Determinants of unemployment in Romania’s transition economy: analyzing the roles of government expenditure, population aging, inflation, human capital, and economic growth

Unemployment remains a critical challenge for all economies, particularly during crises such as the recent COVID-19 pandemic. In the case of Romania, the size of government plays a vital role in shaping labour market dynamics. This issue is especially relevant for formerly planned and centralised economies, including the Central and Eastern European countries. Against this background, this study investigates the impact of population ageing, economic growth, government size, inflation, human capital, and gross-fixed capital formation on unemployment in Romania over the period 1990–2024. After establishing long-run cointegration among the selected variables, the study applies the Nonlinear Autoregressive Distributed Lag (NARDL) model. The results confirm the existence of nonlinear relationships between unemployment and its determinants. Specifically, government expenditure exerts a positive effect on unemployment, while GDP growth, human capital, gross-fixed capital formation, and inflation significantly contribute to reducing unemployment. Furthermore, the short-run results are consistent with the long-run findings. Finally, this study emphasises the importance for Romanian policymakers to improve the efficiency of government expenditure, particularly by addressing high levels of tax evasion, while ensuring that public spending remains supportive of job creation, and economic stability.