The Password for Higher Salaries

Statistics may not be accurate all the time (see chapter 37), but it’s no statistical error or lie, when Romania usually ranks at the bottom within the EU when important economic factors are the subject.

You’re for sure very well aware of the fact, that salaries – whether it’s the minimum wage or the average pay-check – paid in this country belong to the lowest on this continent.

Now, that we know, where Romania is standing, we have two possibilities.

1. Constantly complain about and hope or pray that someone sometime will come out of the blue and solve the problem

2. Analyse, why the romanian workforce is paid so low and what can be done to change this

For those of you who prefer option 1, I wish you good luck – la revedere.

For the others, we start to analyse.

A main factor for the average salary-level in a country is the level of labor productivity. What exactly is romania’s labor productivity? Let’s start with the big picture: the GDP or PIB.

The GDP is the value of all final goods and services produced within a country. Romania’s GDP last year was about 150 Billion EUR.

Now we take closer look and divide this value with the total population of a country to calculate the ‘GDP per capita‘. For Romania with a population of about 20 million, this figure is roughly 7500 EUR per year.

A look around Europe shows, this number is considerably higher in most countries. In Norway or Switzerland for instance, it’s above 70’000 EUR.

This huge difference in nominal figures is declining, if you calculate the ‘GDP per capita’ with regard to the purchasing power. This makes sense, because the ‘GDP per capita’ is primary an index to measure the general standard of living in a country.

But the GDP per capita’ tells you something else: although it includes the total population inclusive kids or pesioners and not only the active workforce of a country, it gives you a pretty good first indication of the differences in labor productivity and thereby average yearly gross salaries.

70’000 EUR is in fact a medium annual compensation in Switzerland and it would be no coincidence, if your annual gross salary in Romania is not far away from 7500 EUR.

So, different salary-levels between states are not god given and Romania has simply bad luck. It must be linked somehow to the differences in the production or creation of economic value.

That’s why we now focus on the workforce in general and the labor productivity in particular.

To avoid misunderstandings: ‘Labor Productivity’ does not measure the number of hours someone is working (see chapter 5), it stands for an economic value, created and contributed to the GDP in each hour of work on average.

According to Eurostat, a romanian employee on average is producing in 1 hour of work an economic value of 5.40 Euro. The highest labor productivity in Europe has Norway with an economic value of 69.50 Euro per hour of work.

First conclusion: a high/low GDP per capita indicates a high/low productivity that translates into high/low salaries.

Besides the low labor productivity, the current stage of the romanian economy is also a roadblock for higher average salaries. The 3-sector-theory is an economic model of the 20th Century, which divides economies into 3 sectors of activity:

The primary sector extracts or harvests products from the earth: agriculture, mining, forestry, farming, or fishing.

The secondary sector manufactures finished goods: metal working, smelting, automobile production, textile production, chemical and engineering industries, aerospace manufacturing, construction or shipbuilding.

The tertiary sector is the service industry: retail and wholesale sales, transportation and distribution, entertainment, restaurants, media, tourism, insurance, banking, healthcare or law.

Romania’s GDP-contributors are still relatively high in the lower paid primary and secondary sectors, but relatively low in the better paid tertiary sector. The recent boom in outsourcing-activity in Romania belongs to that tertiary sector.

But this boom is basically a sign, that the economies of better developed countries are currently shifting their economic activities more and more into the even better paid 4th, the quaternary, sector of the 21st Century which includes IT, Research & Development and knowledge-based consultation, education or financial planning.

So the question is: what can be done to improve labor productivity in Romania – and in consequence to achieve higher salaries.

The only way to reach an increase the labor productivity on a national-level is to invest in education (human capital), research & development and modern technology to participate in the 4th sector.

It would also help, if the politics reduce their influence and act more as an impartial referee instead of a player on the economic field. The state should instead be focused on infrastructure, slash bureaucracy and encourage entrepreneurship in high added value sectors – something like ‘prima firmă’.

Unfortunately, it’s hard to imagine that Romania will do this in a sufficient way any time soon, particularly in light of the fact, that even the very basics of a modern economy (infrastructure) is crumbling.

So the improvement of productivity (and your salary) has to start on a much lower level – with yourself and within in your company or organization.

Each company is different, but one factor that affects productivity is universal: poorly skilled managers are the primary cause of low productivity, low innovation, low engagement.

Employees in this country should thereby stop ducking behind the computer at the workplace, organize themselves and demand the following points become the general accepted workflow in the company:

1. Effective plans and strategies
2. Clear and prioritized goals to focus the work
3. Rapid learning and “best practice” being shared
4. The correct motivators, rewards & engagement
5. The “right” employee skills
6. Two-way communications
7. Performance metrics
8. Quality team members from great hiring & retention
9. Collaboration for innovation
10. Employee is placed in the “right job”
11. The work environment is designed  for productivity
12. Enough time is devoted to the task
13. Identifying, and removing, barriers to productivity/innovation
14. Integrated talent processes
15. Information for decisions
16. The right tools/technology
17. Quality inputs/materials
18. Enough budget/ resources

But before you demand changes from others, you better make your own homework first. ‘The little book of productivity’ might help.

Remember – ‘Productivity’ is the password for higher salaries!