Better late than never

Businesses of all shapes and sizes got a huge boost last week after President Aleksander Kwaśniewski signed the long-anticipated labor code reform into law. The revamped legislation gives employers far more flexibility in running their operations and is a significant achievement for the Democratic Left Alliance (SLD) government, which is desperate to lower Poland's 18% unemployment rate. The significance of the new law cannot be underestimated. As Henryka Bochniarz, the head of the Polish Confederation of Private Employers said, "For the first time, the labor code has been amended with the agreement of the employers themselves." Bravo. For more than a decade, the government fought with labor unions to reach a deal that would modernize the country's archaic work regulations, such as mandating that companies give employees open-ended work contracts after they complete their probationary periods. The contract's strict regulations regarding termination, for example, have made it extremely costly and burdensome to fire employees, which in turn has hurt bottom lines and hampered the competitiveness of Polish industry for far too long.

The new law also tackles employee absenteeism. Under the old regulations, workers could simply produce a doctor's note and be off for days or weeks at a time while still receiving the bulk of their pay. No longer. Now in the majority of cases employees will not be paid for their first day of sick leave, discouraging the hangover-stricken and other assorted hooky players from taking the day off. Additional changes include reducing overtime pay and bureaucracy in general - all pro-business moves. But while the overhaul is a giant step in the right direction, there is still much to be done to make Polish labor competitive. Compared to the Czech Republic and Hungary, Polish businesses spend 20-30% more to employ their workers, a fact that has already led to numerous lost investment opportunities. The big culprits here are Social Insurance Administration (ZUS) and healthcare taxes, together which can make the prospect of hiring any staff prohibitive for the average employer. Only when these issues are addressed can Polish businesses really start to compete - and the unemployment rate start to come down.

Not that that's going to happen anytime soon. Nor is it likely that banks, which are reeling from bulging bad loan portfolios, will free up credit restrictions on small- to medium-sized businesses, the bread and butter of the economy. Until start-up enterprises can obtain the financing they need to realize their business plans - and not be bogged down by high ZUS and healthcare obligations for their employees - Polish entrepreneurship will continue to fall far short of its potential. Tackling these problems would be the next major breakthrough for Polish business. Let's just hope we won't have to wait another 10 years to see it happen.