Wage pressure and employment strategy in economic crisis
Published: 24 February 2013
A National Bank of Poland report (in Polish, 1.2Mb PDF) [1] examined wage pressure on Polish companies using studies conducted among the unemployed and employers, based on two representative samples. The first involved 4,752 respondents, and the second 4,971. They included a random sample of 1,152 firms and a purposive sample of 1,145 firms. The study is inspired by a job search and matching perspective.[1] http://www.nbp.pl/publikacje/arp/raport_2012.pdf
Wage pressure on Polish companies in 2011 remained low, according to a report published by the National Bank of Poland. A review of two studies showed that the unemployed had only moderate wage expectations, and wage increases were usually combined with changes in work efficiency. Generally, temporary contracts were not extended or renewed even by companies in a strong financial situation. Only thriving companies chose to increase wages without work efficiency changes.
Background information
A National Bank of Poland report (in Polish, 1.2Mb PDF) examined wage pressure on Polish companies using studies conducted among the unemployed and employers, based on two representative samples. The first involved 4,752 respondents, and the second 4,971. They included a random sample of 1,152 firms and a purposive sample of 1,145 firms. The study is inspired by a job search and matching perspective.
Wage pressure and wage expectations
The study showed that Poland’s wage levels in 2011 were characterised by low wage pressure connected to decreasing unionisation and decreasing coverage of collective agreements. In 2011, just as in 2009 and 2010, the difficult labour market contributed to employers’ reluctance to yield to wage pressure.
Any increase in wages usually did not exceed any increase of work efficiency, although there were some exceptions among firms in a very stable financial situation. The highest wage pressure was seen in industry and service sectors, where between 7% and 8% of firms agreed to rises above work efficiency. The lowest pressure was in the construction sector, where 3% of firms agreed to rises above work efficiency increases. Less pressure was also noted in small companies. Employers had rarely indexed wage rises to the inflation rate.
Despite the increase of the average wage by approximately 5.4% between 2010 and 2011, wage expectations among the unemployed increased by less than 1%, according to Central Statistical Office statistics. Their expectations also remained only 15% higher than the estimated market level, with the exception of young people who hoped for nearly 30% more. In general, unemployed women had lower wage expectations than men. Living in a household with a second earner reduced wage expectations.
Creation of new jobs and employment fluctuation
Employee fluctuation rather than the creation of new jobs was the main reason why firms hired new people. On the other hand, firms who reported that the financial situation of their company was a good or relatively good created more jobs than they lost. However, Table 1 shows that temporary contracts were more likely to be cut back, even in companies saying they were in a very good financial situation.
| Financial situation of the company | Creation/reduction of jobs | Prolonging/not-prolonging temporary contracts | Other fluctuation of employment |
|---|---|---|---|
| Very good | 3.5% | -0.9% | 1.4% |
| Relatively good | 3.2% | -2.0% | -0.9% |
| Weak | -1.9% | -4.2% | 1.2% |
| Difficult/very difficult | -1.2% | -2.8% | 1.1% |
Source: Labour Market Survey 2012.
The table shows the relation between hiring and dismissing employees (balance as % of employment in the company) in 2011
It was an employers’ market – job opportunities were scarce, and any change of job was often connected to a period of unemployment. Periods of searching for employment remained relatively long – more than 11 months on average. Figures from the fourth quarter of 2011 from the Central Statistical Office showed the average period of job-hunting was even longer for people with low skills, at 13 months.
Several factors made the unemployed even more vulnerable. Living in a household where two or more people were unemployed decreased expectations about the type of job a worker thought they might get, and to some extent their pay expectations. Having a child under the age of six limited the mobility of women and their ability to take up a full time job.
Reduction of costs of work
Companies applied various cost-reduction strategies that influenced the situation of employees. Smaller companies tended to reduce wages more often than big companies, but were less eager to cut their workforce. In 2011, fewer big companies reduced non-wage costs, but more reduced employment and flexible components of work than in 2010 (Table 2).
| % of representative population of companies 2011 | % of purposive sample of companies (big companies) 2011 | % of purposive sample of companies (big companies) 2010 | |
|---|---|---|---|
| Reduction in basic wages | 5.4 | 2.5 | 2.9 |
| Reduction of flexible components (bonuses and additional components) | 12.6 | 23.4 | 19.4 |
| Reduction of numbers employed on job contracts | 13.0 | 17.4 | 16.9 |
| Reduction of numbers of other employees | 3.4 | 7.3 | 4.9 |
| Reduction of different costs/no answer | 65.5 | 49.3 | 56.0 |
Source: Labour Market Survey 2012.
A number of companies in difficulties chose the option of persuading some of their most highly-skilled and best-paid staff to retire. In companies where this was used as a cost-reduction strategy, 48.1% of highly-skilled production employees and 60.7% of highly-skilled office employees retired. Those figures can be compared the 16.7% and 13.3% respectively who retired in companies overall.
Commentary
It should be noted that the report focuses on responses from the unemployed and employers, and does not deal therefore deal with the responses of employees (for example, those planning a change in jobs) or people who were out of work at the time of the study and chose not to register as unemployed (about 30% of the whole).
References
GUS (Central Statistical Office of Poland) (2012), Employment, Wages and Salaries in National Economy in 2011.
National Bank of Poland (2012), Labour Market Survey.
GUS (Central Statistical Office of Poland) (2012), Quarterly Information on the Economic Activity of the Population.
Marianna Zieleńska, Institute of Public Affairs
Eurofound recommends citing this publication in the following way.
Eurofound (2013), Wage pressure and employment strategy in economic crisis, article.
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