Poland’s Plan to Skyrocket Minimum Wages Heralds Economic Shift

(Bloomberg) -- Poland’s government plans to nearly double the minimum wage over the next parliamentary term will boost price pressure and herald a larger shift to the $586 billion economy traditionally based on low labor costs.

Seeking to bolster support before October’s election, Prime Minister Mateusz Morawiecki on Monday announced the “end of the era of cheap labor” in Poland. The minimum monthly wage is set to rise 78% to 4,000 zloty ($1,017) at the end of 2023. Adjusted for local price levels, minimum wages are already near those in Spain and the U.S., surpassing those in Hungary and Greece.

Key Insights

• The planned surge -- which analysts at Bank Millennium SA said would rise twice as fast as overall wages -- would substantially increase labor costs and may push many employees back into the gray economy, hurting budget performance.
• The proposal follows the government’s blueprint of stimulating demand by rising welfare spending and wages for low earners, which has helped keep GDP growing near 5% since 2017. The ruling party is set to win re-election on a bet that fast economic growth and handouts are more important for voters than concerns over an erosion of democratic standards, which has led the EU to repeatedly sue the government for failing to uphold the rule of law.
• The plan effectively shifts part of the cost of social spending to entrepreneurs, which also face increasing regulatory uncertainty, making it difficult for them to invest more, according to ING Bank Slaski SA chief economist Rafal Benecki.
• MBank analysts said the surge “implies that pro-inflationary impulses will be maintained.”
• The move will pressure consumer-goods producers that rely on minimum-wage earners and export part of their output to EU peers. Fast-moving consumer goods players may pass on higher costs to customers.

Get More

• Polish Inflation Ticks Lower After Accelerating for 7 Months
• Resilient East EU Shows Slumping West That Stimulus Can Work

--With assistance from Konrad Krasuski.

To contact the reporters on this story: Wojciech Moskwa in Warsaw at wmoskwa@bloomberg.net;Adrian Krajewski in Warsaw at akrajewski4@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Piotr Bujnicki, Andrea Dudik

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