1. Guest-workers for Central Europe
BSSB.BE intellinews.com 02.04.2018
*Labour-induced risks to growth are real, but dire demographic trends will not automatically condemn the region to a low-growth future.
Labour shortages in EU-CEE are not new, but recently they have become much more serious in some countries. This is having an important impact on intra-regional migration patterns, and could represent an increasingly big problem for growth in the coming years.
Since Ukraine was granted visa-free travel last year almost one-in-ten have left the country to look for work in central Europe, which has eased the problem but is not a solution.
Eurostat’s job vacancy rate (a measure of unmet labour demand) has returned to or even surpassed pre-crisis levels in parts of the region. It reached a new high of 4.4% in the Czech Republic in the fourth quarter fo last year, above its 2008 level, and 1.6 percentage points higher than in Germany (where worries about labour shortages have grown increasingly loud in the last year).
In the Visegrád countries on average, the vacancy rate reached 2.3% in the thud quarter of last year (latest comparable data available – more than double the same period of 2014.
Three factors are driving this increasingly labour market tightness in EU-CEE.
- First, strong real GDP expansion is pushing up demand for labour (in 2017, aggregate growth in the eleven EU-CEE countries reached 4.4%, its highest level since 2007 according to wiiwdata).
- Second, emigration from most EU member states in CEE to Western Europe is continuing.
- Third, some countries are facing growing demographic decline crises, especially among the working age population.
For EU-CEE on average, the old age dependency ratio (those aged 65 and over as a share of those aged 15-64) rose by 5 percentage points between 2008 and 2017. Between 2008 and 2017, the share of the Czech population aged between 15 and 64 fell by 5.4 percentage points, the strongest decline in the EU.
There are several possible solutions to these problems, of which two stand out.
- First, is to attract migrants into both the European Union (EU) and wider Central and Eastern Europe (CEE) from other Eastern European countries, particularly from Ukraine where the economy is only slowly recovering from a virtual collapse in recent years, but also has a large population of well-educated and skilled workers.
Poland, Slovakia and the Czech Republic all have already put provisions into place allowing the temporary employment of Ukrainian workers. And the effects have been striking: more than 75% of new immigrants in Poland came from Ukraine in 2016 according to Eurostat (no doubt contributing to Poland’s relatively low vacancy rate in the regional context), along with 40% in the Czech Republic and 30% in Slovakia.
In reality the numbers are probably even higher, as official statistics do not capture the full extent of Ukrainian migration in the region.
Since June 2017, Ukrainians have enjoyed a visa-free stay of up to three months in Schengen countries, and many have taken advantage of this to work (illegally), according to anecdotal evidence. Between 2015 and 2017 Ukraine lost 7% of its workforce according to the country’s National Statistics Service.
- A second possible solution is the potential for a combination of higher wages and Brexit (the UK was one of the main destinations for workers from EU-CEE countries) to encourage émigrés to return home.
In the fourth quarter of 2017, nominal hourly wages rose by 6.4% y/y in the Czech Republic, 12.5% in Hungary, 6.5% in Poland and 4.9% in Slovakia, all well above the Eurozone level (1.7%). Data from the UK Office for National Statistics show that net immigration from EU-CEE to the UK has plunged since the Brexit vote (see chart below).
However, neither of these solutions is likely to prove durable. Migrants from Ukraine will not be enough to fill the gap.
- First is the fact that the Czech vacancy rate is at its highest level on record, even with large-scale Ukrainian migration the country will not be able to fill all the empty workbench places.
- Second, wiiw research has shown that Ukrainians emigration is short-term, with most going only for a few months to make some extra money. Few Ukrainians in Poland, for example, stay for more than a year.
- Third, the data suggest that, at least in some sectors, wages in Ukraine are catching up with Polish levels, providing less incentive to migrate.
Finally, Ukraine is facing the challenge of demographic decline itself, implying that its pool of available labour will fall.
Meanwhile, Brexit is more likely to steer migrants from the Visegrád countries to other parts of the EU where labour shortages are apparent, and here Germany stands out, as it is also facing its own demographic crisis thanks to the very low replacement rate.
The wage gap between “old” and “new” EU member states remains huge. Our data show that wages adjusted for local costs are only around 50-60% of the Austrian level in the Visegrád countries (and even lower in much of the rest of EU-CEE).
Higher migration into the region from other places could be another solution, notably from Africa and the Middle East. However, this looks highly improbable in the current political context (and is also not likely to change). The Visegrád countries have fought hard against participating in the EU refugee-sharing scheme.
- The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at: intellinews.com