Small salaries encourage investment, say IMF experts

The combination of the productivity gains and low costs might be one of the key reasons for the recent surge in domestic and foreign investments in Moldova, the IMF Resident Representative in Moldova Johan Mathisen said at a recent meeting with the press in Chisinau. Analyzing the labor market in Moldova, the expert ascertained that monthly wages in Moldova are now on average 240 dollars less than in neighboring countries—the difference used to be about 60 dollars just a few years ago. Over 50% of the labor force worked in agriculture seven years ago, as against only 30% at present. Some 400,000 jobs lost did not lead to persistently high unemployment levels. According to the IMF representative, as the overall structure of the economy and labor market increasingly resembles other transition countries, the “surplus” of workers might be increasingly exhausted. “The resulting labor market tightening might have already started as there is evidence of labor shortages in certain sectors and sporadic attempts to attract Moldovans working aboard. However, while some sector labor shortage may occur as new industries develop, any tightening of the labor market will most likely be gradual as there might still be a lot of people willing to enter the workforce if job prospects improve,” said Johan Mathisen. The expert describes as encouraging the fact that the difference between the pe-tax salary and the net salary – the sum of contributions withheld from the gross salary – is relatively small (32%) compared with the countries of the region (over 45% in Hungary). But he is surprised that the process of fixing salaries is basically separated from productivity at the enterprise or in the sector. The real salaries rose in all the sectors in a remarkably similar way, whereas the labor productivity varies from sector to sector. Yet, the Moldovan employers seem to have a different opinion. In a recent declaration, the Confederation of Employers said that the overtaxing of the salary fund, which amounts to 45-55%, has a destabilizing character on the labor market. In such a situation, the employer is not inclined to increase the salaries, while the employees are not interested in making a productive and qualitative work because their incomes decrease essentially after taxation. The foreign direct investment in 2007 had doubled compared with 2006, totaling 450 million dollars. The investment in fixed capital rose by 20%, as compared to the projected 8-15% a year, amounting to 15 billion lei. Some 50% of these were allocated by companies and the population.