The United Nations Development Program – UNDP NATIONAL HUMAN DEVELOPMENT REPORT – ROMANIA, 2007 MAKING EU ACCESSION WORK FOR ALL Fostering Human Development by Strengthening the Inclusiveness of the Labor Market in Romania Bucharest, 2007 C O N T E N T S FOREWORD Chapter 1: Romania at the moment of the EU Accession – An overview of human development issues ……………………………………………………………………………….5 Chapter 2: Deepening democracy and strengthening macro-economic stability as a pre- requisite for more Inclusive Labor Market and Sustainable Human Development ……….18 2.1. The EU Accession process: pre- and post-accession issues, the challenges of the decade to come ………………………………………………………………………………………….18 2.2. Consolidating macro-economic stability and improving predictability - assessing the readiness of Romania’s economy and labor market to face the competitive pressures of the Single Market ………………………………………………………………………………………..22 2.3. Together for a consolidated democracy and a dynamic emergent market economy; the role of civil society, social partners and international organizations harnessing Romania’s human development potential following the moment of EU Accession …………………………….33 2.4. Agenda for the decade to come ……………………………………………………………………..39 Chapter 3: The Demographic challenge - harnessing the potential of a large working age population ……………………………………………………………………………………….41 3.1. Romania’s population: where to from now on? Half a century of demographic shocks and the challenges of the half a century ahead ……………………………………………………….41 3.2. The current state – working age population at a historic peak? ……………………………...45 3.3. Can the current trends be reversed? Alternative demographic forecasts and scenarios and their potential impact on human development and labor market inclusiveness …………………...47 3.4. Agenda for the decade to come ……………………………………………………………...52 Chapter 4: Advancing Labor Market Reforms – Bettering Labor Market Governance as prime tool for higher inclusiveness and stronger social cohesion……………………………54 4.1. Growth and Job Creation potential - To what extent does Growth potential foster Job Creation Potential and Human Development ………………………………………………………….54 4.2. Advancing Labor Market Reforms beyond EU Accession date – How to prepare Labor Market Institutions for Euro-zone entry at the end of the decade to come ………………......59 4.3. Labor Market Inclusiveness and Human Development – Assessing the impact and fostering innovative approaches with respect to active and passive Labor Market Policies …………...68 4.4. Participatory mechanisms and their role in advancing Labor Market Inclusion as bulwark for strengthening social cohesion ………………………………………………………………...71 4.5. Agenda for the decade to come ………………………………………………………………74 Chapter 5: Bridging the Development Gap – bringing the rural into the mainstream and learning to manage urban development ………………………………………………………76 5.1. Romania’s agricultural richness – turning a comparative advantage into a competitive one...76 5.2. Agro-tourism - making natural beauty accessible and preserving it for the future …………..83 5.3. Urban and rural development - avoiding over-populated towns and depopulated rural areas..84 5.4. Agenda for the decade to come ………………………………………………………………90 2 Chapter 6: Tackling migration for employment in an emergent medium-sized open market economy …………………………………………………………………………………………93 6.1. Immigration, emigration and migration for employment abroad – lessons from the past and challenges for the future ………………………………………………………………………….93 6.2. The mixed blessing of remittances – challenges for the Labor Market and Human Development.97 6.3. “Better brain drain than brain in the drain”? – Gains versus losses from migration for employment abroad ……………………………………………………………………………………………101 6.4. The free movement of workers - barriers and opportunities; the migrant, his family and community, issues of human development and social cohesion ………………………………..104 6.5. Agenda for the decade to come ………………………………………………………………….111 Chapter 7: Broadening Social Security and Inclusion – helping individuals, households and enterprises to cope with the challenges of an open economy ……………………………….113 7.1. Learning to live with and in Change – Consolidating and reforming Social Security systems in an Open, Medium-Sized Economy …………………………………………………………………113 7.2. Corporate Social Responsibility - an issue for the decade to come ……………………………..132 7.3. Agenda for the decade to come ………………………………………………………………….136 Chapter 8: Preparing for the next step – Fostering Human Development through use of EU Structural Funds ………………………………………………………………………………138 8.1. Structural Funds in support of Human Development – lessons from the 10 New Member States ……………………………………………………..138 8.2. The EU Structural Funds – Assessing Romania’s readiness to use the EU Structural Funds…..144 8.3. Prioritizing the use of Structural Funds for Human Development ……………………………..145 8.4. Agenda for the decade to come …………………………………………………………………149 Chapter 9: Seizing the moment – Romania’s Human Development, Labor Market and Social Inclusion challenges for the next decade; means and ways to tackle them for the Benefit of All - Agenda for the decade to come ……………………………………………..153 Bibliography …………………………………………………………………………………..160 Methodological Note ………………………………………………………………………….165 Statistical Annex A. National Human Development Indicators ……………………………………………………………176 B. Territorial Human Development Indicators …………………………………………………………..196 3 List of authors and acknowledgements - Catalin Ghinararu, Ph.D. – project director (2.2., 2.4., 4.2., 4.5., 5.1.-5.4., 7.1., 7.3., 9) - Dr. Vasilica Ciuca, Ph.D. (4.1., 4.3.) - Ana Maria Zamfir, Ph.D. candidate (3.3., 3.4., 6.4., 6.5., 7.2.) - Cristina Mocanu, Ph.D. candidate (1, 3.1.,3.2., 3.4., 6.3., 6.5.) - Ioana Borza, Ph.D. candidate (2.1., 2.3., 2.4.) - Eva Militaru, Ph.D. candidate (1, 6.1., 6.2., 6.5.) - Magdalena Velciu (4.4.) - “Progress Garant s.r.l.” for the chapter 8, sub-contracting arrangement Statistical Annex elaborated by the National Institute of Statistics (NIS) 4 CHAPTER 1: Romania at the moment of the EU Accession – An overview of human development issues Romania and the European Union in the Human Development Context The Global Human Development Report 2006, “Beyond Scarcity: Power, Poverty and the Global Water Crisis”, shows that Romania has finally gained a place among the high Human Development Index (HDI) countries by surpassing the 0,800 value of index which makes access to this group. Data for 2004 ranks Romania on the 60th position among 177 countries and data from the National Institute for Statistics shows a further improvement in the HDI for Romania (0.808 in 2005) thanks to improvements in all the three basic components of the index: longevity, education level and standard of living, with the greater increase in the latter one. But, unfortunately Romania still holds the last position within the European Union countries, the lag between Romania and the next country in the HDI ranking (except Bulgaria ranked 54 with a HDI equal to 0.816 in 2004) is 15 places, namely 0.045 HDI points. As it can be seen in the figure below (Chart 1.1), the evolution of the HDI for the European Union countries is quite uneven. Between 1995 and 2000 the 10 New European Union member countries (accession as of May 1st 2004) registered higher increases in the HDI compared to the 15 European Union countries at that time, but afterwards, between 2000 and 2004, the trend smoothens and the two slopes become very similar. The two newest European Union member countries, Romania and Bulgaria, are far from the EU25 average and also from the ten countries that have acceded in 2004. As for the difference in the HDI between Romania and Bulgaria the latest tendencies are in favor of Romania, as the overall index increased sharper in its case and the distance between the two countries is smaller by every year that passes. Yet, there is a very important aspect that should be mentioned regarding the Human Development Index dynamics for Romania for the period 2000-2004 and that is the significant change in its value (0.027 points increase1) equaled only by Estonia and Lithuania and outrun only by Latvia (0.030 points increase) in the European Union area. This stands for consistent evidence of the important progresses Romania achieved in the area of human development during the last years. The decomposition of the Human Development Index in its three components: life expectancy index, education index and GDP index reveals some additional significant aspects. Practically, Romania is close to the EU25 average for the gross enrollment ratio and adult literacy, but still far at life expectancy at birth and at GDP per capita (Chart 1.2). The life expectancy index for Romania is almost 0.1 points lower than the EU25 average which means that Romanians die earlier by an average of six years than their fellows in the rest of the Union (except Bulgaria and Romania). 1 Human Development Report 2006 5 Chart 1.1 The evolution of Human Development Index in EU15, EU25, EU27, new EU10 (2004), Bulgaria and Romania 1.000 0.950 0.900 0.850 0.800 0.750 0.700 1990 1995 2000 2004 EU15 average 0.891 0.913 0.931 0.940 EU25 average 0.868 0.880 0.901 0.913 new EU10 average 0.819 0.824 0.855 0.872 EU27 average 0.861 0.872 0.892 0.905 Bulgaria 0.794 0.783 0.797 0.816 Romania 0.775 0.77 0.778 0.805 Source: Human Development Report, 2006 Stating from the year 2000, Romania has been constantly experiencing important real GDP growth rates exceeded, in the European