The Dark Side of Low Unemployment in CEE

Central and Eastern European countries observe relatively low rates of unemployment, which are generally lower than in “Old EU” countries. While this might be seen as a success, the reality is not as optimistic as the data suggests.

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Despite low unemployment figures, CEE countries must continue their actions aiming for the convergence of wages and economic competitiveness. Photo: Mariia Korneeva / stock.adobe.com

According to Eurostat, the current unemployment rates in CEE vary between 2.4% in Czechia and 3% in Poland to 6.6% in Latvia. However, it is worth noting that the reality of low unemployment rates was not always the case. In 2004, most countries in the region recorded double-digit figures. In Poland and Slovakia, unemployment at that time reached nearly 20%. At that time, all of the CEE countries, except Austria, were newcomers to the European Union. Some were above the EU average, while a small part fell below that threshold.

The time lapsed, and the situation became more favorable towards the 3 Seas Initiative countries. What happened? Multiple factors made this transition possible.

Tables turning for unemployment in CEE

Most importantly, the countries developed economic relationships within the European Single Market. This meant various things. Firstly, CEE countries became a place where European companies invested and where the Old EU offshored jobs. Secondly, the unemployed could pursue jobs in other countries too. This meant that the unemployed migrated to the more affluent countries, e.g., Poles and Lithuanians to the UK and Ireland and Romanians to Spain.

In 2004, most countries in the region recorded double-digit figures. In Poland and Slovakia, unemployment at that time reached nearly 20%

Thirdly, the EU cohesion policy favored the less economically developed countries financing various projects. As the CEE countries were less developed due to ineffective economic policy from the Iron Curtain times, again, except Austria, they were targeted by this policy, which proved to be efficient help in terms of development. The last factor was demographic transition – CEE societies were relatively young and became much older due to significantly lower birth rates.

These all contributed to unemployment rates that were significantly lower than 18 years ago. While most of it sounds quite positive, there are reasons to worry. For example, we likely do not know how many people live in the 3 Seas Initiative countries.

It’s all in demographics

In some countries, e.g., Bulgaria, Croatia, Romania, and Poland, the difference between the estimated population and actual population might be significant. For example, the initial result from the Croatian census from the previous year shows the number of inhabitants to be 3.88 million – about 160 thousand lower than assumed. These people will often not relocate back to their countries of origin.

It is also important to know that there are goals to improve the labor participation rate. For example, countries such as Romania, Croatia, Poland, and Slovenia perform badly in this field in the 55-64 age group compared to the general EU average. The other important factor is that foreign companies exploit the difference in labor costs. Given that the CEE countries have a good education level, this is usually deemed as not fair by their populations.

The significant reduction in the unemployment rates is a success due to multiple factors. It is essential to keep the unemployment rate low. Still, with the current situation, CEE countries must continue the actions that aim for the convergence of wages and their economic competitiveness.

If you like the topic of business in Europe then also read the article about service economy.

Szymon Wieczorek

Graduated in Economics from SGH Warsaw School of Economics and Universitat Autònoma de Barcelona. His professional interests cover various aspects of the economy and his particular strengths are statistics and econometrics. He is also one of the authors of the 3 Seas Europe newsletter. His personal interests are history, politics, biking and foreign languages.

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