1.07.2009   The Panalyst Perspective

It could have been even better

Poland recently celebrated 20 years since the fall of Communism, 10 years since NATO accession and 5 years of economically successful EU membership. Despite recent global economic woes, Poland’s economy may yet deliver a comparatively robust 0 – 1% growth in 2009, with strong internal demand cushioning the effect of falling global orders. All this points to a prudently managed economy that has adapted well to the transition from a centrally planned economic model, to a free market system. While this is largely true, if one looks more closely at unemployment and Polish labour market policy over this period there is only one conclusion, it could have been even better.

Unemployment in Poland is characterised by:

• Geographical differentiation: the highest unemployment rates are primarily seen in regions dominated by the agriculture, mining and manufacturing industries. These represent an important power base for Poland’s influential Trade Unions.

Unemployment rate by voivodeship
(March 2009)
Source: www.wup.torun.pl


• Selectivity: Polish unemployment is, first of all, a problem of young people (below 35 years of age), women and the relatively less well educated.

Unemployment in Poland by age

Source: gus.pl


• Period of unemployment: unemployment in Poland tends to be of a structural or long-term nature ie above 12 months. This in turn has an impact on the health and well being of large segments of society.

The unemployed in Poland by job search period


Source: gus.pl

After 1989 and the fall of communism Poland went through an overly fast ‘Shock Therapy’ as a number of uncompetitive state firms were closed or privatised, resulting in unemployment of around 16% in 1993. As the economy stabilised and reforms began to have an effect, growth occurred and Poland the ‘Economic Tiger’ saw unemployment fall to 10% in 1998. A worldwide economic slowdown left unemployment at around 20% in 2002. Currently, 5 years into EU membership, unemployment has dropped to around 11% (8.8% at its lowest point). Poles therefore have experience of volatile economic times, employment uncertainty, and have a reasonably pragmatic outlook towards current circumstances.

Despite growth during these periods and a large emigration of job seekers, unemployment in Poland has remained at some of the highest levels in Europe. This points to ‘structural’ unemployment resulting from imbalances in the labour market. The following characteristics in particular have been crucial in causing this:

• Antiquated labour laws biased against employers
• Significant bureaucracy and legal difficulties when hiring and firing
• Large wage taxes and expensive social security benefits (ZUS)
• Influential trade unions impeding change

Trade Unions, which are inextricably tied up in the modern history of Poland, have maintained strong political influence and have acted to prevent modernisation of the labour system. Protecting the interests and benefits of their members in the mining, manufacturing and public sectors, has in turn prevented the possibility of a more flexible labour system in the wider economy, which has affected developing industries.

In Poland one can be employed on a long-term contract or short-term temporary contract. To avoid the expensive levels of social security costs and taxes associated with hiring an employee on a permanent contract, many young companies force potential employees to become ‘self-employed’ and set up one-person businesses, which they then engage in the provision of ‘services’ from one company to another. While providing a temporary solution to employers that avoids taxes and gives them more flexibility to hire and fire, this again prevents the development of a normal healthy labour market, which protects the rights of employer and employee during a productive career. Such techniques and associated red tape also discourages employers from hiring.

Poland’s economic achievements over the past 2 decades should be celebrated. However the danger is that using these achievements to justify and sustain an inflexible, antiquated labour system may impede long term growth, discourage entrepreneurship and result in high and persistent levels of structural unemployment in Poland for years to come. This in turn will perpetuate the continued migration of skilled labour to other countries and encourage those resources to stay abroad. In downturns such as the one we are currently experiencing, with unemployment in Poland threatening 15% by the end of 2009, such fragilities are quickly exposed.