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About salaries and productivity
Iurie Gotisan, March 18, 2007
Speaking about the preliminary macroeconomic forecasts for the next three years, the Government has recently promised that the medium monthly nominal salary on economy will grow 1.6-fold in 2008–2010, up to 3,250 lei in 2010. Of course, this governmental intention is very good and welcome but we do not know how realistic this figure is, if we do not remedy the enormous difference of productivity. At the same time, what will happen with the Government’s promise to increase the medium salary on economy up to 300 dollars (or about 4,000 lei at the current exchange rate) by 2009?
Official statistics reveal that the medium monthly salary paid in economy in 2006 accounted for about 1,700 lei (more than 130 dollars) . The medium salary in budgetary sector exceeded 1,400 lei, while the average wage in real sector accounted for about 1,900 lei. If making a comparison, the medium salary rose by more than 28 percent in 2006 compared with 2005. The salary rise may be attributed to developing economic sectors (finances, trade, building, etc.) and explained by administrative rise of budget-funded wages, in particular, for workers in public administration sector. However, a difference should be made between nominal and real salaries. The real salary that citizens felt in their pockets rose by 13 percent only, being cut by inflation rate because inflation in 2006 was the highest one in the past three years (14.1 percent). In other terms, we may affirm that the purchase power of population in 2006 was lower than in 2005.
In terms of real convergence, real salaries have grown in the past years (unfortunately faster than productivity), while the structure of industrial production is changing under pressure of well-known conjectural factors such as decline of share of intensive sectors in cheap labour force. As regards productivity, a Moldovan is paid 0.8 euros on average per hour, while citizens of E.U. member states accept at least 25 euros per hour and workers from some Central and East European states earn 7 euros on average per hour. The cheap labour force should make us attractive for European companies. It is a stratagem in which Chisinau officials still believe and they promote it in all communication means addressing other countries.
Cheap does not necessarily mean good
However, the reality is another and the lack of appetite of foreign direct investments (FDI) for Moldova demonstrates this fact (for example, the FDI in Moldova exceeded 200 million dollars in 2006). Our labour force is cheap but it is gradually becoming dearer. It is true, salaries do not grow much. In addition, they do not have any connection with labour productivity but rather with electoral cycles. Moldovans work in continuation for low salaries, but they are not productive. These problems must be cumulated both with qualification of salary earners from our country and with modernisation of enterprises. We must not forget that people are rudimentarily working in some economic sectors with very used equipment. For this reason, the physical work is much harder than in other countries, which use modern technologies.
Nor the salary factor should be neglected. There are many societies, particularly in agriculture, which pay minimum salaries on economy, with workers being unmotivated to be productive. The medium salary paid in agriculture in 2006 was 914 lei (about 70 dollars). In addition, official statistics show that the number of workers in this sector is on the decline: it decreased by about 4 percent in nine months of last year. Many workers are retreating from this sector and seek jobs in other sectors or try to emigrate.
A similar situation is observed in education sector, particularly the elementary, secondary and high education. The medium salary in education amounted to about 1,100 lei (84 dollars) in 2006. At the same time, salaries in certain branches in budgetary system are much higher than in other branches. In particular, the medium salary in public administration sector is actually two-fold higher than the earning of a teacher or doctor, while consequences of this situation become clearer and they are observed in degradation of education, lack of teachers or their emigration. This situation proves the lack of a consistent financial policy, particularly when the Government has assumed some commitments that it must respect in front of law and citizens.
At the same time, we have different circumstances and very various salary dimensions. When we say "medium salary" we must take into account the fact that it is not very relevant because of regional economic polarising. For example, the medium salary in Chisinau municipality in 2006 (about 2,200 lei) exceeded by 30.5 percent the average wage paid in country and by 10 percent the medium salary paid in Balti. The districts of Cantemir, Telenesti, Soldanesti, Stefan-Voda and Cimislia are very disadvantaged in terms of salaries (and implicitly disadvantaged in general economic terms), since the medium salary paid there was by 60 percent lower than the national average. Low salaries in territory may be explained by low allocations for research and development and chronic shortage of internal and external investments, of which nearly 70 percent go to Chisinau.
According to the National Institute for Statistics, the medium salary in Romania amounted to about 900 Romanian lei or more than 350 dollars in 2006. The medium salary in budgetary sector in Ukraine accounts for 1,300 Ukrainian hryvnas or nearly 260 dollars. Differences are bigger if we compare salaries with wages paid in the Baltic States. For example, the medium wage in the Baltic States exceeded 650 dollars in 2006, being 5-fold higher than in Moldova. So, the purchase power of an Estonian, Lithuanian or Latvian is much bigger than of a Moldovan. I would make a simple comparison; one may buy approximately 32 kilograms of pork (4–5 dollars a kilogram) on a medium salary in Moldova, compared with 160 kilograms of pork that an Estonian may buy on an average wage of 800 dollars, with prices being generally similar.
Instead of conclusions
The private sector will give the tone on market of salary earners the next years. We may probably be witnesses of important salary rises, maybe higher than officially forecasted. This could be due to Moldova’s proximity toward the E.U.: more foreign investments, which create new jobs in turn. It is essential that these salary rises be in line with advances of productivity in economy. Otherwise, they would turn into foreign deficits or would increase the inflation.
1 Analytical Centre Expert-Grup, Business and Economic Analyses, issue 16.