Box 3 – Tight, but different labour markets in the region
The sustained trend of falling unemployment remains the most
striking feature accompanying a long period of economic growth in the
Central and Eastern European region. Despite some recent slowing down
in economic activity, labour markets continue to be extremely tight.
Between June 2018 to March 2019, all EU member states in the region
hit a 10-year low in their monthly unemployment rate: Poland in June
2018, Romania and Croatia in September 2018, Lithuania and Latvia in
October 2018, Bulgaria and Slovenia in November 2018, Estonia in
December 2018, Czech Republic in February 2019, and, finally, Slovakia
and Hungary in March 2019.
Rising tensions on the labour market caused significant wage
acceleration. Compared to the period 2009-2013, wage growth has been
exceptionally high. From a corporate perspective this is sometimes
perceived as a potential risk to international competitiveness, but
from a domestic economic perspective, this trend had a clear positive
impact on economic development in the region. A comparison of hourly
labour cost across the EU highlights the region´s comparative
advantage as relatively cheap labour has been maintained despite
recent wage increases.
Employers have been signalling that the scarcity of labour is
currently causing a slowdown in production as orders cannot be
accepted. However, companies seek a variety of solutions or the lack
of suitable labour. In order to avoid increasing production costs due
to higher labour costs, companies have invested in new labour saving
technologies. However, substituting people with machines is expensive
and only possible to some degree. Firms have been relying more on
foreign workers too, but there are clear natural (language, suitable
skill sets…) and administrative/legal barriers to this solution.
At first glance, all countries in the region seem to be confronted
by the same labour market issues. However, there appear to be
substantial differences within the region in terms of labour market
features. A more detailed look reveals some interesting features.
First, despite low unemployment rates throughout the region, there is
substantial variation in the deviations from the long-term average
trend (figure B3). In the Czech Republic, the seasonally adjusted
total harmonised unemployment rate reached 2.0% in March 2019, the
lowest level in the EU. Hungary, Poland and Romania reported a HUR
between 3.4% and 3.9%. Estonia, Slovenia and Bulgaria followed with
figures between 4.1% and 4.6%. Slovakia and Lithuania (5.7% and 6.0
%), Latvia (6.4 %) and Croatia (7.4 %) also showed a lower HUR than
the euro area (7.7 %). If one compares these March figures with the
long-term averages (period January 2000 till March 2019), it is clear
that all countries in the region benefit from exceptionally low
unemployment figures at this moment.
However, the extent to which current figures are exceptional differs
substantially across the region. In Slovakia and Poland the gap
between the current and long-term average figure equals 8 percentage
points, in Bulgaria and Croatia 6 percentage points, in Latvia,
Estonia and Lithuania 5 percentage points, in Czech Republic and
Hungary 4 percentage points, and in Romania and Slovenia 3 percentage
points. For comparison, in the euro area as a whole, the difference is
only 1.7 percentage points.
Secondly, countries also differ in terms of the unemployment rate of
males versus females. In descending order, in Croatia, Slovenia,
Slovakia, Czech Republic, Hungary, Estonia and Poland have a higher
unemployment rate for females than for males. In Bulgaria, Lithuania,
Romania and Latvia, the unemployment rate for females is lower than
for males. This striking differences can be explained by different
economic specializations in the region, but in particular by
substantial emigration of males in some countries.
Finally, youth unemployment (persons aged 15-24 years) differs
across the region. Looking at the previous 12-month average figure,
youth unemployment is higher than total unemployment in all countries.
Compared the euro area, where youth unemployment exceeds total
unemployment by 8.6 percentage points, the difference is smaller in
most Central and Eastern European countries. It is smallest in
Slovenia (3 percentage points), followed by Czech Republic and
Lithuania (4 percentage points), Estonia (6 percentage points),
Hungary and Slovakia (7 percentage points), and Poland and Bulgaria (8
percentage points). Clearly, the tight labour markets in the region is
good news for the job prospects for young people too. Only in Romania
(13 percentage points) and Croatia (14 percentage points) the
difference between youth unemployment and total unemployment is
substantially larger than the euro area average.
Figure B3 – CEE unemployment rates significantly below long-term
averages (harmonised unemployment rate, in %)
Source: KBC Economics based on Eurostat