News Analysis: CEE region temporarily unable to get rid of labor shortages

Sunday, 2019-09-22 13:29:12
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Labor shortage in the Central and Eastern Europe (CEE) is chronic, despite the outlook for an economic slowdown due to global trade headwinds, economists in Bucharest have said.

"In CEE region there is a chronic labor shortage for complex reasons," Dan Bucsa, Unicredit's chief CEE economist, said to Xinhua.

WAGES KEEP RISING

The CEE economies enjoyed strong growth figures compared with the rest of Europe, with high consumption being a driving force, which somehow could be attributed to intensive and constant wage increases, as the labor markets are becoming tighter.

Both governments and businesses responded to labor shortages with wage boom in the CEE region.

In Hungary, for example, the average gross earnings increased by 11.2 percent year-on-year in May. And in January-May, both average gross earnings and net earnings grew by 10.6 percent year-on-year, according to the country's statistic institute.

Romania continued to enjoy double-digit wage hikes with the average net nominal earnings increasing by 15.5 percent in June over the same period of last year. After a new round of increases in minimum wage and in public wages in the first quarter of the year, energy and manufacture industries raised the wages in June to respond to the labor shortage.

And the wage increases are expected by some analysts to continue into the next year, although data are indicating a possible slowdown of Romania's economy.

"Given that the election cycle will last until late 2020, wage gains should remain strong," said ING's economist Valentin Tataru in a note to investors.

Wage increases in Poland are expected to stabilize around 7-8 percent year-on-year, as the growth perspective in the country is strong. But enterprise surveys and vacancies are flashing a warning sign for the coming quarters.

"We still see a positive trend in industry and services while construction should be a drag on wage growth. The biggest drops have been seen in companies involved in infrastructure projects," said Jakub Rybacki, economist at ING, in a note to investors.

The region's economies accounted for the highest rhythms of increase of the labor costs in the European Union (EU), with Romania, Hungary and Bulgaria being front-runners, according to Eurostat, statistical office of the EU.

A moderate wage growth trend is widely expected among economists, as the region is at its lowest unemployment levels since the crisis.

At least for some countries in the region, like Romania or Hungary, a drain of skilled workers remains stubborn as wages there are still significantly lower than western European countries.

WORKFORCE DRAIN

Emigration, especially the exodus of young talents, and a decline in demography along with aging population endangered the job markets in CEE.

Romania has the highest level of emigrants into the Western economies. According to a report of the Organization for Economic Cooperation and Development (OECD), around 3.6 million, or 17 percent of all people born in Romania, are living in OECD countries.

The constant rising of wages in the public sector and the increase of the minimum wage were part of an attempt of the authorities to preserve the workforce.

Romania's authorities started this year to grant construction industry fiscal facilities, while the IT sector maintained the tax incentive of the exemption from personal income tax for employees.

Despite all the efforts, the increasing shortage of skilled workers remains the greatest challenge for private companies, warned the CEE Private Business Survey 2019 made by PricewaterhouseCoopers.

"In our region, the labor force deficit is enhanced by migration, in both directions, in the sense that the deficit is smaller in Poland, which receives 1.2 million Ukrainians, and the largest in Hungary, which is suffering from a strong emigration of young people," added the leader of Unicredit's CEE research team.

Indeed, according to Eurostat, Poland issued 683,228 work permits in 2017 for non-EU citizens, with more than 85 percent granted to Ukrainian workers.

Hungary's businesses also suffer from the lack of skilled workers, as young talents flew out of the country. Victor Orban's government adopted a policy to attract ethnic Hungarians back from the neighboring countries, but it still could not compensate the labor shortage. The government also granted 32,228 work permits to citizens outside the EU. The Ukrainians dominate the Hungarian permits, with 7,808 permits, followed by Chinese, Serbians, Americans and Iranians.

Romania issued only 13,264 work permits, with most of them being granted to Moldovan, according to Eurostat. To respond to the increasing workforce shortage, the government has recently increased quotas for non-EU workers by 50 percent to 30,000 work permits for 2019.

It is difficult to project a cooling down of the workforce demand in the near future when the slowing growth in Western Europe could translate into slower growth in CEE, said analysts.

"If indeed the global trade and the global economy are slowing down, those small countries in our region, all being exporters, will probably suffer as well, and the demand for labor will decrease as a consequence," said Dan Bucsa.

Yet, the demographic crisis, caused by emigration, low birth rates and an ageing population will continue to stress the labor market of the region in the near future.

Xinhua