Unemployment So Low It's Time for Poland to Worry About It

(Bloomberg) -- To the extent that Poland’s record-low joblessness matters for policy makers, it’s only as a sign of worse to come.

While the numbers dazzle, behind them is labor supply squeezed by emigration, a low participation rate and government policies such as a reduction in the retirement age that further shrink the pool of workers. Under Eurostat methodology, Polish unemployment was at 5.3 percent in March and February, among the lowest in the European Union. The central bank estimates the rate is already below the level that puts pressure on wages.

“We’re approaching levels we should no longer be happy with, levels the government should start to worry about in the context of the outlook for economic growth,” said Jaroslaw Janecki, chief economist at Societe Generale SA in Warsaw.

Unemployment So Low It's Time for Poland to Worry About It

Wages have the attention of the central bank, which is preparing to end its record-long pause on interest rates with the first increase since 2012. But only a single person on the 10-member Monetary Policy Council has so far said that falling unemployment and gains in salaries could warrant tightening already this year.

Poland’s registered jobless rate fell to 7.7 percent in April from 8.1 percent a month earlier, according to data released on Thursday. That’s the lowest since 1991, when the economy was in the early stages of its transformation away from communism. Meanwhile, annual growth in wages last month slipped to 4.1 percent, near this year’s low.

The Central Statistical Office, which does its own survey of the labor market that’s comparable with EU statistics, also said that joblessness reached 5.4 percent last quarter, compared with 5.5 percent in the previous three months.

“Declining unemployment is a consequence of the falling labor supply and the result of the shrinking number of Poles of working age,” a phenomenon that “hasn’t been compensated for by an increase in economic activity,” the National Bank of Poland said in its latest report on the labor market.

Behind the Numbers

  • Emigration: More than 2 million Poles left since their country joined the EU in 2004. While the number of those eager to work abroad has dropped over the past year, it still represents nearly 3 million. Among them, 40 percent are aged 18-24, and their share has increased by 10 percentage points
  • Immigration: An estimated 1 million Ukrainians working in Poland are mitigating the labor shortage and helping keep wage pressures in check. As of June 12, Ukrainians can travel to the EU without a visa, which could divert some away from Poland
  • Low economic activity: The share of working-age people who are employed or looking for work was 56.3 percent in the final three months of 2016, down from 56.5 percent during the same period of 2015. That’s 2 percentage points below the EU’s average. The number of economically inactive Poles is estimated at 5.5 million
  • Labor supply: The central bank predicts 80,000 people will drop out of the workforce this year because of new regulations lowering the retirement age. An aging and shrinking population will only add further strain, it says. For every 100 workers, Poland now has 28 pensioners, a number projected to almost double by 2050

“For policy makers, who ordinarily think of monetary tightening to prevent a wage-price inflation spiral, the current situation on the labor market isn’t typical,” Janecki said. “Demand for labor isn’t met and yet it’s not driving any excessive pay increases.”