Labor Shortages Threaten to Derail Central & Eastern European Economies
After twenty years of growth, labor shortages threaten to derail the economies of Central and Eastern Europe. Since the Czech Republic, Hungary, Poland, and Slovakia joined the EU in 2004, followed by Bulgaria and Romania in 2007, their economies have been boosted through a combination of capital from multinationals and cheap and well-educated local workers. Economic growth in the region has also been powered by surging private consumption, rock-bottom interest rates, and billions of Euros of funding from the European Union. Foreign investors have flocked to the region, lured by the prospect of faster growth rates than in Western Europe. Now, however, demographic decline and massive emigration have resulted in labor shortages that are undermining this economic growth.
Having peaked in the late 1990s, the region’s population is now shrinking. And the trend is likely to worsen. According to the UN Population Division, the combined population of the Czech Republic, Hungary, Poland, and Slovakia will fall from 64 million in 2017 to barely 55.6 million by 2050. Over that same period, the populations of Bulgaria and Romania are expected to decline even faster.
The labor shortages have resulted in higher wages — for populations who for decades have looked on in envy at the standards of living in Western Europe. Now, the risk is that if wages rise faster than productivity Central and Eastern Europe will no longer be able to attract the foreign investment that has been the foundation of their economic growth for two decades.
Many governments seem to realize this and are trying to expand the labor pool by attracting workers from elsewhere. Poland, which has the region’s biggest economy, issued almost 600,000 work permits to laborers from Ukraine in 2017. Czechia (as the country wants to be known) and Slovakia are also starting to rely on migrant workers from Ukraine. Others are looking to Asia for relief. In December 2018, for instance, Romania signed a contract with the government of Vietnam with the aim of bringing more Vietnamese workers to Romania, adding to the approximately 3,000 Vietnamese that currently work there.
Yet it is unlikely that replenishing the labor force with foreign workers alone will suffice to prop up the region’s economies.
Originally published in Muftah Magazine on March 27, 2019.
