and adapt seems to exist, especially among Gen Z. In a study conducted by PwC among Romanian employees, Hopes and Fears 2023, when asked about the impact of AI on their careers, they seem to be largely optimistic and refer more often to the positive impact of AI than the negative, saying that it will increase their productivity, bring opportunities to learn new skills or create employment opportunities.

In addition to the characteristics of the labour market in Romania, the trends that give the direction of the global economy must be considered. The green economy also means a new set of skills. The “European Year of Skills Survey” report of the European Commission draws attention to the fact that employees have a very important role in the efforts of technology and integration into the green economy. According to the study, companies partially solved this problem by moving departments, increasing training budgets, more attractive benefits.

From this perspective, the annual PwC Employees Hopes and Fears study shows that employers are aware that other skills will be needed than the current ones in a world governed by “digital and green”. But only 15% of non-skilled workers believe that the work they do now will involve different tasks in five years, compared to 51% of skilled workers who hold this view. We can thus identify a problem of anticipation, which can make those who do not adapt and do not think that they need to learn new skills more vulnerable to job loss. Moreover, the gap between these categories is also relevant to the way in which inequalities are propagated. It is a chain of consequences that produces effects both on the labour market and within companies.

Efforts to attract and retain employees in an increasingly competitive labour market are also amplified by the volatile macroeconomic context, inflationary pressure on salary budgets and fiscal changes. The limitation of fiscal facilities for the IT, construction, agriculture sectors, as well as the possible increase in income tax rates, by introducing a system with progressive rates instead of the single rate, in turn put pressure on salary costs.

In conclusion, Romania has recovered from the development gap compared to the states of Western Europe in the last 15 years, contributing positively to the increase in the level of well-being and implicitly in wages, but it is faced with emigration, the aging of the population and has an outdated public formal education system . These factors create difficulties for employers in an economy under the pressure of change and diminish the attractiveness for investment. The authorities, companies and other institutions must solve this situation that can slow Romania’s development, investing more in training and education programs that meet the needs of the labour market.