Magazine
10:22 10 November 2023
Post by: WBJ

Labor shortage or hidden unemployment?

Amidst inflation and less-than-satisfactory growth figures in 2023, one could expect unemployment figures to increase. Yet, Poland maintains low unemployment figures, sparking discussions as to why. Is the labor market healthy at its core, or is something masking its problems? By Sean Reynaud

Labor shortage or hidden unemployment?

The specter of unemployment is something most people have grown accustomed to. Whenever the US economy faces a downturn, companies usually respond with employee layoffs. EU economies have different rules for cutting employment, but the fact remains: when companies cut costs, at least some employees will lose their jobs.

It follows that when times are hard, as in the EU and Poland this year, businesses look for savings by furloughing or cutting ties with employees. The unemployment rate must, according to the laws of classical economics, go up. But that has yet to happen in 2023, at least not in Poland, raising the question as to why.

Are the unemployed not seeking new jobs as they live off of savings? In these inflationary days, that seems unlikely for most Poles.

It may be that the truth is out there but is being covered up by political hijinks, sleight of hand, or maybe even an error in calculations. What is the cause of this paradox, and where is the labor shortage most acute

From bad to worse

According to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, who collaborates with S&P Global on the PMI index, “In the eurozone, the situation is deteriorating.” According to the PMI index, Germany is already deep into a recession, with flat output in the second quarter indicating a significant struggle. This situation spells trouble for countries like Poland, which counts Germany as their biggest trade partner.

The European Central Bank (ECB) in October held off on raising interest rates for the first time in 15 months. As it is, the benchmark interest rate for the euro holds at 4%, the highest rate since launching the currency in 1999. The 20 countries using the euro have seen an annual inflation of 5.3%, well above the ECB’s 2% target.

Meanwhile, the National Bank of Poland cut its benchmark reference rate by 25 bps to 5.75% in October, after a surprising cut of 0.75 points in September. As the NBP head pointed out, despite inflation, the economy needs room to breathe, and keeping rates above 6% might result in freezing the economy while combating inflation. Poland’s inflation rate sits at 8.2%, down from 10.1% in August. 

This isn’t the first time Poland went against the grain, economically speaking. The 2008-2011 downturn comes to mind. Poland maintained positive growth, while all other EU economies slumped. This time, the country’s economic independence and flexibility have allowed it to weather economic turbulence to some extent, but currency independence will stave off the inevitable only so long.

The OECD forecasts a slowdown in Poland’s real GDP growth to 0.9% in 2023, citing uncertainty, high inflation, and tighter monetary policy. Economic challenges include weak private consumption, slowed investment, and inventory growth. However, a recovery to a 2.1% GDP in 2024 is expected, partly driven by EU funds. Inflation is predicted to decrease, averaging 12.4% in 2023, influenced by moderated energy prices. Domestic inflationary pressures will likely ease in 2024, leading to a gradual decline to 4.8%. Despite the EU’s economic downturn, Poland appears to be weathering the storm for now.

Where is the unemployment?

From January to August, the unemployment rate consistently held steady, fluctuating only between 2.7% and 2.8%, according to the European statistics office. GUS also reported a steady unemployment rate, although at a reported rate of 5.0% in September. The reason for the disparity between Eurostat and GUS data lies in their methodologies. Eurostat uses the International Labor Organization (ILO) definition of unemployment, which includes people without work, available for work, and actively seeking employment. GUS uses a different definition that includes people registered as unemployed with the labor office. Their definition may exclude some people who are not registered as unemployed but are still looking for work.

Self-employment also affects unemployment rates, and accounts for approximately three million in Poland. Amendments to the tax laws, which reduced the fiscal burden on entrepreneurs, encouraged sole traders to avail themselves of the opportunity to work for themselves. In Poland, the unemployment rate is calculated based on the number of unemployed individuals as a percentage of the labor force. The labor force includes both employed and unemployed individuals but does not typically include self-employed individuals like sole traders. The unemployment rate does not capture the full complexity of the labor market, like the underemployed – where individuals work fewer hours than they would like. 

Talent shortages

The Polish economy rebounded strongly after COVID. This was in part driven by a diversified economic base, EU funds utilization and a robust financial sector. There remains a need for private investment, innovation, and regional value chain improvement for enhanced productivity. A lot is going right with the direction of corporate investment and handling of expenditures. However, some cracks are beginning to show, and no matter how one manages the economy, the problem of demographics, salary expectations, willingness to work in manual labor or even the ability to find the right candidates inhibits economic growth. 

According to the World Bank, around 75% of Polish companies in IT and technology declare that it’s difficult to find the right job candidates. Up to 83% of communications services jobs go unfilled because of a shortage of talent. Construction workers, steel fixers and concrete placers, sheet metal workers, roofers, pavers, carpenters, masons and plasterers, HVAC/Gas fitters, heavy equipment operators, and finishing process engineers are in high demand, yet few young people are willing to fill those jobs. Immigration helps, but immigrants are in no way a silver bullet for the issue of labor shortages in so-called “dirty jobs.”

Migration policy needed

Immigration has eased labor shortages in low-skilled jobs in Poland since 2014. Although beneficial, the lack of a migration strategy limits the full potential of immigration to address shortages. A well-planned migration and integration policy could enhance the impact on labor shortages. As Poland’s economy grows, an expected increase in migrants may further alleviate shortages. Government must analyze the economic, political, and cultural implications of its migration strategies. Poland is at the edge of the Schengen area and feels the full brunt of northward migration. The need for a sound immigration policy to absorb workers is not only smart, but a necessary part of maintaining a strong economy in Poland.

On top of that, Poles themselves are not opposed to moving out of the country for better work opportunities. Around 18 percent of Poles were considering economic emigration in 2022, according to Statista. The people who often go abroad are manual workers, the prevailing reason for leaving being higher wages than at home. Germany, the UK, and the Netherlands were the most popular destinations for working abroad in 2022. This migration obviously affects reporting on the unemployment rate. 

What’s next?

Again, the declining and rapidly aging population, mixed with the eventual end of the Ukrainian war, will alter the labor pool dramatically. Of the native population, there is a strong desire for work-life balance and less willingness to sacrifice for employers. Highly educated Millennials and Gen Zs are far less likely to tolerate what they consider unfair working conditions. This trend is a phenomenon not only in Poland but also in much of the developed world. The rise of labor unions in the US and elsewhere indicates that labor is aware of its rising power. 

However you slice it, the unemployment rate and economic downturn do align, in part because of the fluidity of labor into and out of Poland, the soundness of economic policy, and a well-diversified economy. The future is something else. Statista is projecting a rising unemployment rate by 2025. Statista does not explain why, however, a weakness in domestic demand, particularly consumption and high consumer prices for most goods and services, is slowing the economy even as unemployment rates remain steady. According to the European Commission, Poland’s GDP is expected to rise even as growth heads down in the EU and the euro area in 2023 and 2024. Unless it is upset by major geopolitical events, unemployment will see a slight uptick in 2024.  


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