Over­achiev­ing East­ern Europe has a grow­ing la­bor short­age

Com­pa­nies are find­ing it harder to re­cruit skilled work­ers In Prague, “not speak­ing Czech isn’t a prob­lem”

Bloomberg Businessweek (Asia) - - CONTENTS -

While dou­ble-digit un­em­ploy­ment is dev­as­tat­ing lives in Spain and Greece, busi­ness own­ers in the Euro­pean Union’s east are ex­pe­ri­enc­ing the op­po­site prob­lem.

Czech en­tre­pre­neur Zbynek Fro­lik says de­mand for his state-of-the-art hos­pi­tal beds is so high that he must open a new fac­tory. Be­cause the Czech econ­omy is boom­ing, he can’t find help. “At this point I just want any able­bod­ied per­son who wants to work,” says Fro­lik, whose com­pany, Linet, has an­nual sales of $240 mil­lion.

The cheap la­bor and un­tapped mar­kets of East­ern Europe lured tens of bil­lions of euros in in­vest­ment into fac­to­ries and other pro­duc­tion sites af­ter the Iron Cur­tain’s col­lapse. Now, fall­ing un­em­ploy­ment and the ex­o­dus of mil­lions of work­ers in search of higher wages in richer Euro­pean Union coun­tries are ex­pos­ing the lim­its of the east’s low-cost model.

Pol­i­cy­mak­ers are warn­ing of la­bor short­ages across the 11 East­ern Euro­pean coun­tries that have joined the EU since 2004. In the Czech Re­pub­lic, fast growth has re­sulted in the low­est un­em­ploy­ment rate in the EU—4.5 per­cent. In Slo­vakia, the world’s big­gest auto pro­ducer per capita, com­pa­nies are strug­gling to find spe­cial­ists in the in­dus­try, even as the coun­try’s fourth car plant is be­ing built by Jaguar Land Rover in Ni­tra.

The global rout in emerg­ing-mar­kets stocks and bonds, which have driven down the value of the Pol­ish zloty 5.6 per­cent and the Hun­gar­ian forint 1.1 per­cent against the euro in the past 12 months, is help­ing some coun­tries’ ex­porters re­main com­pet­i­tive. But de­pend­ing on weak cur­ren­cies isn’t a cred­i­ble long-term strat­egy.

There are two ways to tackle the prob­lem in the short term, says Radomir Jac, chief econ­o­mist at Gen­er­ali In­vest­ments CEE in Prague. The first is to boost salaries to keep young work­ers from leav­ing. The monthly min­i­mum wage was about €330 ($369) in Hun­gary and the Czech Re­pub­lic and €410 in Poland last year. That com­pares with €1,462 in Ger­many, ac­cord­ing to Euro­stat. The se­cond is to im­port more work­ers. “In many re­gions, im­port­ing work­ers from Ukraine is the only rem­edy,” Marek Sli­win­ski, a job mar­ket ex­pert at em­ploy­ment agency Work Force, said in an e-mail.

Poland, the re­gion’s largest econ­omy, is try­ing both meth­ods. Un­em­ploy­ment fell to 7.1 per­cent in De­cem­ber, the low­est rate since 2008. It was 20 per­cent be­fore Poland en­tered the EU, Euro­stat says. An­nual wages have more than dou­bled, to an av­er­age 32,446 zlotys ($8,222), since EU en­try. Poland is also hir­ing Ukraini­ans.

The Czech econ­omy, which has al­most quadru­pled since 1989, grew 4.7 per­cent in the third quar­ter com­pared with the same pe­riod in 2014. The Czech In­dus­try As­so­ci­a­tion has urged the govern­ment to help mem­bers fill 150,000 jobs they ex­pect will go beg­ging this year. As­so­ci­a­tion mem­bers hope pol­i­cy­mak­ers ease im­mi­gra­tion pro­ce­dures for work­ers from out­side the EU.

Em­ploy­ers are al­ready hir­ing for­eign­ers from richer parts of the EU. Marie Jan­vier, from France, is a pro­ject man­ager for Ariba, a maker of pro­cure­ment man­age­ment soft­ware in Prague. She’s on a team of seven with two Ital­ians, a Spa­niard, a Cana­dian, a Slo­vak, and one Czech. While she’s happy at her job, “I don’t think it would be hard to find work, con­sid­er­ing the sit­u­a­tion here,” she says. “Not speak­ing Czech isn’t a prob­lem.”

In the Hun­gar­ian city of Tata­banya, about 60 kilo­me­ters (37 miles) west of Bu­dapest, floor­ing com­pany Grabo­plast is try­ing to fill spots in a new fac­tory. “Tata­banya used to be a syn­onym for in­dus­trial de­pres­sion,” Prime Min­is­ter Vik­tor Or­ban said on Feb. 4 as he in­au­gu­rated the plant. “Now it’s a city chal­lenged not by un­em­ploy­ment but by a short­age of avail­able and qual­ity la­bor.” Or­ban wants to so­lid­ify Hun­gary’s po­si­tion as one of Europe’s most in­dus­tri­al­ized states. He pro­poses cap­ping high school and univer­sity ad­mis­sions and chan­nel­ing stu­dents to trade schools.

With hun­dreds of thou­sands of Hun­gar­i­ans hav­ing al­ready gone west, it will be dif­fi­cult to in­dus­tri­al­ize much fur­ther. The coun­try’s largest pri­vate in­dus­trial con­glom­er­ate, Videoton, is rais­ing salaries, push­ing em­ploy­ees to work over­time, and try­ing to be­come more ef­fi­cient. Says Otto Sinko, Videoton’s co-chief ex­ec­u­tive of­fi­cer, “The sys­tem is stretched. Prac­ti­cally ev­ery­one who wants to work al­ready has a job.” −Ladka Bauerova and Gabriella Lo­vas

The bot­tom line Of­fer­ing low-cost la­bor to man­u­fac­tur­ers has served East­ern Europe well, but la­bor scarcity may call for a new ap­proach.

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