Workforce shortage could create a crisis in CEE Region

Newsroom 03/08/2018 | 10:39

Very low unemployment, dynamic growth, emigration and the fast development of the service sector have created acute labour shortages in the CEE-6 region. According to the latest research report “CEE Labour Force Riddle” from the real estate consultancy company Colliers International, a potential economic slowdown created by this situation can be avoided through several solutions.

The availability of workers is right now perhaps the most significant factor for companies when assessing business plans and prospects in the region.

The labour shortages in the CEE-6 region are not resolved, could cause limitations to GDP growth, perhaps a recession and a likely shadow over private investment in the region in the medium to long run. If fulfilled, this path has negative implications for the demand for commercial real estate in CEE into the next cycle

“The riddle exists because typically when economies reach cyclically – low levels of unemployment, the historical precedent is for an economic slowdown to ensue. That slowdown sees job lost, the unemployment rate rising and thus some equilibrium to the labour force is restored. This mechanism involves economic pain, which is not attractive to policy makers, business or real estate players alike”, Mark Robinson, CEE Research Specialist explained.

Six possible solutions to the riddle:

A return of the labour force from the west. Around 0,5 million CEE – 6 passport-holders migrated westwards in 2016. The boomerang is not with us yet but the economic conditions to trigger it, including wage growth in CEE, are.

Immigration from the east, from the former USSR and elsewhere, can boost the CEE-6 workforces. The presence of foreigners is noticeable in the CEE-6 for the first time. 7.1 percent of Czechia’s population in 2017 was foreign, according to World Bank data. The lowest ratio was Poland’s 1,8 percent including the World’s Bank estimate of 221,307 Ukrainians although this figure could be a multiple of that. Ukrainians are helping to drive Poland’s economic performance and solve its demographic and labour riddle.

Stepping up the quality of labour supplied in the region, through better education and training to improve productivity. Switching workers out of public – sector jobs may be an option in Hungary and Slovakia.

Increasing the working activity rate in the population aged 15-64 and perhaps those of retirement age. The CEE-6 have seen success over the past 15 years in policies designed to increase the proportion of this population which is willing and available for work.

Automation of jobs and lower working hours in the week may do the job. Automation improves productivity per worker by removing workers. Tight labour markets maybe even encourage investments in automation. Whilst the CEE-6 is by no means unique in the world regarding this threat to jobs, it does have tight labour markets and a high proportion of GDP generated by manufacturing. Signs of this are present in Germany where we can see the examples of moving to a 28-hour working week in the auto production companies.

A recession is not inevitable for the CEE-6 economies but inflation is rising and the central banks are starting to hike interest rates. An economic slowdown / recession can act to reduce the demand for labour and resolve the riddle by itself.

Colliers analysts see outcomes 1 and 2 as likely to emerge as significant factors in the shorter term. Solutions 3 and 4 are longer term in nature. Answers 5 and 6 are less helpful for job prospects.

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