Changes in labour market situation in Poland

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October saw the publication of a report entitled Employment in Poland in 2005, prepared by the Analysis and Forecasts Department of the Ministry of the Economy and Labour. The report puts the employment index in Poland at 13% below the average in the former EU15 countries and at 9% less than in the 10 new Member States. It analyses the state of employment and discusses opportunities for improvement and their risks.

Main thrust of report

Employment in Poland in 2005 was drawn up by the labour market analysis team attached to the Analysis and Forecasts Department of the Ministry of the Economy and Labour (Ministerstwo Gospodarki i Pracy, MGiP), with input from researchers at the Warsaw School of Economics (Szkoła Główna Handlowa, SGH). The authors took the view that the available analyses of the Polish labour market tended to be scattered in their approach, making for a fragmentary perspective. Employment in Poland in 2005 strives for a consolidated approach, and its authors also sought to remedy specific shortcomings in preceding papers, for instance, by taking into account the results of the Business Activity of the Population (Badania Aktywności Ekonomicznej Ludności BAEL) studies.

The report first analyses the factors contributing to the upheaval in the Polish labour market in 1998 and 1999, manifested by a steep decline in employment and in vocational activities. Then it goes on to discuss the structural characteristics of the Polish labour market and asserts that labour demand and supply are misaligned. In introducing this part, the authors point out that more than two-thirds of the differences in labour market indicators between Poland and the former 15 EU countries (EU15) are due to distinctly lower levels of vocational activity among Poland’s youngest and oldest workers. According to the findings, education is a major factor in determining workers’ chances in the labour market.

The report goes on to explore the role of the education system in building human capital. It outlines the failings of the Polish education system in developing students’ initiative and problem-solving skills.

The final part of the report assesses the most important institutions in the Polish labour market. Ease of access to social insurance benefits is one reason why Poles aged over 45 years tend to have already left the labour force. This section also discusses the influence of payroll taxes on labour supply and demand, and that of other factors pertaining to the labour market - the institutions for wage negotiation, the social transfers system, and the minimum wage. It also looks at the situation regarding trade unions, social dialogue and the problem of labour law flexibility.

Reasons for increase in unemployment

The Employment in Poland in 2005 report points to two primary causes of the crisis in the Polish job market. The first, external, cause was the 'demand shock' that was partly a result of the economic crisis in Russia. The second, internal, cause was the 'technological shock' that reduced the productivity of capital in Poland. The two factors combined, with the transient external one causing a deterioration in labour market conditions, which was perpetuated by the internal technological issue.

The effects of the crisis in Russia were most severe for the youngest (aged up to 25 years) and the oldest (45 years) workers. The stagnation of vocational activity indicators for workers aged over 45 years at a low level for some years was also due to an increase in early retirement, facilitated by the ready availability of social insurance benefits. The youngest workers and those in their prime (aged 25-45 years) did not usually have to leave the labour market entirely, although they might have been unemployed for short periods. In addition to the overall decline in the number of jobs, the lengthening of the typical job search and, to a lesser extent, the influx of young people into the labour market increased unemployment rates.

Structural characteristics of the Polish labour market

The employment index in Poland is 13% less than in the EU15 and 9% less than in the new Member States. One factor contributing to these differences is low utilisation of Polish labour resources. This is mainly because of high unemployment among the oldest and the youngest workers. The employment breakdown by sector is also important. Despite high unemployment overall, employment rates in Poland’s agriculture sector are unusually high (17.2%) in comparison with other EU Member States. Manufacturing (29%) and services (53.7%), by contrast, are lower than the EU average.

Analysis by region shows even starker differences. In areas such as Lublin, Podlasie, Podkarpacie and Świętokrzyskie, the average proportion of the workforce employed in agriculture is almost 35%. These high levels of agricultural employment are closely related to employment shortfalls in other sectors of the economy. In all sectors other than farming, the employment indices are lower in Poland than in the EU15 or new Member States.

Poland’s demographic structure also affects unemployment rates, because the 1980s baby boom generation is now in the labour market. Low average education levels are another factor, particularly in causing low mobility and low labour market activity. Unemployment rates are higher among the less educated, who also tend to remain unemployed longer.

Table 1. Unemployment rate and duration of unemployment, by educational level, 2000-2004
Education Unemployment rate (%) Average period without work (months)
Higher 6.7 16.7
Secondary, post-secondary 19.2 27.8
Vocational 22.5 31.2
Elementary, post-elementary 24.3 40.6

Source: Employment in Poland in 2005, Ministry of the Economy and Labour, Warsaw, 2005, p. 68.

Much like the EU15, Poland has recently seen a closing of the gap between employment indices for women and for men. However, while in most EU countries, this results from increasing employment levels for women, in Poland, it results from a decline in employment for men.

Table 2. Unemployment rates, by sex, 1997-2004* (%)
. 1997-1998 2000-2002 2003-2004
Total 7.2 19.5 18.8
Women 6.7 19.1 18.1
Men 7.7 19.8 19.7

Source: Employment in Poland in 2005, Ministry of the Economy and Labour, Warsaw 2005, p. 71. * Rates for 1999 are not included because of the sharp decline in employment in that year.

The higher unemployment among Polish men than Polish women means that male unemployment accounts for around 65% of the employment gap between Poland and the EU15.

Importance of education

Changes in Poland in recent years have led to more young people completing secondary education and to a great increase in the number of people aged 19 to 24 years pursuing university studies. This is, to a large extent, made possible by private, tuition-charging colleges - a comparatively new institution in Poland - that cater to the growing demand for university-level courses. For the 2003-2004 academic year, some 60% of all Polish students were paying fees (rather than attending daytime courses at public universities, which are paid for by the Polish state), either at private colleges or in evening study programmes offered by public institutions.

This increase in university enrolment should improve the skills of the Polish workforce. However, on closer examination, the findings are somewhat less encouraging. More than 40% of students are pursuing degree courses in the social sciences. Courses in information technology, engineering, or fields relevant to the service sector are less popular, although demand for specialists in those fields is growing.

Another cause for disquiet is inconsistent quality standards in some of the tuition-charging institutions. Quality of instruction is becoming a concern not only at university level. Results of the Programme for International Student Assessment, PISA, studies of skills among 15-year-olds indicate that young Poles have difficulty with independent, abstract thinking. The report suggests that this is the result of inadequate teaching methods that emphasise rote learning over analytical enquiry. In another negative tendency, participation of low-skilled Poles aged 25 to 64 years in continuous education or adult learning courses remains low.

Reasons for early exit from the labour market

The Employment in Poland in 2005 report points to the present social transfers system as the primary cause of early exit from the workforce among those aged 45 years and over. Most important are the early retirement schemes offered to certain vocational groups, pre-retirement benefits for unemployed people, and disability benefits for those who are incapable of taking up gainful employment. It has been estimated that, every year, some 300,000 to 350,000 Poles become eligible for benefits under one of these three categories. At present, such benefits are disbursed to around four million beneficiaries, and the attendant fund transfers represent 5.7% of Poland’s GDP.

Table 3. Average actual retirement age, 1999-2004*
. 1999 2000 2001 2002 2003 2004
Women 56.7 55.9 56.0 56.1 56.4 56.0
Men 59.2 58.9 59.4 59.4 60.5 58.7

Source: Employment in Poland in 2005, Ministry of the Economy and Labour, Warsaw. 2005, p. 147. *The statutory retirement age in Poland is 60 years for women and 65 years for men.

The authors of the report maintain that the generous and accessible social transfers, combined with concentrated wage negotiations in certain sectors of the economy, contribute to the negative influence of relatively high employment taxes. In many sectors of the Polish economy, the remuneration structure is very rigid and it is relatively easy to abandon active employment in favour of a disability benefit, for example. Meanwhile, the scale of the tax wedge (the difference between gross and net pay) makes continuing in employment an unattractive option.

The minimum wage regulation (PL0504103S, PL0507104F) also restricts workforce flexibility. Employment in Poland in 2005 reports that it 'stifles employment from the bottom', and supports a call for a variable minimum wage depending on the length of employment and the region.

Implications for labour market policy

In their conclusions, the authors of Employment in Poland in 2005 make a number of general suggestions that support or expand on previous findings by Polish experts or recommendations by the European Commission and the OECD Secretariat. These conclusions refer to seven problem areas:

  • employment productivity, changes in employment structure;
  • education and entry of young people into the job market;
  • vocational training and need for greater adaptability among workers;
  • unemployment among those who are underprivileged, more active employment services;
  • social insurance and early departure of older people from the workforce;
  • labour taxes, employment perspectives for low-skilled workers;
  • labour market flexibility, changes in the employment relation model.

Commentary

The Employment in Poland in 2005 report emphasises that most of its recommendations are fully compliant with the new guidelines embodied in the Lisbon Strategy. Although this is true, it is largely because the report is very general. Such generality is necessary in EU strategic documents. However, more specific recommendations might be expected in a ministerial report. The report goes some way towards filling gaps in an analysis of the employment situation, largely due to the presentation and analysis of statistical and econometric data from the BAEL studies. At the same time, more comprehensive interpretation of the data would be welcome, as would more reference to the considerable variety of views on the Polish labour market.

Employment in Poland in 2005 was published in the final days of Prime Minister Marek Belka’s government, after the parliamentary election that opposing parties won (PL0510101N). That was hardly a propitious moment and, considering Polish politics, a document coming out at such a time is unlikely to have much practical effect. Although some of its content has weaknesses, it will, nonetheless, be a shame that the report’s statistical and econometric data did not gain a wider audience. (Jacek Sroka, Institute of Public Affairs (Instytut Spraw Publicznych, ISP) and Wrocław University (Uniwersytet Wrocławski, UWr)).

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