Unit Labor Cost in Romania

Published in Romanian Journal of Economic Forecasting, volume 8 issue1, 2007

Full text available online 8 March 2008

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The paper is meant to lead the way in the field of economic analysis in Romania, trying to evaluate by data the capacity of the Romanian economy to face the competition pressures from the Single European Market.
Within the paper, the unit labor cost is approached as an indicator reflecting especially the competitiveness rather than measuring it. The methodological and calculation issues differentiate between the unit labor cost in nominal and real terms, emphasizing the conclusion that exceeding the compensation per employee (including the employer’s social contribution) beyond labor productivity, in real terms leads to an increase in the unit labor cost and, finally, to a loss of competitiveness. In addition, the paper includes the forecast of the unit labor cost in Romania, which has been developed for the first time since 2005. Subsequently, the estimates have been updated for each stage of forecasting.
In this way, having in view the expected trends for the indicators involved in the estimate, the final conclusion of the paper is to maintain competitiveness and the current account within sustainable limits, despite the disinflation process under way. The finding is all the more eloquent, as the EC autumn forecast underlines this issue.

Key words: Labour productivity, Compensation of employees, Employment, GDP, Unit labor cost.
JEL Classification: E01, E24, E64