Low unemployment is becoming the curse of Poland

May 30, 2018 5:21 PM|Marcin Lipka

"The economic activity of Poles has fallen to the lowest level in less than three years and employment has only been growing in the public sector. With the data on falling unemployment, we are squandering the good times without introducing structural reforms. Soon we will all pay for it," writes Marcin Lipka, Conotoxia Senior Analyst.

In the first quarter of this year, unemployment in Poland amounted to only 4.2%, which is 1.2 percentage points less than in the previous year and the lowest in the last quarter of the century, according to the Labour Force Survey (BAEL) conducted by the Polish Central Statistical Office (GUS). This means that over the 12-month period, more than 200,000 people stopped looking for a job. However, the fact that someone is not actively looking for a job does not mean that they have found one. Why has the unemployment rate become a useless measure for Poland, which is hiding problems rather than giving us a peaceful nights sleep?

Employment counts, not unemployment

It seems to be natural for employment to increase by the amount that unemployment drops. That, unfortunately, is not true. The number of employed increased by only 63,000 per year and the number of unemployed decreased by 217,000. What may be even more worrying is the fact that this small increase was entirely generated by the public sector. Employment in private companies fell by more than 40,000 people during the year and amounted to slightly more than 12.4 million.

The economic activity rate (the ratio of employed and those looking for a job to the population aged over 15) for Poles decreased in the first quarter to only 56% and was the lowest in almost 3 years. On the other hand, the number of economically active people is only slightly more than 17 million - the lowest level in 8 years. In the first quarter of 2014, there were almost 400,000 more economically active people.

A good economic situation should not only result in economic activity increase. If this is not the case, we are facing a serious structural problem in the labour market, which means that human resources in the economy are being used inefficiently. What could be causing it?

Not just the 500+ programme and retirement age

Given that negative changes have occurred in recent years, the issues of retirement age and the Family 500+ benefit programme can be taken into account. The first clue is good, as in the last year the employment rate of people over the current retirement age fell from 8.2% to 8.0%.

The 500+ programme, due to its income criterion, does not help to activate people professionally either. This is particularly evident in data from single-child households receiving family benefits. Out of 829,000 adults, only 514,000 work in these families and only 64,000 are actively looking for a job. Over 250,000 of them remain professionally inactive, or do not have and are not looking for a job, this is most likely due to the risk of losing their benefits.

This lower economic activity of single-child families concerns mainly women. The economic activity rate of women in households receiving the 500+ is 57.5% (42.5% do not have a job and are not looking for one) and 82.4% for those who do not receive benefits.

However, it would be wrong to claim that the problems of the Polish labour market are only the retirement age and 500+. There is another, much more serious reason why Polish data look so disastrous, this is system negligence of the people who have secondary or lower education.

There are more without higher education only in Greece

In Poland, the employment rate of people with higher education is among the top OECD countries and in the 25-74 age group it is 82.9%. With this result Poland is higher than Germany, Switzerland, the Netherlands and Norway. The problem is that this is not a measure of success. In Romania, Lithuania, Portugal and Latvia, this rate is higher than that observed in Poland.

It is worth remembering, however, that in Poland only 30% of the population has higher education in this age group and that the statistics for the remaining 70% look very poor.

The employment rate for the population aged 25-74 with education levels 3 and 4 (general secondary, vocational and post-secondary) is 59.9%, the lowest in the EU, except for Greece (54.1%). In addition, over the last two years it has decreased by 0.5 percentage points.

For comparison, it is 74.2% in Sweden and 71.1% in Germany. Also in the Czech Republic this indicator amounts to 69.3%. If the employment rate reached at least the Czech level for this group, employment in Poland would increase by 1.5 million people, which is more than double the total number of unemployed (709,000).

We will all pay for years of neglect

The record low level of unemployment masks serious structural problems in the labour market. Lack of cooperation between vocational schools and businesses, too high tax burden for the employees with the lowest wages, insufficient institutional care for children in smaller towns, not enough training courses to improve qualifications and, last but not least, a lack of incentives for entrepreneurs to offer jobs to older people. These are just some of the reasons for the extremely low level of employment of people without higher education.

Zero structural changes in the labour market and the failure to use the prosperity to implement them will mean that we will all pay for it soon. This is because there will be not enough employed people, who will have to provide for a growing number of unemployed. However, the calm that we now have in relation to record low unemployment will only appear as a curse of missed opportunities for a reform.


May 30, 2018 5:21 PM|Marcin Lipka

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