Revealed: The other EU jobs crisis

Western firms attracted to Central Europe by the promise of fast growth and cheap labour are discovering that workers have headed to Germany and Britain in search of higher wages

In Slovakia, the world’s biggest auto producer per capita, companies are struggling to find specialists (Bloomberg)

While double-digit unemployment is devastating lives and causing political discord in Spain and Greece, business owners in the European Union’s developing east face a different problem.

The Czech entrepreneur Zbynek Frolik is one of them. Demand for his state-of-the-art hospital beds is so high that he needs a new factory. Yet with the rest of his country’s economy also booming, he can’t find the workers that he needs.

“There’s simply a huge shortage of labour,” said Mr Frolik, who has built his company, Linet, into a global leader with an annual turnover of $240m (£168m). “At this point, I just want any able- bodied person who wants to work.’’

The scenario is playing out across a region stretching from the Baltic states to the Balkans, where cheap labour and untapped markets lured tens of billions of euros in investment after the fall of the Iron Curtain. That fuelled booming growth and raised living standards, especially after the European Union’s “big bang” expansion into the region in 2004. Now falling unemployment and the exodus of millions of workers looking for higher wages are exposing the limits of the low-cost growth model.

Policymakers have warned of looming labour shortages, but the reasons vary by country. In the Czech Republic, the EU’s third-fastest growth rate and lowest unemployment have made workers scarce across the economy.

In Slovakia, the world’s biggest auto producer per capita, companies are struggling to find specialists in the industry, even as Jaguar Land Rover prepares to build the country’s fourth car plant.

For Hungary and Poland, young people are moving to Britain, Germany and other places where wages are higher.

The global rout in emerging market stocks and bonds has driven the Polish zloty down 5.2 per cent and the Hungarian forint 0.8 per cent against the euro in the past 12 months. Although the declines are helping exporters remain competitive and kindling growth, economists say dependence on currency weakness isn’t a long-term strategy for economic expansion.

There are two ways to tackle the problem in the short term, according to Radomir Jac, an economist at the Prague-based insurer Assicurazioni Generali: import workers or boost salaries.

“Central Europe needs a new economic model that wouldn’t depend so much on exports and the car industry,” Mr Jac said. “Its economies need to diversify and start making products with added value.”

Poland, the region’s largest economy and one whose GDP had ballooned to a value of $545bn at the end of 2014, from $65bn in 1990, is ticking both those boxes of salaries and workers. Unemployment fell to 7.1 per cent in December, the lowest since 2008 and far below the 20 per cent before EU entry, according to Eurostat. Unfilled job vacancies jumped to 73,200 in the third quarter, an increase of 22 per cent on a year earlier.

Companies are raising salaries – wages have more than doubled to an average of 32,446 zlotys (£5,731) a year since EU entry – which is prompting some investors to consider moving to cheaper countries further east.

Other companies are importing workers from Ukraine, a country that shares similarities in language and culture and has seen its own exodus of workers during its violent conflict with pro-Russian separatists.

“In many regions, importing workers from Ukraine is the only remedy,” said Marek Sliwinski at the employment agency Work Force. “Without those Ukrainians, quite a few companies wouldn’t be able to complete their orders, and this would have a negative impact on economic growth.”

The Czechs face a similar situation, with an economy that grew 4.7 per cent in the third quarter and an unemployment rate that fell to 4.5 per cent in December, the EU’s lowest along with Germany, according to Eurostat. Growth is expected to have slowed to 4.5 per cent in the last quarter, according to a Bloomberg survey . That compares with 3.8 per cent for Poland, 3.5 per cent for Slovakia and 2.5 per cent for Hungary, other surveys show.

After industrial companies in the Czech Republic urged the government to help them fill around 150,000 jobs that they expect to stand empty this year, the governing coalition’s leaders last week agreed to simplify visa procedures for foreign workers.

“Dozens of companies are struggling because of our policy toward their employees from Ukraine,” the deputy prime minister Pavel Belobradek told the Hospod-arske Noviny newspaper. “If it’s advantageous for the Czech Republic, we want to make legal economic migration easier.”

Jon Hill, managing director at the employment provider Grafton Recruitment, said the continuing fall in Czech unemployment will lead to “an even greater shortage of university graduates with technology and engineering degrees”.

That echoed a survey of executives carried out in Estonia by the accountancy firm PwC, which found labour scarcity had replaced geopolitical risks as the main economic concern.

The lack of workers outside capitals including Warsaw, Prague and Budapest has transformed cities that suffered during the transformation from centrally planned to market-based economies.

One is Hungary’s Tatabanya, a city of around 70,000 people located 60 kilometres west of Budapest. Tatabanya faced a spike in unemployment in the early 1990s after uncompetitive mines and factories went bust. Now the flooring company Graboplast is setting up production there.

“Tatabanya used to be a synonym for industrial depression,” said the Prime Minister Viktor Orban said as he inaugurated the new plant at the start of this month. “Now it’s a city challenged not by unemployment but a shortage of available and quality labour.”

Mr Orban has eschewed recommendations to shift to service industries, calling that approach “misguided”. He is seeking to cap high school and university admissions and channel students into trade schools to solidify Hungary’s position as one of Europe’s “most industrialised” countries.

Yet, with hundreds of thousands of people having travelled west, that will be difficult. There are around 50,000 unfilled vacancies in the car sector and 30,000 in shared services, according to Laszlo Dalanyi, country manager of the recruitment giant Manpower Group in Budapest.

Even the country’s largest private industrial conglomerate, Videoton, is having to raise salaries and push employees to work overtime and become more efficient.

“The system is stretched,” said the Videoton co-chief executive Otto Sinko. “Practically everyone who wants to work already has a job.”

With assistance from Andrea Dudik, Zoltan Simon, Ott Ummelas, Dorota Bartyzel, Peter Laca and Edith Balazs

© Bloomberg