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How do Economies in EU-CEE Cope with Labour Shortages?

Author

Listed:
  • Vasily Astrov

    (The Vienna Institute for International Economic Studies, wiiw)

  • Richard Grieveson

    (The Vienna Institute for International Economic Studies, wiiw)

  • Doris Hanzl-Weiss

    (The Vienna Institute for International Economic Studies, wiiw)

  • Sebastian Leitner

    (The Vienna Institute for International Economic Studies, wiiw)

  • Isilda Mara

    (The Vienna Institute for International Economic Studies, wiiw)

  • Hermine Vidovic

    (The Vienna Institute for International Economic Studies, wiiw)

  • Zuzana Zavarská

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract
The EU member states in Central and Eastern Europe (EU-CEE) have been experiencing increasing labour shortages, which only briefly subsided in the wake of the COVID-19 pandemic. Ongoing demographic decline suggests that labour shortages will only get stronger over time. As a result, the bargaining power of labour has increased, wages have been generally rising ahead of labour productivity, and industrial action (strikes) – the level of which has remained low in recent decades – has emerged in some instances. In the face of labour and skill shortages, people have been investing in education. The share of employees with tertiary education has increased, and vocational training has gained in importance, although active labour market policies have been used only selectively. Employers have increasingly been investing in fixed assets, especially in manufacturing, and the degree of robotisation has risen strongly. Despite domestic concerns that automation would generate massive job losses, our findings suggest that capital deepening has taken place faster where labour was in higher demand. Thus, labour was not substituted with capital, but rather the complementary effect prevailed. Employment actually increased in EU-CEE over the past two decades – despite the shrinking working-age population. Employers could hire not only the formerly unemployed, but also the formerly inactive, and used the relaxed immigration policies to attract foreign workers, especially from Ukraine and the Western Balkans. Czechia, Hungary, Slovenia and Slovakia and most recently Poland have become net receivers of migrants, while in Bulgaria immigration largely compensates for the natives who go abroad. However, immigration from non-European countries as a general solution to the problem of labour shortages in the region is highly problematic in the current domestic political context. Overall, both our findings for the EU-CEE region over recent years and the experience of Western Europe during the ‘golden age’ (1950-1973) suggest that labour shortages are not in themselves an obstacle to rapid structural change and income growth. However, for such an economic model to be sustainable, more active government policies will be needed, such as greater public investment in education and training, higher minimum wages in order to encourage automation, and more extensive welfare networks in order to deal with the possible negative short-run side-effects of automation.

Suggested Citation

  • Vasily Astrov & Richard Grieveson & Doris Hanzl-Weiss & Sebastian Leitner & Isilda Mara & Hermine Vidovic & Zuzana Zavarská, 2022. "How do Economies in EU-CEE Cope with Labour Shortages?," wiiw Research Reports 463, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:rpaper:rr:463
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    References listed on IDEAS

    as
    1. Richard Grieveson & Sandra M. Leitner & Robert Stehrer, 2019. "EU Faces a Tough Demographic Reckoning," wiiw Policy Notes 30, The Vienna Institute for International Economic Studies, wiiw.
    2. Vasily Astrov & Alexandra Bykova & Rumen Dobrinsky & Richard Grieveson & Doris Hanzl-Weiss & Philipp Heimberger & Gabor Hunya & Branimir Jovanović & Niko Korpar & Sebastian Leitner & Isilda Mara & Olg, 2020. "No Quick Recovery in Sight, with Coronavirus Risks Looming Large," wiiw Forecast Reports Autumn2020, The Vienna Institute for International Economic Studies, wiiw.
    3. Richard Grieveson, 2018. "Demographic decline does not necessarily condemn CESEE EU countries to a low growth future," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3-18, pages 122-130.
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    Cited by:

    1. Richard Grieveson & Michael Landesmann & Isilda Mara, 1970. "Future Migration Flows to the EU: Adapting Policy to the New Reality in a Managed and Sustainable Way," wiiw Policy Notes 49, The Vienna Institute for International Economic Studies, wiiw.
    2. Vasily Astrov & Stefan Jestl & Michael Landesmann & Sebastian Leitner & Roman Römisch & Robert Stehrer & Hermine Vidovic, 2022. "Bevölkerungs- und Wirtschaftsentwicklung in den mittel- und osteuropäischen Ländern (MOEL)," wiiw Research Reports in German language 21, The Vienna Institute for International Economic Studies, wiiw.
    3. Grodzicki, Maciej J. & Możdżeń, Michał, 2021. "Central and Eastern European economies in a Goldilocks age: A model of labor market institutional choice," Economic Modelling, Elsevier, vol. 104(C).

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    More about this item

    Keywords

    labour shortages; trade unions; migration policy; active labour market policy; investment; vocational training; ‘golden age’; populism;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N34 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: 1913-

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