Thursday, 30 July 2015

What's worse - unemployment or a low-paid job?

The big debate about low pay, job insecurity and inequality rumbles on in Poland as it does in the UK, where Genius George Osborne has outflanked the left by increasing the minimum wage, while at the same time cutting in-work tax benefits. By doing so, at a stroke he cut what was effectively a subsidy, paid by the taxpayer, to companies employing staff on a minimum wage, using generous tax credits to bring pay up to what could be considered a living wage. (He also increased the attractiveness of the UK as a destination for Polish migrant workers. 42.50 złotys as a minimum wage, anyone?).

Here in Poland, the issue of 'junk contracts' (umowy śmieczowe) has become a top economic issue for politicians in the run up to the autumn elections. It turns out that over 27% of all Poles working have one of these (me included), making Poland the most flexible labour market in the whole of the EU.

For me, an umowa o dzieło is the preferred way of working. This type of freelance contract is based on the notion of a dzieło, or a work as intellectual property. I write, I edit, I translate, I prepare presentations, I'm a journalist by training and by career experience, and so I've no qualms about being on umowa o dzieło. I work for my zleceniodawca (lit. commission-giver) where I choose and when I choose. Plus, an umowa o dzieło is better for me than setting up as a sole trader (jednoosobowa działalność gospodarcza) because having to run around each month to satisfy the various organs of state with little bits of paper fills me with dread. An umowa o dzieło gives me the flexibility to take on other zlecenia (commissions); typically I have four or more in any tax year. This makes me a proper freelancer - this is not about me trying to escape the clutches of Poland's social security institution ZUS (in any case I've been paying into Britain's National Insurance since 1974). Nor is it about my zleceniodawca avoiding employer's ZUS.

But for young people - and in particular for young women of childbearing age, any type of freelance contract - be it umowa o dzieło or umowa zlecenie, the more usual type of 'junk contract' - is a big problem. In particular, it holds them back from taking on a mortgage loan, and getting a foot on the property ladder. Junk contracts offer zero long-term job security, without which people cannot put down roots and start families.

Why is this important? Politically, because a property-owning democracy is less likely to vote for populist whackos, having a big stake in the economy. Look at how Margaret Thatcher and John Major won four elections in a row by massively increasing home ownership (and indeed share ownership) in the UK. And their Labour successors didn't dare revert to old-fashioned socialism.

Poland's labour market is full of anomalies. The latest headline unemployment rate for Poland (end-June 2015) is 10.3%. This is the percentage of people of working age registered as unemployed. In Warsaw it is 3.9%, while in Szydłowiec, notorious unemployment capital of Poland for many years, just 75 miles south of Warsaw, it's 32.1%. However, Eurostat, the EU's statistical office, gauges unemployment not by those signed on, but by those actively seeking work. By this measure, unemployment in Poland is 7.8%. Suggesting that one in four of Poland's registered unemployed are not actually looking for work, being gainfully employed in the grey economy (szara strefa).

[One year on: Polish registered unemployment rate is not 10.3% but 8.8%; Eurostat's economically inactive rate is not 7.8% but 6.2%. A rapid fall.]

According to Eurostat, the UK's unemployment rate is 5.4%, while Britain's Office of National Statistics says that it is 5.6%. This suggests a rather smaller grey economy than Poland's.

Why do so many more Polish employers choose to pay cash-in-hand? It's less about saving money, more about red tape. Poland is not an easy country in which to employ people. Even if the relative costs of employing people are much lower than in western Europe, the procedures and monthly reporting is more burdensome to employers, in particular to micro- and small enterprises.

If the Polish government tightens the rules on the 'junk contracts', such as awarding public tenders only to companies that employ staff on regular umowy o prace, it will nudge up wages, making Poland less competitive regionally. It will also slow down the fall in unemployment, but it will put more cash (taxed cash at that) into the pockets of workers. This money will drive up consumer consumption, and will make young people feel more confident about their future - which means more will buy property, and more will have babies.

Should a labour market be flexible or inflexible? Just compare France and the UK. In Britain, it's hire and fire, like in the US. Result - low unemployment, and low wages for the less well off - while the managerial class and the business owners rake it in. In France, according to Eurostat, 10.3% of the workforce is looking for a job. That's nearly double the UK's rate. Among the young, it's even worse. The very last thing a French employer wants to do is to take on another employee. They're difficult to get rid of should they prove to be poor workers. So French employers invest in technology - robots -and as a result productivity in French manufacturing is higher than in the UK's. Great for France's manufacturers, not so good in its service sector.

So my tip for Poland's policy makers is as follows: push up the minimum wage (but not too much, as a massive one-off hike would cause disequilibrium). At the same time, the standard employment contract, umowa o pracę na czas nieokreślony, needs to be readjusted to make it easier to hire and fire. Force employers to pay more, but cut the administrative burden on them of employing people to an absolute minimum. Slash the red tape. Then Poland's micro-enterprises (1-9 employees) might suddenly find they can take on workers without needing yet another person to administer them. And Poland's small firms (10-49 employees) - which employ a smaller percentage of the nation's workforce than the small-firms sector or any other EU member state - will grow into medium-sized businesses (50-250 employees).

Better paid Poles in more secure jobs will go out and spend money on things they need to get on in life - in particular property. They'll buy furniture and baby food. They'll see the sense of the long hours worked. They'll stoke the growth of Poland's GDP.

Like Britain, Poland needs to redress the balance between private and public sector. In Britain, George Osborne made it clear than employers (in particular of low-skilled workers) have had it too good for too long at the taxpayers' expense. But in Poland, it's been the public administration that has had it too good for too long at the taxpayers' expense. Too many paper-pushers ensuring that petty regulations are monitored, adding no value to Poland's economy. Get them off the employers' back, and at the same time get the employers to pay their workers more - especially those at the lowest rates of pay.

George Osborne cut over half a million public sector jobs in the UK since 2010. When he announced his plans to do so, the left wailed that the economy would collapse. Yet what actually happened could not have been predicted even by the most gung-ho free-market enthusiasts - more than two million private-sector jobs were created. More people are at work in Britain than ever before. But then inequality in Britain is higher than it's been since the end of WWII.

As I go around companies in Poland I see just how deeply ingrained the concept of Kaizen - bottom-up continuous improvement - is in those firms that are thriving. Yet the public sector is unable and unwilling to accept the challenge of seeing the need to constantly improve its processes to ensure better service to the taxpayer. Once this cultural problem is addressed, Poland's innate determination will see to the rest.

This time last year:
A return to Liverpool

This time three years ago:
Too good to last (anyone remember OLT Express airline?)

This time four years ago:
Poland's Baltic coast as a holiday destination

This time six years ago:
The Warsaw they fought and died for?

This time eight years ago:
Floods, rainbows and hope

2 comments:

student SGH said...

A belated comment after a short break spent offline :)

1. You have forgotten (or I have missed it) to add minimum wage does not apply to junk contracts, since they are governed by the civil code (kodeks cywilny) rather than by the labour code (kodeks pracy)

2. You edit, you translate, you are a freelancer, you are flexible... in your second job. But you don't mention whether your primary job with the Chamber is also governed by umowa o dzieło. The problem in Poland is that the only jobs people have are under junk contracts.

3. Good to distinguish umowa o dzieło is about the outcome of your work, while umowa zlecenie is about performing some task. Plus paying social security on the latter is compulsory as far as I know.

4. Employing staff under regular contracts decreases competitiveness? Maybe holding everything lese unchanged it does, but I know many of the top 500 companies in Poland which take pride in not hiring people on junk contracts and they stay competitive. Innovativeness, application of cutting-edge technologies and increasing efficiency are the proper methods of boosting competitiveness, not coarse savings on payrolls! Here we see an application of CSR in practice!

5. Hire and fire, or the other way round. After 5 years of working in the financial industry, having seen so many lay-offs, including US-style job terminations, I profess it is far too difficult in Poland to fire a poor, under-performing employee... And from what I see, some employers are afraid if they take on a poor employee, they will encounter too many problems to get rid of them.

6. Imagine laying off thousands of public adminisration clerks... My primary concern is that the private employers would not absorb those people eagerly, unless they conform to style of work required in the public sector (higher efficiency, working until the task is done, not until 4 p.m., etc).

7. The continuous improvement in the public sector... To make any improvement, you need an incentive. When there's no incentive, what's the benefit of improving anything?

Michael Dembinski said...

@ student SGH:

"1. You have forgotten (or I have missed it) to add minimum wage does not apply to junk contracts, since they are governed by the civil code (kodeks cywilny) rather than by the labour code (kodeks pracy)"

Good point. This makes it even more important, in the interests of slowing down the growth in inequality to

"2. You edit, you translate, you are a freelancer, you are flexible... in your second job. But you don't mention whether your primary job with the Chamber is also governed by umowa o dzieło. The problem in Poland is that the only jobs people have are under junk contracts."

Not so. My primary job at the Chamber is (and has been for the past 13 years) governed by umowa o dzieło

"3. Good to distinguish umowa o dzieło is about the outcome of your work, while umowa zlecenie is about performing some task. Plus paying social security on the latter is compulsory as far as I know."

It is indeed. Which is why I turn down anyone offering me work on the basis on umowa zlecienie. I don't want the hassle.

"4. Employing staff under regular contracts decreases competitiveness? Maybe holding everything lese unchanged it does, but I know many of the top 500 companies in Poland which take pride in not hiring people on junk contracts and they stay competitive. Innovativeness, application of cutting-edge technologies and increasing efficiency are the proper methods of boosting competitiveness, not coarse savings on payrolls! Here we see an application of CSR in practice!"

Top 500 companies tend to be in steady-employment sectors such as banking, FMCG, manufacturing etc. Businesses in sectors affected by the seasons (construction, agriculture/horticulture, tourism etc) cannot afford the luxury of holding onto staff the year round. But yes - agreed about CSR. Employment branding is massively important these days. Employees choose to work for ethical employers.

"5. Hire and fire, or the other way round. After 5 years of working in the financial industry, having seen so many lay-offs, including US-style job terminations, I profess it is far too difficult in Poland to fire a poor, under-performing employee... And from what I see, some employers are afraid if they take on a poor employee, they will encounter too many problems to get rid of them."

This is the problem. Especially the 'protected workers' - those approaching retirement age. What employer would take on a woman in her late 50s on a full-time umowę o pracę?

"6. Imagine laying off thousands of public adminisration clerks... My primary concern is that the private employers would not absorb those people eagerly, unless they conform to style of work required in the public sector (higher efficiency, working until the task is done, not until 4 p.m., etc)."

It worked in Britain. It may, indeed, prove harder to do in today's Poland, when so much of the public administration is still staffed by people who were there za komuny

"7. The continuous improvement in the public sector... To make any improvement, you need an incentive. When there's no incentive, what's the benefit of improving anything?"

This is a major challenge facing Poland's governments. Yet because KPRM is so weak (compared to Britain's Cabinet Office), there's little drive when it comes to reforming the public administration.