Download Labour market revs up

Issue No. 11 (111)
Polish Market Review
Economic analysis and forecast
Labour market revs up
Month by month, the scale of the revival observed on the labour market
continues to surprise. This is obviously very good news considering the fact
that until recently a record high unemployment rate was listed as one of the
most serious problems plaguing the Polish economy. Yet, the revival also bids
a few questions: will the dynamics of the labour market processes begin to
exert material pressure on wage growth and, consequently, on prices in the
economy, and will the labour market upturn not depress the rapid economic
growth?
Unemployment rate drops,
labour demand surges
when annual GDP growth in Poland
exceeded 6%. Employment growth
means a lower registered unemployment rate, which, according to
GUS, stood at 15.2% at the end of
September. The number of people in
search for work decreased by nearly
400,000 within a year. One has to
bear in mind, however, that official
statistics are not a fully accurate
reflection of the true state of in the
Polish economy due to a significant
share of the shadow economy.
Recently, the quarterly results
of the Labour Force Survey (LFS)
caused quite a stir. Thanks to its
anonymous surveys, the LFS seems
to provide a more reliable description of the actual situation on the
labour market than that formulated
based on official data registered by
labour offices. The results of the LFS
show that the unemployment rate
in Q2 2006 dropped to 14.1%, from
16.1% in Q1 this year and 18.1% in
For the past few months most of
the news and statistics on the labour
market have pointed to surprisingly
positive transformations sweeping
this sector of the Polish economy.
Encouraged by the strength and
durability of the revival in domestic
and foreign demand, Polish companies have grown bolder in expanding
their production capacities, which
stimulates investment outlays and
boosts labour demand – as confirmed
by the official labour market statistics. Employment in the enterprise
sector was higher by 3.5% (approx.
170,000 people) in September compared to last year. Although these
figures may not seem impressive at
first glance, they represent the fastest employment growth since the
onset of economic transformation
in Poland, even faster than noted
in the second half of the nineties
Average employment in enterprise sector in Poland (%, y-o-y),
September 2005-September 2006
2.2
2.1
Sep/05
2.4
Nov/05
Source: GUS, October 2006
PMR
www.pmrcorporate.com
2.5
2.6
Jan/06
2.5
2.7
Mar/06
2.8
3.1
May/06
3.1
3.3
Jul/06
3.5
3.5
Sep/06
www.pmrpublications.com
Q2 2005 – the biggest decline in the
unemployment rate in the history of
the survey in Poland. According to
the LFS, the number of the unemployed dropped by 23% year-on-year
in Q2, i.e. by over 700,000 people
while the estimated number of people
employed in the economy increased
by over 500,000, i.e. approximately
four times more than stipulated in
the comparable registered employment data.
...which may mean considerable
hikes
This is obviously very positive
considering the until-recently pervading opinion that poor labour
market situation one of the most difficult problems faced by the Polish
economy. At the same time, such
a steep unemployment drop accompanied by an increase in the number
of the employed raises concerns as to
whether labour market dynamics will
not exert material pressure on wages
and, consequently, on prices in the
economy, particularly, given the 0.9
p.p. decline in the professional activity index in Q2 compared to last
year. This means that higher labour
demand is not compensated by growing labour supply. The phenomenon
is made more acute by the continual
drainage of domestic labour forces
as Poles emigrate westwards for economic reasons. As a result, the shortage of skilled labour is getting more
and more problematic for enterprises
and may well force employers to raise
wages.
Unit labour costs up
Wages have been upward bound for
some time. In Q3 the average wages
in the industrial sector increased by
6% year-on-year – the steepest climb
since 2004. The trend is even more
marked in the construction sector,
where wages have shot up by 9%
year-on-year. So far, however, wage
growth seen from the perspective of
the entire economy has not been significant enough to pose a threat to
the durability of economic revival or
to the stability of the inflation rate,
in part because in most sectors it was
accompanied by rapid improvements
15
Issue No. 11 (111)
Polish Market Review
Unemployment in Poland (%), January 2005-September 2006
19.4
19.2
18.2
18.9
17.9
18.1
17.6
18.0
17.3
17.4
16.7
17.8
16.1
16.5
15.7
15.2
14.1
Jan/05 Mar/05 May/05 Jul/05 Sep/05 Nov/05 Jan/06 Mar/06 May/06 Jul/06 Sep/06
Unemployment rate by LFS
Registered unemployment rate
www.pmrpublications.com
Source: GUS, October 2006
in labour productivity. Nevertheless,
pressure to increase unit labour costs
in companies is mounting, which is
reflected by, among others, the gradual growth in the unit cost dynamics
observed since the top of 2005, preceded by a relatively long period of
falls in 2002-2004.
An analysis of changes in unit
labour costs in the economy does
not provide a clear picture of the situation due to, among others, divergences in the available data. Official
labour market statistics indicate
that the general pressure exerted by
labour costs diminished in Q2 2006
and that the unit labour costs slowed
their climb markedly to about 1.3%
year-on-year from over 2% average
of the preceding four quarters. Such
an increase in costs does not pose
a threat to further development of
enterprises or the National Bank of
Poland’s (NBP) inflation target of
2.5%. However, if one uses the LFS
estimates on the number of peo-
ple employed in the economy, the
results show a completely reverse
trend – unit labour costs accelerated
upwards in Q2 to 3.2% year-on-year,
i.e. higher by 1 p.p. compared to Q1
2006.
Be wary of wage growth outside
the industrial sector
Notably, the situation in the
individual sectors is very diverse.
The industry sector, whose exposure to international competition is
the strongest, has maintained high
growth in labour productivity, to,
as a result, keep unit labour costs
in check or even lower them, which
exerts no price pressure. On the other
hand, construction and services sectors, which are hardly affected by
the global competition pressure,
have been witnessing faster growth
in wages and less dynamic growth
in labour productivity. All the same,
these sectors have also seen some
improvements in Q2 which resulted
in more moderate increases in unit
labour costs – to 0.6% year-on-year
in construction and to 2.8% in market services.
The share of the construction sector in the economy is not big enough
for the pressures in this sector to
translate readily into general inflationary pressure. Market services,
on the other hand, constitute a more
material problem (they represent
over 45% of GDP). Rapid growth in
labour costs in this sector may put
stronger price pressure on the economy. Against this background, a slowdown in labour cost growth in the
services sector in Q2 2006 should be
seen as positive. However, one cannot preclude the possibility of a further acceleration in the growth rate
in the coming quarters. Therefore,
it is advisable to keep a keen eye on
data related to wages and employment outside of the industrial sector
in the next few months. Their further
acceleration in Q4, which would suggest labour costs are exerting growing pressure, may incline entrepreneurs to raise prices.
Consumer price index in Poland (%, y-o-y),
September 2005-September 2006
1.8
Sep/05
1.6
1.0
Nov/05
Source: GUS, October 2006
16
0.7
0.6
Jan/06
0.7
0.4
Mar/06
0.7
0.9
May/06
0.8
1.1
Jul/06
1.6
1.6
Sep/06
www.pmrpublications.com
Piotr Bielski
Economist, Bank Zachodni WBK
[email protected]
PMR
www.pmrcorporate.com