Central Europe has a labor shortage

Central Europe has a labor shortage

After two decades of stable growth, the region’s economy is beginning to slow down. The main reason, according to experts, is labor shortage.

After joining the EU in 2004, Poland, Hungary, the Czech Republic and Slovakia achieved great success in developing the economy by providing cheap and highly educated labor force to transnational companies. The positive changes in this region in Brussels are often cited as the main example of the success of the European Union. However, the region is now at a crossroads. The changes that have occurred over the past decade and a half make it necessary to make major changes in the development model or to change it completely, because now in Central Europe there is a big shortage of one of the components of zero success - labor.

“The previous growth model took advantage of the labor reserves that were available,” explains Witold Orlovsky, chief economic adviser in the Polish branch of PwC, explaining the situation. The communists so ineptly managed that it took 25 years to fully take our human capital . But now the Central European countries are either already faced with a shortage of labor resources or are rapidly approaching it. Obviously, a change in growth model will be required. ”

The shortage of labor was formed as a result of the mass departure for earnings to the west of the continent of qualified personnel who understood perfectly well that in the “old” Europe they would be able to earn significantly more than in the “new”, i.e. houses. The influx of cheap labor from Central Europe to Western Europe had serious consequences for both sides. Suffice it to recall about a million Poles who worked in the UK and became one of the issues that were seriously discussed during Brexit and had an undoubted influence on its outcome.

There are, of course, reasons for a shortage of labor in Central Europe besides the departure of workers to work to the west of the continent. The population of the region reached a peak at the end of the 90s of the last century and has been declining since then. Moreover, the trend will continue in the foreseeable future. Thus, according to UN forecasts, the population of the Visegrad Four countries, which includes the Czech Republic, Slovakia, Hungary and Poland, will decrease from approximately 64 million people in 2017 to 55.6 million in 2050, i.e. by about 13%.

In April-June 2018, according to Eurostat, 86.6% of Hungarian production companies complained about the slowdown in development due to labor shortages. In Poland, this figure is 49.7%, and in the Czech Republic - 43.2%. In both countries, it has grown about two times in the last two years.

The cost of labor in Hungary in the first quarter of this year increased by 10% compared with the same period of 2017. In the Czech Republic, this increase was 9%, in Slovakia - 8.5% and in Poland - 8%.

In some sectors of the economy, labor shortages and, naturally, competition for it have become so acute that they lead to disruptions in work.

Of course, the authorities of the Central European countries are not idle. Poland, the region’s largest economy, went the furthest. Last year, Warsaw issued work permits for 1.7 million Ukrainians. This year, this figure is sure to increase. Now, according to the estimates of the Polish businessmen themselves, between 1 and 2 million Ukrainians work in Poland. Ukraine turned out to be something like a magic wand for Poland, because without migration from the east, the Poles would have very big problems in the economy.

Now Polish companies are demanding that the government issue Ukrainians not long-term, but long-term work permits. In Warsaw, they even thought about allowing people from East Asia, for example, Vietnamese and Filipinos, to work in Poland.

However, the “migratory” way of solving the problem of labor shortages has disadvantages. In the Central European countries, where the population consists in the overwhelming majority of representatives of the titular nations, any demographic change is fraught with major political troubles. Clearly, for example, the ultra-right National Movement of Poland spoke on this occasion, stating that any government that includes migration in its program will be a “government of traitors”.

"Better population decline and slow economic development," wrote Krzysztof Bosak, vice president of the National Movement, on his Twitter page, "than immigration and changes in the demographic composition of the population."

The same attitude towards migration in the rest of the region. At the same time, the population treats visitors worse and worse, which, of course, is explained by the crisis with migrants in Europe and its consequences.

This means that the growth model of the last two decades, which was built on cheap labor, has become outdated and cannot be applied further.

Another option for the growth model is to increase investment in technology and innovation, increase salaries and improve education. This is already partially done ...
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