INTERNATIONAL POLICY CENTER
Gerald R. Ford School of Public Policy
University of Michigan
IPC Policy Briefs Series Number 8
New Member Countries’ Labour Markets during the Crisis
Jan Svejnar
Vilem Semerak
New Member Countries’ Labour Markets during the Crisis Jan Svejnar and Vilem Semerak CERGE‐EI, Prague and University of Michigan The present societal brief is devoted to labour markets in New Member Countries (NMS‐10) during the crisis. The focus is on the most recent evolution of unemployment and its constituting elements: flows into and out of unemployment. The main findings, based on recent quarterly and monthly data, may be summarized as follows: 1. Registered unemployment is considerably higher than before the crisis and it is still rising. However, in most countries the unemployment rate is not yet at the maximum levels reached earlier in the 2000s and will not be approaching these maxima in the near future. 2. The response of the labour markets to the crisis has been more complex than in the past downturns: a significant part of the adjustment has come in the form of a shorter workweek. As a result, employment has contracted less than aggregate economic activity but underemployment has risen. 3. Adjustment in the form of shorter workweeks and/or underemployment may be temporary and can evolve into increase in open unemployment. 4. The greatest increase in NMS10 registered unemployment occurred around the first quarter of 2009. Data on inflow and outflow into unemployment suggest subsequent stabilization which, however, may be temporary. 5. The structure of employment is also changing in that we observe a higher share of short‐term contracts and increased regional labor mobility. The share of long‐term unemployment has dropped temporarily because of the high inflow of the newly unemployed. The crisis has so far not led to a marked increase in economically inactive population. 6. In countries for which August‐October 2009 monthly data are available, one observes recent improvements in the functioning of the labour markets in that there is higher labor mobility and greater willingness to accept offered position. 7. The groups that are most negatively affected in the labour market are foreign workers, the less educated workers and minorities. The employment rate of university educated people has in fact risen, while that of the less educated has fallen, similarly to the situation in most EU countries. 1 8. Risks: The greatest risks are (a) a protracted W‐ or L‐shaped economic recovery in EU15, (b) rising long‐term un(der)employment accompanied by hysteresis, and (c) fiscal imbalances brought about by (a) and (b) above. Economic environment in the new member countries NMS‐10 were affected by the financial crisis later than the older EU members and the effect came through somewhat different channels. In particular, the financial institutions of NMS‐
10 mostly avoided the first stage of the crisis because of their low exposure to U.S. toxic assets. Yet, the countries could not avoid a dramatic drop in the demand for their exports and the contractionary effects of frozen international capital markets. The negative export effects have been particularly strong because NMS‐10 are very open to trade. Hence, the high export orientation that helped these economies achieve above average growth rates before the crisis has contributed to the severe downturn during the crisis. Although this negative effect influenced all the NMSs, the resulting changes in economic activity were differentiated – countries with worse initial macroeconomic situation (fiscal imbalances), higher shares of foreign currency denominated debt, and inflexible exchange rate regimes were more vulnerable and had more limited options in mitigating the effects of the crisis. As a result, while the Baltic NMS have been among the worst hit, other NMSs, such as Slovenia, Poland, and Czech Republic, have experienced a milder increase in unemployment. Changes in employment and unemployment The economic downturn has led to a reversal of the gradual decrease in unemployment that most of the NMS10 countries had been experiencing before the beginning of the crisis. Given the dependence of NMSs on demand within EU15, with the exception of Hungary the rise in unemployment came slightly later in NMSs than in the EU 15 countries (see Figure 1 and Figure 2). Since unemployment is a lagging indicator, within each country its rise has also followed by several months the fall in output. 2 Figure 1 – Monthly data on total unemployment (Eurostat, seas. adjusted) Figure 2– Monthly data on total unemployment (Eurostat, seas. adjusted) Judging from the unemployment rates alone, the situation in NMSs (other than the Baltic countries) is serious but not yet critical. Indeed, half of the NMSs have lower unemployment rates than the EU 15 average, and with the exception of Hungary and Latvia, they have lower unemployment than they had earlier in this decade (see Figures 1, 2 and 3). 3 Figure 3 ‐ Current unemployment versus maximum between 1st quarter of 2000 and 4th quarter of 2008 (* data for 2000q2). Eurostat NSA data There are two other factors that have so far mitigated the increase in official unemployment: (i) an adjustment in the form of greater reliance on shorter working hours and (ii) a greater role of migrant (foreign) workers and unofficial (informal) employment. As may be seen from Figure 4, the average number of hours worked per week has declined in all the NMSs except Latvia and Hungary, with the decline being most pronounced in Estonia, Slovakia and Slovenia. In most of these economies, underemployment has thus become a problem that exacerbates that of measured unemployment. Migrant (foreign) workers employed in low skilled jobs have been among the first to be laid off and in a number of countries they are not counted among the unemployed even if they stay (often illegally) in the host country; in some cases they report themselves as entrepreneurs rather than unemployed. Together with some of the domestic unemployed workers, they join the informal sector, evade paying taxes and some lack social protection. 4 Figure 4 ‐ Change in average hours worked per week 2009Q2‐2008Q2 Finally, with the exception of Poland, all NMSs have witnessed a rise in the use of part‐time employment contracts (see Figure 5). While providing greater flexibility to firms and enabling more of them to survive, this shift tends to reduce the job security and hence welfare of workers. This trend is also related to existing inflexibilities of the labour markets – in the presence of firing restrictions and unpredictable demand, many firms can prefer to hire new workers on temporary rather than permanent contracts. Figure 3 ‐ Relative change (%) in the share of part‐time contracts in total employment (2q2009/2q2008) 5 Future developments: risks and opportunities The main factor that will determine the level of unemployment and other economic indicators in the NMSs is the speed of economic recovery in EU 15. The response of the NMS labour markets to the crisis to date suggests that the unemployment situation will worsen if the EU15 recovery turns out to be very slow. The danger is a rise in long term unemployment, with its accompanying negative economic, social and psychological effects. Current data suggest that the relative share of long‐term unemployment is decreasing, but that is a statistical effect caused by high inflows of newly (and therefore initially short‐term) unemployed. In view of the European experience over the last several decades, one also cannot rule out hysteresis in the sense that it will be difficult to bring down a high unemployment rate once it is firmly established and institutions adjust to it. On the fiscal side, a prolonged period of high unemployment will exert great pressure on the already strained budgets of the NMSs. The Baltic countries rank among the most seriously affected countries and also the countries that may face most serious political risks. They have experienced major tensions related to the situation of the population of Russian origin. High rates of unemployment together with asymmetric impacts of unemployment can increase the risks of political destabilization. On the positive side, the crisis appears to have increased the mobility of labour. Anecdotic evidence suggests increasing willingness of people to commute and relocate to places with better chances of obtaining work, even in countries with relatively “passive” population (e.g., the Czech Republic). The greater willingness to move is offset, however, by the negative effects of financing constraints on residential investment. There is also an opportunity to use the crisis as a motivator to reduce excessive regulation that has been hampering efficiency and thus lowering the level of economic activity and consumer optimism. Policy Recommendations Sensible adjustments in economic policies can lower the risk of a protracted recession and enhance the speed of recovery. In particular: 1. Increasing the flexibility of product and factor markets can help reduce the risk of hysteresis and “jobless recovery”. 2. Adjusting the regulation of immigration and social support may reduce the extent to which foreign workers are “pushed” into black market activities when they lose work. 3. Stimulating intra‐EU migration may alleviate the hardship of workers in the most crisis‐
affected countries, while equalizing EU‐wide demand and supply for labor. 6 References Cut‐off date for statistical data: November 6th 2009 Eurostat statistics Labour Force Survey data National Accounts data National labour market statistics Austria ‐ Arbeitsmarktservice Österreich Bulgaria ‐ Statistics of Ministry of Labour and Social Policy – National Employment Agency Czech Republic ‐ Czech Statistical Office (CSU) ‐ Statistics of the Ministry of Labour and Social Affairs Estonia ‐ Ministry of Social Affairs Hungary ‐ Hungarian Employment Office Latvia ‐ State Employment Agency Lithuania ‐ Ministry of Social Security and Labour – Lithuanian Labour Exchange Poland ‐ Publiczne Sluzby Zatrudenia Romania ‐ Agentia Nationala Pentru Ocuparea Fortei De Munca Slovakia ‐ Statisticky urad Slovenskej republiky (SUSR) ‐ Ústredie práce, sociálnych vecí a rodiny Slovenia ‐ Statistical Office of the Republic of Slovenia ‐ Ministry of Labour, Family and Social Affairs ‐ Employment Service of Slovenia Reports Remko Hijman: The impact of the crisis on employment. Statistics in Focus 79/2009, Eurostat Eurostat: Euroindicators 153/2009 Eurostat: Euroindicators 159/2009 CSU (Czech Statistical Office): Změny v zaměstnanosti v České republice v porovnání s ostatními zeměmi EU. Published on November 4th 2009 7 Statistical Appendix: Selected Labour Market Statistics for the NMS­10 Recent Monthly Unemployment Rates in NMS­10 Countries and EU 15/27 Total unemployment, ranked by average unemployment during the first half of 2009. Latvia
Lithuania
Estonia
Slovakia
Hungary
EU 15
EU 27
Poland
Romania
Bulgaria
Czech
Republic
Slovenia
January February March
2009
2009
2009
12.6
13.8
15.2
11.9
11.9
11.9
11.4
11.4
11.4
9.8
10.4
11
9.2
9.8
10
8.5
9
9.1
8.3
8.8
8.9
8
8.4
8.5
6.9
6.9
6.9
6.1
6.5
6.6
April
2009
16.2
13.6
13.5
11.1
9.8
8.9
8.8
8.1
6.3
6.4
May
2009
16.7
13.6
13.5
11.3
9.6
8.9
8.7
7.9
6.3
6.2
June
2009
17
13.6
13.5
11.5
9.3
8.9
8.7
7.7
6.3
6.3
July
2009
17.4
August September
2009
2009
17.9
19.1
11.5
9.4
8.9
8.7
7.7
11.3
9.5
9.1
8.9
7.8
11.7
9.5
9
8.9
7.9
6.6
6.9
7.2
5.4
5.8
6.1
6.3
6.3
6.4
6.7
6.8
6.9
5.1
5.4
5.5
5.6
5.6
5.6
5.7
5.7
5.7
Source of data: Eurostat. Not seasonally adjusted. Unemployment Acceleration: Y­o­Y Changes in Unemployment Rates (%) Change in unemployment rates (base period = the same quarter of the previous years) in %. Countries are ranked according the speed of increase in inflation. January February
2009
2009
Estonia
171.4
171.4
Lithuania
142.9
142.9
Latvia
100.0
106.0
Czech
10.2
23.4
R.
EU 15
19.7
26.8
EU 27
16.9
23.9
Hungary
15.0
22.5
Slovenia
-3.8
5.9
Romania
9.5
9.5
Poland
-4.8
3.7
Slovakia
-7.5
-1.0
Bulgaria
-7.6
-1.5
March
2009
171.4
142.9
130.3
April
2009
237.5
202.2
153.1
May
2009
237.5
202.2
173.8
June
2009
237.5
202.2
169.8
July
2009
August
2009
September
2009
159.7
152.1
148.1
35.6
46.5
50.0
56.1
55.8
58.1
60.5
30.0
27.1
28.2
14.6
9.5
10.4
5.8
4.8
29.0
29.4
27.3
30.2
12.5
9.5
8.8
4.9
30.9
29.9
26.3
36.6
12.5
11.3
11.9
6.9
27.1
27.9
24.0
40.0
12.5
13.2
17.3
14.5
29.0
27.9
22.1
35.7
30.0
29.0
21.8
39.0
28.6
30.9
23.4
42.5
14.9
23.7
22.2
18.2
29.9
35.3
21.5
34.5
46.9
Source: calculations based on Eurostat statistics 8 Changes in Employment v. Changes in Economic Activity Latvia Estonia Lithuania Hungary Bulgaria Slovenia Czech R. Slovakia Romania Poland Change in Real GDP % 2009Q2/2008Q2 Change in Employment 2009Q2/2008Q2 ‐17.4 ‐15.8 ‐21.1 ‐7.3 ‐4.9 ‐9 ‐5.5 ‐5.4 ‐8.3 1.1 ‐13.1 ‐10.2 ‐6.7 ‐4.5 ‐1.8 ‐1.6 ‐1.4 ‐1.3 ‐1.2 ‐0.7 Source: Eurostat 9 Labour Market Dynamics in Selected NMS­10 Countries Data on inflows into and out of unemployment and vacancies. Data come from national statistics (see references section), direct cross country comparability not guaranteed. Czech Republic: Y­o­Y Change in Inflows, Outflows and Vacancies (%) Czech Republic: Inflows, Outflows and Vacancies in Absolute Numbers 10 Slovak Republic: Inflows, Outflows and Vacancies in Absolute Numbers 11 Poland: Y­o­Y Change in Inflows, Outflows and Vacancies (%) Poland: Inflows, Outflows and Vacancies in Absolute Numbers 12 Unemployment Dynamics: Y­o­Y Change in Number of Unemployed by Lengths of Unemployment (%) Derived from Eurostat data about quarterly unemployment data describing the number of unemployed by length of unemployment. The chart shows y‐o‐y change in these numbers. Bulgaria Czech Republic 13 Hungary Poland 14 Romania Slovakia 15 Slovenia 16 Changes in the Length Structure of Unemployment: Y­o­Y Change in the Number of Unemployed in the 1­2 months Category Based on Eurostat data 17 Y­o­Y Change in Employment (%) by Age Category and Sex 2nd Quarter 2009 / 2nd Quarter 2008
Country
15-64
55-64
Total
Males
Females
Total
Males
Females
EU 27
-1.2
-2.1
-0.3
0.6
-0.1
1.3
Bulgaria
-0.6
-0.7
-0.5
0.7
-0.6
2.1
Czech R.
-1.2
-1.4
-1.1
-0.4
-1.4
0.4
Estonia
-6.0
-9.4
-2.8
-1.1
-0.7
-1.3
Hungary
-0.9
-1.6
-0.2
1.8
1.7
1.8
Lithuania
-4.3
-7.7
-0.9
-1.8
-3.6
-0.3
Latvia
-8.1
-11.3
-5.0
-1.3
-3.7
0.5
Poland
0.4
0.0
0.6
-0.1
-1.1
0.8
Romania
-0.5
-0.8
-0.2
0.4
0.5
0.3
Slovenia
-0.7
-1.2
0.0
2.8
1.7
3.9
Slovakia
-1.3
-1.2
-1.4
1.4
-0.7
3.0
Source: CSU (2009) and Eurostat Long­term Unemployment (>1 year) in the 2nd Quarter Difference between
2.Q 2009-2.Q 2008 in points
2nd quarter 2009
Country
Total
Males
Females
Total
Males
Females
EU 27
32.3
30.4
34.6
-6.2
-8.2
-3.8
Bulgaria
44.5
37.9
51.7
-6.3
-13.2
1.3
Czech R.
28.7
26.8
30.5
-22.5
-23.6
-21.3
Estonia
23.2
21.7
25.9
-11.6
-19.7
.
Hungary
41.0
39.8
42.6
-6.6
-9.0
-3.7
Lithuania
20.6
17.7
25.3
3.8
-1.0
.
Latvia
24.1
24.7
23.2
-2.7
-0.9
-4.8
Poland
29.3
28.0
30.8
-5.8
-5.9
-5.5
Romania
36.5
35.9
37.6
-4.5
-8.5
2.5
Slovenia
30.4
29.3
31.6
-15.3
-16.4
-14.2
Slovakia
52.2
49.2
55.5
-20.6
-23.2
-17.7
Source: CSU (2009) and Eurostat 18 Unemployment and Education Ratio between employment (%) of workers with lower education (ISCED 0‐2) and tertiary education (ISCED 5‐6) in %. Based on Eurostat data. 19 Dynamics of Inactive Population Change in the numbers of inactive population (those who are not working and are not registered as unemployed). Slovakia
Latvia
Bulgaria
Czech
R.
EU15
Romania
EU27
Slovenia
Hungary
Estonia
Poland
Lithuania
2007
Q01
1.3
-2.4
-5.1
2007
Q02
1.3
-3.2
-2.0
2007
Q03
1.4
-1.5
-1.8
2007
Q04
0.3
-5.4
-2.8
2008
Q01
-0.4
-7.3
-4.1
2008
Q02
-0.7
-5.7
-3.5
2008
Q03
-1.2
-3.1
-2.5
2008
Q04
0.1
0.5
-1.5
2009
Q01
1.6
-0.8
0.1
2009
Q02
2.4
1.6
0.8
2.3
0.6
-0.1
0.5
1.4
-0.1
-0.8
1.0
0.2
2.1
0.4
1.0
0.3
-0.3
0.2
0.3
0.3
-1.2
2.0
0.1
1.0
0.3
-1.5
0.4
-0.7
1.4
-1.4
1.8
0.3
0.3
0.2
-1.2
1.0
1.5
0.2
-1.1
2.0
-0.3
0.8
-0.3
1.1
1.3
-0.2
-1.2
0.2
1.7
-0.1
0.6
-0.1
3.4
1.3
2.3
-1.0
1.2
1.9
0.0
1.5
-0.1
0.7
0.1
-3.1
-1.2
-0.7
1.5
0.0
-0.5
-0.1
0.8
0.6
-5.8
-1.3
-3.4
0.9
0.2
0.2
0.0
1.4
0.0
-2.4
-1.9
-3.5
0.5
0.5
0.5
0.3
-0.3
-0.5
-0.9
-1.3
-4.2
20 Changes in Employment Rates by Nationality The table describes y‐o‐y changes in employment rates of population in the age group 15‐64 years segmented by nationality. Warning: the data on employment rates of foreigners are sketchy and in many cases marked by Eurostat as unreliable. BG CZ EE EU15 EU27 HU LT LV PL RO SI SK Nationals Foreigners Foreigners from Extra EU27 2008Q04 2009Q01 2009Q02 2008Q04 2009Q01 2009Q02 2008Q04 2009Q01 2009Q02
2.4 0.2 ‐0.9 0.5 ‐0.8 ‐1.8 ‐8.2 ‐3.7 ‐2.1 ‐2.1 ‐0.3 ‐4.8 0.6 ‐5.1 ‐7.7 1.2 ‐10.1 ‐12.8 ‐0.3 ‐10.2 ‐13.2 ‐0.3 ‐1.3 ‐1.8 0.3 ‐4.1 ‐4.6 0.0 ‐4.8 ‐5.7 0.2 ‐1.2 ‐1.7 0.2 ‐4.3 ‐4.7 ‐0.2 ‐4.8 ‐6.0 ‐0.7 ‐1.8 ‐1.6 0.2 ‐5.1 2.6 2.9 ‐9.3 ‐7.1 ‐0.8 ‐4.5 ‐6.4 ‐9.1 ‐31.3 ‐1.4 ‐28.0 ‐5.4 ‐7.3 ‐11.5 ‐6.4 ‐25.6 ‐16.2 ‐6.4 ‐29.0 ‐22.1 3.3 1.6 0.5 13.5 ‐3.4 ‐17.6 4.2 3.0 ‐9.1 0.7 ‐0.5 ‐0.8 26.4 ‐0.4 95.4 ‐3.5 1.6 ‐0.4 ‐0.7 0.6 ‐16.1 ‐16.0 ‐0.1 ‐22.3 ‐17.7 2.3 ‐0.5 ‐1.9 14.7 2.4 ‐3.3 21