Sunday, 9 March 2008

Poland's labour market woes

I'm speaking at a Government-sponsored conference tomorrow about the problems facing Poland's labour market. We've recently reached a tipping point. Three factors have coincided to turn an employers' market into an employees' market in just a few short years. In 2001/2 you needed good contacts to find a job. Today, employers need similarly good contacts to find workers.

Firstly - migration. Around 1.6m Poles have left Poland to work in the labour-starved economies of western Europe, the UK and Ireland being the main ones. These are the people Poland needs - the young, dynamic and open to the world. Fed up with 20% joblessness and bullying bosses, once the door to EU labour markets was flung open, hundreds of thousands of Poles voted with their feet.

Secondly - a booming economy. Those that stayed, however, have tended to prosper. Average wages are up 11.5% in the year to January 2008, consumer confidence is at an all time high - consumer spending up by nearly 20% in fourth quarter of 2007. Companies are investing heavily too. EU funds (all €67 billion of them!), a construction boom fuelled not least by the EURO 2012 football finals, and record foreign direct investment have all helped create 1.2 million new jobs in 2007.

Thirdly - and I think this factor is insufficiently understood by commentators - demographics. As the above graph I made using GUS (Poland's central statistical office) data shows, Poland's rising demographic trend has peaked with record numbers of young people entering the labour market in recent years. You'll notice that ever since economic transformation began in 1989/90, each year for the next 19 years, the number of school and university leavers has been successively rising. For employers - great times. But those great times have ended.

Every year for the next 20 years, the number of young people entering the labour market will fall by and average of 17,000 a year. Things will get really bad in the mid-late 2020s, when the smallest age cohort - today's five year olds - start looking for work. There's only 350,000 of them - nearly half the number of today's 25 year-olds. And all this will happen when the peak of the post-war baby boom hits retirement age.

What are the answers? I can see some around me already. For the last three weeks, the check-out ladies at Auchan were (I suspect) Ukrainian. I could tell by the accent and their name badges. I'm sure their monthly earnings are far less than the 4,600 zlotys that's the current Warsaw average. Other solutions will require costly policy measures. A few weeks ago, Gazeta Wyborcza stated that only one in four of Poland's over-55s is currently working. The report said that it costs the government 8,000 zlotys to get an unemployed person over 55 back into work - if that person has higher education. If not - the cost is a staggering 22,000 zlotys. I'm sure the private sector could do this for less!

Another solution is to look at the structure of unemployment. On paper, Poland's unemployment is currently 11.7% - the highest in the EU. Yet Warsaw, Poznan and the Tri-City have unemployment below 3%. (London's unemployment rate is nearly three time higher than Warsaw's!) Wrocław, Kraków and Katowice have unemployment between 4% and 5%. And in all of these cities, unemployment continues to fall, while the national average climbs. Click here for latest unemployment figures across Poland. The map above is based on these figures, broken down by sub-region. This clearly shows that Mazowsze, ostensibly the wealthiest Polish province, consists of rich Warsaw, its well-off hinterlands, and three sub-regions with high levels of social deprevation.

Radom a mere 60 miles from Warsaw, with 22.5% of its population registered as unemployed. Poland’s unemployment blackspot, the Szydlowieckie district (poviat) south-east of Radom, has 34% joblessness. The Ciechanów-Płock sub-region, north of Warsaw, has 17% unemployment, peaking at over 20% in three of its poviats. As stated in this article, it would be good for the outlying sub-regions of Mazowsze to be split from the capital, otherwise they risk missing out on getting their fair share of EU structural funds because of the province's overall wealth - all attributed to the success of Warsaw's economy.

6 comments:

Lewis Fields said...

It says a great deal about the resilience of the Polish people who can survive on a mere PLN 4600 per month (before tax) considering the high cost of housing, food increase, petrol, etc. I am in awe of their ability to remain relatively optimistic. Polish people are truly strong willed and first class workers...

Good luck with your presentation.

Anonymous said...

Outstanding summary of the dynamics of the population shift and economics! It points out many structural issues that need to be addressed. Spot on.

W-wa Jeziorki said...

Lewis - you may be interested to know that the average monthly wage in neighbouring Lubelskie province is 2,500 zlotys, while in Podlaskie province it is 2,500 zlotys. However, living costs there are significantly lower. (Average wage data from www.wynagrodzenie.pl)

You may also be interested to know that the national average monthly wage expressed in US dollars back in mid-2000 was $440; today it's $1,280. Yes, wages are rising and fast, but above all, this leap in dollar earnings is due to the plummeting greenback.

Anonymous said...

Hey, Michał. Great stuff as always.

What is it about Radom? Over 20K registered unemployed compared with just over 30K for the whole of Warsaw. Always felt the town lacked something, a palpable aura of despair in the air... (or sweat mixed with vodka, which may be the same thing). Last year spent a day searching for a country home in the neighbourhood of Radom (where the properties are still among the cheapest in Poland) I got back to Warsaw in a terrible grey funk and didn't want to talk to anyone for the rest of the evening. Needless to say we bought in airy Podlasie, where (interestingly and quite unexpectedly) your figures show unemployment at a healthier 11%, one of the lowest in rural Poland!

On a completely different note, I'd be interested to hear what the projections are for the return of Poles from the UK. Anecdotal evidence suggests many are heading home (for example, a once thriving bathroom & tiles shop on Greenford Broadway recently closed down - most of their goods were Polish imports.) At 4.60 PLN to the Pound it's doubtless no longer economical to import Koło loos and Polish ceramics. And of course the huge repatriation of funds to Poland is pushing the pound down lower still (though quite how much of this is attributable to Polish Gast-arbeiter in the UK is probably not so clear.)

All the best, Sigismundo (must meet for a beer, when your Lenten fast is over!)

Anonymous said...

Very interesting. I've explained to my five year old Zosia that she should be entering the employment market at a great time. She wasn't impressed!

Lewis Fields said...

Poland's average corporate gross wage measured PLN 3,032.70 in February, a rise of 12.8% y/y, and a 2.1% increase month on month, the stats office GUS said.

Wages counting out bonus payments from profit of PLN 3,032.40 were up 12.9% year on year on a monthly rise of 2.2%.

Poland's corporate employment measured 5.371 mln persons in January, an increase of 5.9% y/y and up by 0.4% m/m.

Economists surveyed by PAP expected a 11.1% corporate wage growth year on year on a 0.5% increase month on month.

The nominal gross corporate wage bill thus increased 2.6% month to month and grew 19.5% year on year, a quick calculation against prior periods showed.

SOCIETE GENERALE ECONOMIST, JAROSLAW JANECKI

The data on wages exceed market consensus. From the point of view of the Monetary Policy Council (RPP) the data confirm the necessity of another rate hike.

It should be considered whether there was any shift in wage growth from March to February. Last year we had a significant acceleration of wages in March and this year we are dealing with such growth in February. Maybe wage growth in March will now be lower.

I think there are a few factors causing anxiety, among others anxiety on financial markets. We do not know the course or scale of hikes in regulated prices.

An interest rate hike in March itself is not certain yet.

BANK BPH ECONOMIST, RYSZARD PETRU

Wage growth of 12.8% means an interest rate hike in March is inevitable. The fact that inflation stands at 4.2% is no argument for leaving rates unchanged.

It is clear that the level of employment is growing fast. This means that the situation on the labour market is improving and the probability that wage growth will weaken is very low. We expect that the main interest rate will stand at 6% at the end of the year.

BRE BANK ECONOMIST, ERNEST PYTLARCZYK

In February the average wage in the enterprise sector could have grown due to raises and bonuses in mining.

In the coming months we expect a continuation of wage growth in most sectors (especially mining, sales, transport and communication), including companies with large state shareholding.

We assess that in 2008 the average annual wage growth will amount to 10% y/y, which will not let the RPP leave its restrictive approach to monetary policy.
(PAP Market Insider)

http://www.warsawvoice.pl/newsX.php/5879/9523016629