American International Journal of Business Management (AIJBM)

ISSN- 2379-106X, www.aijbm.com Volume 3, Issue 7 (July 2020), PP 50-57

The Relationship between Labour Productivity and its

Explanatory Factors in Romania
Mădălina-Nicoleta Barbu1,
1
(Bucharest University of Economic Studies, Romania)
*Corresponding Author: Mădălina-Nicoleta Barbu1

ABSTRACT: The aim of the paper is to analyse Romania's labour productivity in relation to certain economic
indicators such as government expenditures on tertiary education, gross fixed capital formation, changes in real
wages, total population categorized by different age groups, using empirical data collected from Eurostat and the
National Institute of Statistics in the case of Romania, covering the period 2002-2018. In order to examine the
relationship beetwen labour productivity and the factors above mention, I used the Scatter Plot Graphs, as well
as the Pearson correlation coefficient, to identify trends and solutions for increasing labour productivity. I have
demonstrated that the increase of labour productivity depends on government expenditures on education,
investments, wages and workers age. In this context, I proved that the people aged between 50-65 years have a
low productivity capacity which make the employers to be more skeptical when hiring them, thus highlighting
the need to introduce national active ageing programs for people over 50 years.

KEYWORDS:- education, growth, human development, labour productivity

I. INTRODUCTION
Labour productivity is a key concept that continues to be in the center of economic debates, due to its
impact on several economic dimensions and on the economic progress on the short, medium and long-term.

One of the most important aspects of the labour productivity that has to be considered is that human
work in many fields can be displaced with machines and robots and in this way the productivity of a company
increases. Automation also advanced additional risks for social disintegration. In this context, human resources
have to be able to adapt and learn for their entire active life, so that they will be able to fill in the new positions
that can appear in the labour market.

The main motivation for choosing this subject lies in the actuality of this concept and also, in
identifying a way to promote human capital development and labour productivity in Romania, taking into
consideration the latest unfavorable developments in terms of competitiveness, which are also highlighted in the
Alert Mechanism Report 2020, published by European Commission [1].

The objective of this paper is to analyse the relationship between labour productivity and its
determinats (population aged between 15-24, 25-49 years and 50-64 years, changes in real wages, government
expenditures on tertiary education, gross fixed capital formation) in Romania. In order to reach this objective, I
have structured this paper in four sections. First part, provided a general perspective on the main results of the
economic experts, specialised in this field. In Section II, I have described the methodology I have used to
examine the relationship between labour productivity and its determinants, while in Section III, I have presented
the main finding of the paper. The concluding remarks were presented in Section IV.

II. LITERATURE REVIEW

Labour productivity is an important driver of long-run economic development. Generally, the
discussions in the literature make reference to the measures that can be taken to improve labour productivity.
There are a lot of analyses on the labour productivity in relation to wages, economic growth, social welfare and
many other economic indicators. The relationship between labour productivity and real wages is a permanent
source of debate in economic growth research and is used by specialists as an instrument to carry out
macroeconomic policies.

In his model, Lewis [2] stated that poverty and low wages will persist as long as the opportunity cost of
labour to the capitalist sector remains down. The importance of increasing labour resources for the development
of the national economy is well acknowledged. In order to reach an employment rate as high as possible, it is
necessary to assure the conditions for the human capital to perform proactively and creatively. It is in the
interest of the entire society that the economies, should be more able to anticipate and absorb change.
*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 50 | Page
 The Evolution of Labour Productivity in Romania and its Explanatory Factors

On the other hand, the increase of labour productivity means a change of the working process, which
reduces the working time, in order to produce a higher amount of practical value, as Marx mentioned [3].

In order to measure out productive employment, as the main driver of development, three main
indicators are used in the economic literature [4]: labour productivity, the proportion of vulnerable workers and
the share of working poor (working poverty rate). Economic growth and living standards within an economic
system depend on labour productivity, a hypothesis also supported by Porter [5] which stated that labour
productivity of a country is the most important determinant of the living standard on the long term. Strong
economies that are able to provide high living standards are the ones that contributes to higher levels of
economic conditions [6]. In the same context, the economic systems that meet as many as possible needs of the
present generation, will be able to not compromise the ability of future generations` needs. [7].

The optimisation of the labour productivity, using the same manpower, is based on the division of
labour, influenced by three factors: i. The use of machines that are helping individuals through work, shortening
the working hours; ii. Skills of the people that are completing the tasks; iii. Avoiding the waste of time when
changing the work tasks [8].

The growth in labour productivity and quality of jobs is often interlinked with constructive
transformation [2]. Moreover, Erkut [9] stated that the transformation of a state economy from one stage of
growth to the other can be translated into a context of a self-government economic evolution.

The main goal of management should be to secure the maximum prosperity for the employer and to
increase his labour productivity, as Taylor [10] mentioned, but this theory involves both parties, the employers
and the employees. The model analyse the choice of a fit workforce with further instruction, a good definition of
the individual work steps and the correct distribution of responsibility, made in co-operation with management.
Another theory was based on the good management principles like control, organization, planning and
coordination in order to achieve an increase of productivity [11]. Barnard [12] based his theory on labour
productivity on the relation between formal and informal groups that results in the decision-making process. The
target`study was not the increase of labour productivity, but to make significant use of the efficiency of an
workplace, as a whole to increase the productivity, that, in the end results in an increase of the labour
productivity.

According to Kretschmer, expenses that are made on information and technology have a positive
impact on the labour productivity [13]. In other words, in order to achieve competitiveness and modernisation, a
state needs to accomplish the following goals:

Table 1. Structure of the goals to reach high labour productivity

Source: Own processing using Microsoft Office 2016

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 51 | Page

 The Evolution of Labour Productivity in Romania and its Explanatory Factors

However, technology (through automation channel) can also affect social development by replacing
individuals with machineries which argue the need to parametrize the technological progress, in order to
promote sustainable development [14]. A good way forward is to promote a moderate income inequality which
is also favourable for reaching an equilibrium between wages and productivity, this could be achieved by
strengthening the inclusive feature of institutions, respectively by promoting participatory life [15]. Inclusive
institutions also increase the resilience of labour market to shocks and bring efficiency to a higher level in this
field [16].

III. RESEARCH METHODOLOGY

This study is based on examining the evolution of labour productivity and its drivers in Romania. In
this context, I have used the quantitative analysis approach for the time period 2002-2018. The relationships
were analysed using the indicators mentioned in Table 2. For this case study, the relationships were assessed in
Microsoft Office Excel, using Scatter Plot Graphs technique.

In this context, I have used the Pearson statistical correlation, using its formula - the ratio beetwen the
covariance of two series and the product of the standard deviations computed for each series.
Therefore, I have calculated Pearson correlation coefficient (using Microsoft Office Excel) at the level of
Romania, covering the period mentioned above.

In this regard, I analysed the following:

a. the correlation between real labour productivity and total general government expenditures on
tertiary education (as a percentage of GDP);
b. the correlation between the percentage change of the gross fixed capital formation and real labour
productivity;
c. the correlation between real labour productivity and wages;
d. the correlation between labour productivity and the share of different population age categories
(15-24 years, 25-49 years, 50-64 years).

The statistical data used in this paper are published by Eurostat and the Romanian National Institute of
Statistics.
Table 2. Structure of the indicators
Variable Source
Real labour productivity (%) Eurostat
Government expenditures on tertiary education Eurostat
(% of GDP)
Gross fixed capital formation (%) Eurostat
Real wages (%) National Institute of Statistics
Population aged between 15-24 (%) Eurostat
Population aged between 25-49 (%) Eurostat
Population aged between 50-64 (%) Eurostat
Source: Own processing using Microsoft Office 2016

IV. RESULTS AND INTERPRETATIONS

In order to achieve sustainable development, it is necessary that labour productivity of the labour
market to be accompanied by adequate educational skills and fair educational policies. Based on the data
provided by Figure 1 in RO, during the 2002-2018 period, the process of productivity growth varied
substantially across the years. I have found a positive relationship between the labour productivity and
government expenditure on tertiary education. In this case, the correlation coefficient is +0.35, a value that
prove the existence of a positive relationship.

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 52 | Page

 The Evolution of Labour Productivity in Romania and its Explanatory Factors

Figure 1. The relationship between real labour productivity and government expenditures on tertiary
education in Romania in the period 2002-2018

Source: Own processing using Microsoft Office Excel 2016, Eurostat database and National Institute of
Statistics

In order to increase labour productivity it is important for the government spending overall to be
efficient. Efficient public spending on education exercise positive effects on productivity and on long-term
growth. However, I could not state that relationship is marked by a high efficiency, since studying correlation is
not enough for interpreting the results in terms of efficiency. The effect can be explained by the fact that the
support of the tertiary education system could promote new skills on labour market, which may ease the work of
tertiary graduates and may increase the productivity at the level of the companies. Of course, there are also
weaknesses in Romanian educational sector, since there are large gaps between the educational skills and those
needed on labour market.

Figure 2. The relationship between real labour productivity and real wages in Romania in the period
2002-2018

Source: Own processing using Microsoft Office Excel 2016 and Eurostat database

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 53 | Page

 The Evolution of Labour Productivity in Romania and its Explanatory Factors

Data from Figure 2 illustrate a positive correlation between labour productivity and wages in the case
of the Romanian economy (Correlation coefficient being 0.35 – this indicating a positive relationship). Thus, in
the 2008-2016 period, labour productivity and wages went hand in hand which means that both indicators
increased, but labour productivity increased faster than wages. The major differences between wages and
productivity can produce several imbalances, such as decreasing competitiveness when productivity is lower
than wages, or increasing social inequality when productivity is higher than wages, the most desired hypothesis
being related to reaching an equilibrium between these.
As can be seen in the Figure 3, in Romania, an increase in the percentage change of gross fixed capital
formation generates a hike in the percentage change of real labour productivity. The correlation coefficient is
+0.34, which confirms the positive positive relationship between investments and labour productivity. In fact, a
high share of investments are oriented to produce new productive equipments and tools which can enhance the
productivity at the level of workers, but also the productivity at the level of the company through automation
channel.
Next, I analysed the correlation between the total population in Romania categorized by age groups and
labour productivity. I have found a correlation coefficient of +0.48 (Figure 4), which indicates a positive
relationship between the share of population aged between 15 to 24 years in total population and labour
productivity change. Actually, this category of population have a higher capacity to produce goods and services
than the older ones.
Figure 5 shows a low positive relationship between the share of population aged between 25 and 49
years in total population and labour productivity change, this being further argued by the corresponding
correlation coefficient of +0.16. In this category age, population, usually, enters in the routine and a large part of
the individuals do not set higher goals, entering in a lamentable trap of low productivity.

Figure 3. The relationship between real labour productivity and gross fixed capital formation in
Romania in the period 2002-2018

Source: Own processing using Microsoft Office Excel 2016 and Eurostat database

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 54 | Page

 The Evolution of Labour Productivity in Romania and its Explanatory Factors

Figure 4. The relationship between real labour productivity and population aged between 15-24
in Romania in the period 2002-2018

Source: Own processing using Microsoft Office Excel 2016 and Eurostat database

On the other hand, Figure 6 shows a moderate negative correlation (-0.46) between the labour
productivity change and the share of population aged between 50 and 64 years in total population. This effect
could be also explained by the fact that people close to retirement start to be counterproductive in their job
related tasks. Even in the case of the exceptional cases, people aged in this age group are affected by different
kind of illness which lowers the productivity at the level of their employers. Therefore, it is important to create
new tools for their integration, supported by a legal framework that assists active ageing programs.

Figure 5. The relationship between real labour productivity and population aged between 25-49 in
Romania in the period 2002-2018

Source: Own processing using Microsoft Office Excel 2016 and Eurostat database
*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 55 | Page
 The Evolution of Labour Productivity in Romania and its Explanatory Factors

Figure 6. The relationship between real labour productivity and population aged between 50-64
in Romania in the period 2002-2018

Source: Own processing using Microsoft Office Excel 2016 and Eurostat database

V. CONCLUSION
The labour productivity growth is recognized both by growth theory and developmental practice to be
associated with high rates of economic growth. The most inflexible labour force on the market are older people.
Young people can adapt easy to economic changing conditions, being able to change their jobs. In this fact, an
investment made by the government is the key factor in solving the productivity level.
It is necessary that the social policy should start from the need for a radical change in approaching this
subject. To create conditions for people to be able to actually take part in the active social life, it is necessary
that the legislative guarantees should be ensured urgently in parallel with a continuous increase of the individual
responsibility level. It is important to ensure the protection and social welfare measures for certain categories or
groups of persons able to work, by actions which will contribute to securing the workplace, to attain permanent
and rising incomes, as an essential premise for improving the living conditions of the active population.

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 56 | Page

 The Evolution of Labour Productivity in Romania and its Explanatory Factors

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*Corresponding Author: Barbu Mădălina-Nicoleta1

1
(Bucharest University of Economic Studies, Romania)

*Corresponding Author: Barbu Mădălina-Nicoleta1 www.aijbm.com 57 | Page