CEE: Labour market is hitting the limits
26.08.2016Company: Amcham
The unemployment rate in the CEE region has been steadily declining. Employment is reaching historically high levels and the market is already starting to show a labour shortage. Also significant structural changes are apparent on the market. In the Czech Republic, Poland, Hungary and the Slovakia, the unemployment rate has already reached the non-accelerating inflation rate of unemployment (NAIRU), which creates an upward pressure on wage growth. The seepage of higher wages into the price level is however likely to be only very gradual.
In the long term, we expect CEE countries to be able to generate job vacancies as demand for the CEE’s output remains strong. However, employers in some sectors will continue to be hampered by the lack of qualified labour force. The problem of finding skilled labour could lead to the creation of more part-time jobs and greater employment of young people or women, which are the categories that still have considerable reserves. Up to now, employers have compensated for the missing labour force by increasing number of overtime hours, which is unsustainable in the longer run. In all countries in the region, the unemployment rate is already below the non-accelerating inflation unemployment rate (NAIRU), which is likely to put upward pressure on wages. Although in the past this situation led to fast growth in core prices, currently it seems that the spill over of higher wages into price growth will be rather slow. Faster acceleration of inflation will continue to be hampered by low import prices and inflationary expectations anchored at low levels. Due to deflation in most of the region, we also expect solid real wage growth. Combined, this is likely to contribute to increase households’ willingness to spend. Domestic demand is therefore likely to remain the main driver of GDP growth in the region.
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