Poland’s wage and price spiral shows few signs of stopping

When Przemysław Gacek founded his recruiting business, he saw huge lines forming outside the Warsaw main office for unemployment benefits. Two decades later, unemployment has fallen from 20 per cent to just 3 per cent and Polish workers are queuing at his office to demand a pay rise.

“We see that more Poles are going to see their bosses, ask for a salary increase, and if they don’t get it, they start looking,” said Gacek, chief executive of Grupa Pracuj, which runs Poland’s largest online platform for jobs. classified. advertisements

Poland is among the most extreme examples of a post-pandemic surge in workers’ bargaining power. In the US, employees have quit in record numbers to accept better offers elsewhere. In the UK, employers give cost-of-living bonuses. In the eurozone, slower negotiations with the unions are likely to lead to a delay in the recovery of wages.

For policymakers, however, this robust labor market complicates efforts to rein in inflation, which has spiked due to rising global food and energy prices. They worry that price pressures, now at their highest in decades, will take hold if workers demand wage increases to match rising costs of living, prompting employers to raise prices to reflect rising costs. wages.

In Warsaw, fears of such a spiral of wages and prices have already come true. With companies across all sectors scrambling to hire, median wages rose 13.5 percent in the year to May, almost matching the runaway inflation rate of 15.6 percent in the year to June, its highest level in a quarter of a century. The central bank has been raising rates rapidly in response, raising its benchmark benchmark rate by 50 basis points to 6.5 percent on Thursday, up from almost zero in the fall. The central bank expects inflation to remain in double digits until 2023.

Rafal Benecki, an economist at ING, pointed to “the risk of persistent and self-reinforcing price growth, which may be difficult to stop”.

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Liam Peach, an economist at consultancy Capital Economics, believes that Central and Eastern European countries are highly exposed to the risk of a wage and price spiral. Even before the pandemic, strong economic growth and a prolonged decline in the working-age population had pushed unemployment to ultra-low levels. Hungary and the Czech Republic face similar pressures, Peach said, but Poland’s labor market was now “in a league of its own.”

With consumer spending still strong, companies have wiggle room to burden their customers with higher costs.

Softylabs, a Polish software company, recently raised salaries by 20 percent, double the rate of previous years, and is passing on more than half the cost of its growing salary bill to clients. “I see salary expectations rising very, very fast,” said Rafal Kijonka, CEO of Softylabs. “If we don’t accept a higher salary demand, unfortunately a software developer will simply go to another company.”

The twin shocks of Russia’s invasion of Ukraine and monetary tightening look set to kill economic growth in the coming quarters. The central bank predicted on Thursday that the economy would soon slip into a recession.

However, economists expect the labor market to remain buoyant.

“The indicators are not cooling off, even as energy prices hit output and interest rates hit the housing market,” said Agnieszka Zielińska, director of the Polish Human Resources Forum. Economic uncertainty was also making companies less willing to invest in automation, she added.

Morgan Stanley also predicts a “minimal impact on the labor market and unemployment” should Poland’s economy fall into a technical recession.

Competition for staff has been fiercest in technology, where demand has skyrocketed during the pandemic. While Brexit initially helped businesses by pushing Poles out of Britain, the pandemic has allowed IT workers to not only stay home but also work directly for companies in countries like Germany and Sweden, which pay more. than its Eastern European neighbors.

Salaries for some IT jobs have risen more than 40 percent, according to Manuel Segador Arrebola, who heads the Polish operations of recruitment agency GI Group. Staff shortages could mean that sometimes, to fill a single position, “we would be approaching 800 people.”

Chart showing job vacancies and vacancy rates in various sectors in Poland to illustrate that job vacancies are particularly acute in the IT sector

In manual sectors, employers not only raise wages, he added, but also offer overtime and switch from temporary to permanent contracts. Some are also asking workers to stay past retirement age.

Since Russia’s large-scale attack in February forced a mass exodus of Ukrainians, Polish employers have tried to hire Ukrainian refugees. Andrzej Kubisiak, deputy director of the Polish Economic Institute, estimates that there are 1.1 million registered refugees, around 600,000 are of working age and 200,000 have found work.

Recruitment agencies are working with companies to help Ukrainian women, combining job offers with housing and on-site childcare, as well as training some women to operate forklifts. But many prefer to work informally in cleaning, childcare or hospitality, hoping to return home soon, according to Kubisiak.

Meanwhile, employers in manufacturing, transportation and construction, accustomed to hiring Ukrainian men, say it’s difficult to offer the same jobs to women because of health and safety regulations and the physical demands of their work lines. production. “Historically, Poles went west and got people from the east,” Gacek said. “But now there is no supply (of men) from Ukraine, nor from Belarus and Russia.”

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