Romania: Demography, labour force and pandemic

Romania: Demography, labour force and pandemic
The obvious solution for some Romanians was emigration.
By Alexandru M. Tanase February 23, 2021

On February 19, 2021 the government of Romania finally approved a draft budget for this year. It is very late by any standards and according to the Romanian legislation which requires the draft budget to be approved by the end of each year for the next one. However, there are extenuating circumstances for such a breach of the financial and budgetary good practices. The 2020-2021 COVID-19 pandemic hit Romania hard, as it did many other countries in transition to a market economy and, indeed, almost the whole planet. Many unexpected budgetary expenses needed to be covered and accounted for. The impact on the real economy was extremely negative. The current draft of the 2021 budget to be considered by the parliament in the week starting February 22 is called by many analysts an “austerity budget”. Pensions were frozen for 5.1mn retired people, there were no wage or benefits increases or vouchers for annual holidays for public sector workers, and there were drastic cuts in transport benefits granted to students. Almost everybody is unhappy about the proposed budget. Demonstrations started to be organised. Despite all of these dramatic measures, the projected budget deficit is at an unexpected high level of 7.16% of GDP (the original projection was even worse at 10%). This will have severe consequences on the whole population, starting with the Romanian labour force.

Many changes happened during 2020, but for many Romanians it is quite clear that 2021 will not be a year of plenty. Inflation, especially the component of domestic consumer prices related to foods, will creep in, while salaries will be adjusted to the current economic crisis. With a minimum salary of €458 per month as of January 1, 2021 (according to Eurostat), many Romanians demand a proper life based on decent material and spiritual conditions, but this may be just a wish for the time being. The obvious solution for some of them was emigration, as seen below at Otopeni Airport, Bucharest. 

Many people, especially the young ones, have abandoned their countries with a hope that happiness will be found much quicker abroad than in their own country. Most of these large groups of emigrants were economically motivated. In 1990, Romania had a total population of 23.21mn resident citizens. But the situation has materially changed since. Unfortunately, Romania has been compared lately with Syria from the emigration point of view, except that Syria has been in a state of war for years. The sharp decrease of the Romanian population is at its historical record (the largest during peace times), as presented below. The level of unemployment is, though, at a reasonable low level as compared to the first part of transition when it was at 10% or even above for years. However, such an indicator, under current pandemic conditions, could be tricky. It will be easy to argue that it is rather low because of the historical emigration during the last three decades of transition, including last year. Also, during 2020-2021 there were many companies which were simply held in “conservation”, especially those in tourism, restaurants, hotels, etc. which were closed for the most part of the year after the pandemic erupted. It is true that in 2020 many Romanians came back to the country from abroad due to health concerns in the Western developed countries, but some of them left again. This makes the statistical data uncertain and economic analysis a very risky endeavour! 

Table: Romania - Population and Labour Force 1990 - 2020



2020 or the latest available

Population (as of 1 July of each year/start of the year), mn



Active labour force (including agricultural sector), mn



Non-active persons (unemployed), mn



Unemployment rate, %



Retired population, mn



Non-active population to active labour force, %



Source: Compiled based on Statistical Yearbook of Romania data (INS), various years up to 2020 edition, and data Worldmeters consulted on 19/02/2021.

Currently, some 200,000-220,000 people leave the country each year. It is now estimated that some 5mn Romanians are working and living abroad. The most concerning part of this situation is that young Romanians left in droves. Unemployment for young Romanians (up to 24 years of age) was at 24.5% in urban parts of the country and at 16.7% in rural ones as of end of the third quarter of 2020. This has had material consequences on the Romanian state budget, social contribution budget (no contribution to pensions anymore) and, on a more general note, on each and every aspect of Romanian economic and social life.   

Moreover, the structure of the fabric of the Romanian society has changed. The share of the older population (over 65 years) increased from 16.39% in 2013 to 18.36% in 2018. During the last three decades, the share of the ethnic Romanian population in Romania’s total population decreased to 83.46% in 2011 (the last census) from around 90% in 1992, according to the figures published by the National Institute for Statistics (INS). At the same time, the Hungarian, German and Jewish segments of the total population decreased due to large emigration. Also, the natural increase rate was at -6.0% for Romania as of July 1, 2018 as compared with the EU average of -0.4% (provisional/estimated data). It was the highest decrease since transition started in 1990.

Currently, the share of the retired population in the total population of the country is one of the highest in the region. Government after government changed the legislation regarding the age of retirement and many people still able to work are now retired. In a way this was a window-dressing solution to avoid even higher levels of unemployment which, of course, were not appreciated by voters. The chosen solution to closing many inefficient companies was to allow many people to retire rather than to be declared unemployed. No consistent efforts were made to create new jobs. This was even more so for women and hence the huge number of pensioners.

Romanians living abroad are sending back home substantial amounts of remittances, but this is not enough to compensate for the economic losses registered due to the emigration process. Moreover, the trend of this inflow of remittances has been downward. Despite the strong inflow of remittances, the Romanian foreign debt increased in recent times from €109.8bn as of end-2019 when the National Liberal Party (PNL) came to power to €125.5bn as of end-2020, according to the National Bank of Romania. This increase of €15.7bn in one single year was a historical high. It is true that the pandemic partially justified this trend, but the accumulated foreign debt started to be sizeable. The trade deficit climbed to €18.8bn and the current account deficit reached €11bn. GDP declined in 2020 by 3.9% which made the ratio of external debt to GDP climb to more than 58%. This has had and will continue to have a lot of financial, material and humanitarian costs. It will still require further material efforts to see the transition off and concluded in a successful way, especially in 2021 when the eradication of the pandemic is the first priority.

The obvious question now is if these dangerous trends could be reversed. It is possible, but unfortunately not likely. Not in 2021 anyway. During the elections in 2020, the political structure of the Romanian parliament was significantly changed. The Social Democratic Party (PSD) is now a weak opposition party. A new unknown party (Alliance for the Unity of Romanians, AUR) unexpectedly acceded to the parliament holding around 10% of voting power. The country is now run by a coalition between the PNL, reform-minded USR and the Hungarian UDMR. The huge electoral promises made by these parties in 2020 have not yet been delivered. And the promised wellbeing for all most likely is not going to happen in 2021. 

For many years, the funds available to Romania from the European Union (EU) were not properly and entirely used to alleviate the concerns and meet the basic needs of the population. The full utilisation of the €30bn available for Romania in the overall current EU resilience fund should be a priority in order to reverse the “great exodus” or to alleviate the hardship of ordinary citizens. The eradication of corruption should have been yet another priority, but the results so far are not impressive. Moreover, investments (including from abroad) should be stimulated to create good jobs, especially dedicated to the younger labour force. Granting land to young entrepreneurs (even free of charge or against modest subsidised fees for long term leasing contracts) will also help. Many economic actions should and/or could be implemented to stabilise the population in its original locations. This will be a long, long process, extremely complicated now by the pandemic. It may take decades. First and foremost, the best Romania can hope — or fight — for in 2021 would be to: a) ensure the health and safety of the population through eradication of the pandemic (vaccination has already started); b) ensure budgetary discipline in an austerity year; c) relaunch the economy via more investments; d) control its external indebtedness; and e) slow down the demographic exodus, especially of its young labour force. Achieving any of this, or hopefully most of this, would be a result of historical significance.


Alexandru M. Tanase is an independent consultant and former associate director, senior banker at the EBRD and former IMF advisor. These are personal views of the author. The assessments and views expressed are not those of the EBRD and/or of the IMF and/or of any other institution quoted. The assessment and data are based on information as of mid-February 2021.