The Failure to Restructure and Improve Efficiency on the Romanian Labor Market

Abstract

Romania started the transition process by adopting a gradualist strategy for implementing its economic reforms, most of which being carried out independently and not through a concrete and cohesive policy package. The dynamics of restructuring on the labor market is analyzed by the Index of Employment Restructuring, the Rate of Unemployment Absorption and the Net Rate of Private Sector Expansion. These indices show that the capacity of Romanian economy to absorb the unemployment is very modest because the private activities are insufficiently developed due to a major delay in market reforms aimed to effectively stimulate the private initiative. With respect to efficiency, the Index of Labor Efficiency shows that the private sector loses continuously its efficiency because the privatization of public enterprises induced the phenomenon of sharing the inefficiency (the speed of restructuring the privatized firms is lower than the speed of privatization). The Index of Employment Adjustment indicates that this process is far from being completed in the Romanian economy, while the Index of Output Adjustment confirms that the private sector - despite its increasing share in overall activity - remains insufficiently developed in terms of productivity and economic efficiency.