Pragmatism in Poland?

By Claus Vistesen


Cross Posted From Demography Matters


Well, it certainly seems as if something has dawned on somebody in Poland.

Poland is loosening its visa restrictions on workers from Ukraine, Belarus and Russia in order to ease a labor shortage in the farming and construction sectors, the Labor Ministry said Wednesday.

New rules go into effect this Friday, slashing the cost of work visas for citizens from the three former Soviet republics from 900 zlotys (US$330; €240) to 100 zlotys (US$37; €27), and easing bureaucratic restrictions, the deputy minister of labor, Kazimierz Kuberski, told the news agency PAP.

Under the new rules, workers would be granted three-month work visas upon presentation of a letter from a Polish employer.

"Because of the needs of Polish economy, we decided to open our job market in all sectors," Kuberski said.

Despite a jobless rate of about 13 percent, the European Union's highest, Poland is suffering a labor shortage that comes amid a booming economy desperate for construction workers.

The labor shortage has been exacerbated by the departure of hundreds of thousands of Poles to wealthier European Union countries for higher wages since the country joined the EU in 2004.

For a more comprehensive account of the situation in Poland I did a review and preview not too long ago over at my own blog. The main point is I think that while Poland's unemployment rate is still set in double digit territory the labour market is already suffering in key areas such as contruction. Furthermore, I would also guess that other sectors are lacking too. But where are all those Polish people going then? Well, it is of course difficult to give a comprehensive account but I can say that we are getting an awful lot of them in Denmark which is welcome news for our construction industry which indeed also is suffering from labour shortages but not, as it were, for the construction industry in Poland. The chart below gives a solid indication of the rise of the Poles in Denmark ...

Whether this surge signifies permanent placement is clearly an important question to answer but it is important to remember that if the economic situation in the home country deteriorates there could be a strong lock-in factor for the people who are living abroad to stay.

We are not quite done with Poland and Eastern Europe yet and I don't suspect we will be soon. As such, this is very much an ongoing (fast) process both in terms of what actually goes on the ground in CEE economies but also when it comes to our investigation of the matter. In the post below, I noted briefly how Poland is now taking concrete steps to address the issue of labour shortage. This piece from Ukrayinska Pravda further elaborates ...

Polish government facilitates entry in the country for immigrant workers from Ukraine, Russia and Belarus. It was announced by the deputy Minister of labor and social policy Kazimezh Kubersky, reports Interfax-Ukraine. According to his words, on July 20 a respective decree comes into force allowing the residents of these three countries work “in all sectors” of the national economy. When making a speech at the press conference Mr. Kubersky explained this decision by growing demand for workforce caused by economic growth. According to the estimates of the Ministry of Labor, Poland needs 500 thousand foreign workers annually, predominantly in agriculture and construction fields, and qualified engineers and health care workers are also in big demand.

According to the new rules, Polish enterprises get a right to employ immigrants from Ukraine, Russia and Belarus twice a year for the term of up to three months.

One thing which stands out I think is this number flung out by the Ministry of Labor which indicates that Poland needs about half a million workers annually. Now, as Edward points out to me in a mail it is difficult to say exactly what this means. Are we talking about a cumulative number here or what? But given the fact that human capital is a regionwide scare resource, and given the fact that many a ministry of labor might do some pocket calculations of their own across the region, it will at some point, I think, be difficult to see where the labor is to come from. Remember also here that while we could narrate this as a shortage of labor it is perhaps more a shortage of labor with the necessary skills we should be talking about. In this way there is a fundamental mismatch on the labour market (skill mismatch) as well as labor force participation rates across gender and cohorts could be better. The simple point we are making is however that in order to solve these issues you need time and time is exactly what these economies don't have. It is then here that the effects of strong outward migration to the West as well as a region wide population pyramid inversion as a result of a fertility collapse in the 1990s come in all this could end up being a sinister vicious circle if it is not already.

Moving back on track with Poland there is also the issue of the rather large unemployment rate coupled with mounting evidence that labour shortages are pretty acute. In short; something don't quite add up. However, the following snippet might help shed some light on this.

Warsaw, About Poland 29 January, 2007 Poland’s Minister of Labor says 30% of the unemployed do not want to work and that their files should be moved to a separate administrative unit. The Ministry would not spend time trying to help them to find work. They would simply continue to get benefits and the Ministry could spend more time helping those who want help.

Currently the unemployment offices spend a lot of time doing paperwork. Getting those who don’t want to work out of the system could reduce the paperwork load. The goal of the Minister of Labor, Anna Kalata is to allow the unemployment offices concentrate on helping those people who actually want work. Under the proposed change, those who refuse retraining or refuse job offers 2 or 3 times would be considered as not wanting to work. Their files would be essentially ignored. Under the Polish law, after two years people are considered as permanently unemployed and they stop receiving unemployment benefits. But they continue to get free health insurance.

The system is very convenient for those who run their own unregistered businesses. And the new change will make it much easier for them.

Even from this rather crude evidence it seems clear that the official unemployment statistics from Poland are much more opaque than we could perhaps have expected. Finally, there is this small piece from the Guardian which notes how Poland is looking for labor from other places than her peers in the CEE. As such, both construction workers from India as well as convicts are being considered ...

And so Poland has started to look elsewhere for the bricklayers, roofers, fitters, crane operators and bulldozer drivers who can throw up three stadiums, hotels, airports and hundreds of miles of motorway in quick time. It has found the answer: India.

"There are severe discrepancies in our labour market," said Poland's labour minister, Anna Kalata, who recently travelled to New Delhi to sign a memorandum of understanding with India to entice workers to come to the former eastern bloc country to fill the gaping hole. "The need for labour is particularly acute in the construction sector in the run-up to Euro 2012, and we need you," she told Indians. "The fact that the Polish economy is growing at a rate of over 7% is making the problem even more acute."

(...)

The shortage is so dire that the authorities are even reportedly considering using up to 20,000 convicts, under armed guard, to kick-start the construction. The problems are manifest in Warsaw, where construction projects dot the landscape but work proceeds at a ponderous pace.

And please also note this last paragraph ...

Some still hold out hope that at least some of the emigrants will return, enticed by the ever-increasing wages, so that the country can avoid turning - for the first time in its history - into a land of immigration. "But these hopes won't be fulfilled as long as the west remains more attractive," said Emil Szwezda, an analyst.

Now, we have already opened up the discussion on this issue in the post below. In general it is clearly difficult to say but given the outlook for the continuation of catch-up growth as well as the current wage wedge between east and west you cannot but think that the expecations of a reversal of the migration flows remain a fool's hope at best. An important qualifier to note here is of course the flow of remittances which in themselves represent a sort of proxy for how emigrating labor still contribute to their home countries' economies. However, could we not perhaps dig up some microevidence regarding the determinants of whether migration is permanent or not? Well, as it turns out we might be able to use this one ... (hat tip; IPEZone);

In this paper we analyze the demographic factors that influence the migration dynamics of recent immigrants to The Netherlands. We show how we can allow for both permanent and temporary migrants. Based on data from Statistics Netherlands we analyze both the departure and the return from abroad for recent non-Dutch immigrants to The Netherlands. Results disclose differences among migrants by migration motive and by country of origin and lend support to our analytical framework. Combining both models, for departure and returning, provides the probability that a specific migrant ends-up in The Netherlands. It also yields a framework for predicting the migration dynamics over the life-cycle. We can conclude that for a complete view of the migration dynamics it is important to allow for both permanent (stayers) migrants and temporary (movers) migrants and that return from abroad should not be neglected.

I will have more to say about this paper later.

Update

Just taking the liberty of updating Claus's post here. If anyone is skeptical, and thinks that Claus and I are exaggerating the significance of all of this, just check out this link from News Bulgaria (which reproduces an article which previously appeared in the WSJ), it may help put your doubts to rest. And please note that while many articles now refer to ageing workforces here, few have yet drawn the link back downstream to the longer term fertility issue which now underpins it.

Edward

Ukrainian Workers Headed For Poland?

This from Ukrayinska Pravda:

Poland Facilitates Entry for Ukrainian Workers


Polish government facilitates entry in the country for immigrant workers from Ukraine, Russia and Belarus.

It was announced by the deputy Minister of labor and social policy Kazimezh Kubersky, reports Interfax-Ukraine.

According to his words, on July 20 a respective decree comes into force allowing the residents of these three countries work “in all sectors” of the national economy.

When making a speech at the press conference Mr. Kubersky explained this decision by growing demand for workforce caused by economic growth.

According to the estimates of the Ministry of Labor, Poland needs 500 thousand foreign workers annually, predominantly in agriculture and construction fields, and qualified engineers and health care workers are also in big demand.

According to the new rules, Polish enterprises get a right to employ immigrants from Ukraine, Russia and Belarus twice a year for the term of up to three months.

With this aim a facilitated visa procedure is envisaged in Kyiv, Moscow and Minsk consulates.

Deputy Minister noted that even though the decree concerns three countries, at first it is planned to mobilize cooperation efforts in this field with Ukraine and only then extend the new rules to Russia and Belarus.

According to previous reports, Ukraine and Poland won the bidding process for common holding of Euro 2012 football championship and it was forecasted earlier that Poland may facilitate entry for working immigrants, in particular from Ukraine, for the reason of lack of its own workforce in the course of preparation for football championship.

Poland Ranked No 7 Worldwide for FDI

From Poland:

Poland ranked No. 7 among top worldwide FDI investment draws – Ernst&Young
16:05 03.07.2007
wtorek

Poland is now the world's seventh most attractive destination for foreign direct investment (FDI) – although the country is losing ground to attractive economies in Asia, according to a report by Ernst & Young and the Polish Information and Foreign Investment Agency (PAIiIZ), presented Tuesday.

"This is another year where we are one of the world's top 10 most attractive countries," said Agnieszka Talasiewicz, Ernst&Young partner for tax law, during a Tuesday press conference.

Poland was ranked No. 5 in 2006. The released report compiles information included in the annual Ernst & Young European Attractiveness Survey for 2007 with hard figures for 2006 provided by PAIiIZ.


REKLAMA Czytaj dalej



Ernst&Young based the study on the opinions of 809 international "decision makers," mostly from Europe, but also from the United States and Asian countries. FDI figures came from the company's database, which includes the results of monitoring of foreign direct investment projects.

Within Europe, which is seen as the world's most attractive region for investment, some 18% of respondents said Poland was the most likely destination for future operations. The country maintained its No. 2 spot in terms investment attractiveness in Europe, behind neighboring Germany with 20% of votes cast and ahead of the Czech Republic, whose popularity is growing, with 13% support.

The report shows, however, that European markets are beginning to lose out to more attractive economies in Asia.

Other factors may also undermine Poland's position in the future, the report reads. Among the top 15 European states for FDIs projects in 2006, Poland occupied the sixth place with 152 investments, compared with Britain, which held the top spot with 686 projects. In terms of the number of projects, Poland's result last year dropped 16%, and it also declined when compared to 2005 when it had 180 foreign direct investment projects.

Once known for low labor costs, Poland has also seen a steep increase of salaries of more than 8% since the beginning of the year. Moreover, companies are struggling with shortages in skilled labor force, as the unemployment rate continued on a downward path to 13% in May from more than 20% in January 2004.

FDI projects also contributed to the decline of unemployment Poland. In 2006, Poland maintained its lead in Europe as the number one destination for job creation through FDIs, with 31,115 newly created jobs from 37,745 positions the prior year.

"While Central and Eastern Europe attracted only 26% of investment projects [in Europe], they benefited from 51% of the new jobs created by foreign investors," the report reads. "This represented an average of 217 jobs per project, compared with 64 jobs per project in Western Europe. Poland was the largest creator of FDI jobs, with almost 15% of the total."

The FDI workplace figures for Poland resulted from a high number of labor-intensive industrial investments, which accounted for 65% of all FDI projects in 2006. Robust development of the manufacturing sector contradicts, however, the country's plans to switch on the highly advanced technology investments and research and development (R&D) centers, the report said.

"High-technology projects are a priority for us and this direction is unlikely to changes for years ahead," said Pawel Wojciechowski, Chief Executive Officer for PAIiIZ. "So far, Western Europe has attracted much more technologically advanced projects, and we're making our first steps in this area. This is the main challenge ahead."

Ernst&Young's Talasiewicz said Monday that to maintain its strong position, Poland should not only put more efforts into creating and promoting an attractive image of its economy abroad, but also improve the legal environment to make it more transparent, reduce bureaucratic procedures and develop its transport infrastructure, which 54% of respondents pointed as the factor playing the most important role for making decisions about investment destination.

Poland and The Euro

Breaking with its tradition of strongly advocating Poland's adoption of the euro, Poland's central bank under its new governor is to play a more neutral role.

According to press reports, Slawomir Skrzypek, who has been governor for just over six months, is creating an office to study the costs and advantages of joining the eurozone. Pol­and's finance ministry says Poland will meet the Maastricht criteria for joining by 2009 and according to Mr Skrzypek the earliest possible date for Poland adopting the euro is 2012 or 2013.

"I would like for a complete report treating this issue to arise in Poland and to try and look at all aspects of this issue and to try to reconcile as much as possible the opposed sides," he is quoted in the Financial Times as saying. "I think in order to achieve that, the bank at this stage should avoid becoming engaged on any side of the argument."

Mr Skrzypek's appointment in January was controversial. He is not an experienced economist and was chosen at the last minute after other candidates had been vetoed by President Lech Kaczynski and his twin brother Jaroslaw, the prime minister.

Mr Skrzypek's approach to the euro marks a dramatic break with the thinking of his predecessor, Leszek Balcerowicz. The former governor argued it made sense to remove as many fiscal policy levers as possible from the hands of Polish politicians.

"Until now the national bank has taken a very decisive and single-minded position, being de facto a side in this conflict,"........ "This sort of a decision should not be about breaking anyone; it should be about creating a consensus."

Mr Kaczynski, a political ally of Mr Skrzypek, has called for a referendum to be held on Poland's eventual accession date, and frequently identifies euro adoption as linked to price in­creases and other negative phenomena. Poland agreed to adopt the euro after joining the European Union in 2004 but has given no date for its adoption.

Mr Skrzypek is also seems to be more of an interest rate dove than his predecessor, who was one of the leading hawks on the 10-member interest rate setting monetary policy council. So far Mr Skrzypek has not been recorded as having once voted to raise rates, although the council as a whole raised rates, which now stand at 4.5 per cent, by a quarter point in April and in June. This week the council held rates steady but many analysts expect another increase in August or September.

Poland's economy grew by 7.4 per cent in the first quarter but growth in the second quarter is expected to be closer to 6 to 6.5 per cent. Unemployment has fallen to 12.4 per cent and is no longer the highest in the EU. Corporate wages are growing annually by 9.3 per cent. Inflation is now 2.6 per cent, just above the bank's 2.5 per cent target rate.


According to said Mr Skrzypek:

"

You can't say that the Polish economy is overheated. The wage increases are an area of concern, but it is a part of nominal convergence and it's not like what we're seeing in other new member countries because we are still seeing single digit salary increases,

"

He called the last two interest rate increases "an important pre-emptive strike to the economy".

Mr Skrzypek would not speculate on future rate rises, but did say he felt that, except for possible short-term movements, inflation would not stray beyond the bank's target range of 1 percentage point above or below 2.5 per cent.

Since becoming governor Mr Skrzypek has kept a fairly low profile.

Mr Balcerowicz, in contrast, was famous for his altercations with politicians and tried to prod the government to reform Poland's bloated public finances and undertake other reforms.

Straight Talking?

"I agree with the opinion that conditions in the economy support all sorts of reforms, including public finance reforms," Mr Skrzypek said. "But out of respect for the independence of the institution I lead, the national bank should not publicly express an opinion in this area."


FT interview with Slawomir Skrzypek.

The FT on the appointment of Slawomir Skrzypek.

FDI In Poland

In the BBV today:

Poland attracts record FDI in 2007 first five months


02 Aug 2007
bbj.hu

Poland attracted $6.4 billion worth of foreign direct investment between January and May this year, beating all records for a similar time period in previous years, Warsaw said Thursday.

The Polish Information and Foreign Investment Agency (PAIiIZ) said that during the period, the PAIiIZ facilitated 31 foreign investment projects, expected to create a total 10,500 jobs. Investors from the US topped the list, with others from Japan and Germany coming a close second. Investments in the electronics, automotive and service centre sectors were the most popular. (monstersandcritics.com)

Poland's State Owned Utilities

From Bloomberg this morning:

Poland Riles Capitalists in $4 Billion IPOs Communists May Love

For Jacek and Anna Lesko, Poland's new found capitalism is only skin deep.

The couple bet on the Polish economy in recent years, buying up shares of state-owned utilities that were distributed to employees after the collapse of communism in 1989. While the stock wasn't publicly traded, the Leskos expected to make money when the companies went public. Now the government plans to exclude them from the share sales.

``We bought these shares in a legal trade and now we could lose the profit we were counting on,'' Jacek Lesko said after meeting with similar investors in the southern city of Katowice. ``This kind of legal creativity makes people's lives miserable.''

Investors like the Leskos say the government doesn't understand how free markets work, and have pledged to go to court to protect the 500 million zloty ($175 million) they've invested in power suppliers. A lawsuit may delay the government's plan to raise $4 billion in initial public offerings by the utilities and expand the nation's power network.

At least 300 people like the Leskos flocked to hearings yesterday at Warsaw's Palace of Culture, a gift from Stalin and the city's tallest building. The event was moved from parliament after almost 1,200 people signed up to attend, eight times that of an average legislative hearing.

The outcry is just the most recent criticism of Prime Minister Jaroslaw Kaczynski's government, which is considering early elections after two smaller parties quit the coalition following disputes over spending and corruption.

No Promises

Poland plans to consolidate its power companies in four regional groups then sell shares to the public. The bill authorizing the IPO would allow workers to exchange their shares for stock in the merged companies. Investors like the Leskos would be left with stock in the original subsidiaries, which won't be publicly traded.

Jacek Lesko, an architect, and Anna, a psychologist, both 55, say they stand to lose as much as 40,000 zloty ($14,300) saved for their retirement if parliament passes the legislation.

The government says the shares were a bonus for working at state-owned companies during communism and there's ``no legal basis'' for giving shares in the merged entities to speculators.

``Nobody promised the shareholders that there would be consolidation and that they would be allowed to convert their shares,'' said Deputy Treasury Minister Michal Krupinski, who is in charge of the consolidation program.

What's more, the government blames investors for preying on workers. In July, Deputy Economy Minister Krzysztof Tchorzewski said transfers of shares to people other than company employees were ``incidents of loan-sharking.''

Providing a Service

Marek Chlopek, a partner at Warsaw-based private equity firm Penton Capital Management LLC, said his firm provided a service when it bought utility shares from workers who wanted to convert their holdings into cash for vacations and cars.

``By investing, I took on risk,'' Chlopek said. ``But I can't accept the risk that the state, which is also the majority owner, decides to treat itself better than other shareholders.''

If parliament passes the bill, investors will appeal to Poland's Constitutional Tribunal, said Marcin Juzon, deputy chief executive officer of Secus Asset Management SA, a Warsaw money manager. He cited legal opinions from government advisers who said all investors should be treated equally.

Great Unknown

A lawsuit might reduce proceeds from the IPOs, Juzon said.

``It's hard to imagine that during an IPO, financial investors will be pleased to know that the final number of shareholders in the company isn't known,'' said Juzon, whose company owns shares in the utilities and organized the meeting the Leskos attended.

Governments throughout Eastern Europe distributed shares to their citizens after the fall of communism.

In Hungary, for example, the state sold shares in about 300 companies to workers using subsidized loans to ease their first steps as capitalists. More than 150 employee groups still hold stakes in companies ranging from fine-china maker Herend to former phone monopoly Magyar Telekom Nyrt.

In Poland, investors bought employee shares in other state- owned companies before their IPOs, including PKN Orlen SA, Poland's largest oil company. Shares of Warsaw-based PKN have almost tripled in value since they began trading in 1999.

Until now, all the shares Poland distributed to workers could be sold on the bourse after the companies went public -- a practice the Leskos were counting on. This time is different because the government is creating new companies before selling stakes to the public.

Robert Gwiazdowski, director of the Adam Smith Center, a Warsaw-based economic research institute, said Poland shouldn't have given out the shares in the first place. He calls the practice a ``bribe'' to prevent workers from protesting when stakes were sold to private investors.

``The original sin was giving shares to the employees, and now we have to deal with the consequences,'' Gwiazdowski said.

Eighteen years after the fall of the Berlin Wall, Jacek Lesko says Poland simply hasn't grasped how capitalism works.

``This plan harms Poland,'' Lesko said before picking up the three-page form required to participate in the parliamentary hearings. ``Not just my own interests.''

Fiat Having Wage Problems in Poland

Gospodarka


DJ Fiat Pays Polish Workers Bonuses; Strike Threat Lingers


MILAN (Dow Jones)--Fiat SpA (FIA) agreed Wednesday to pay close to EUR1 million in new bonuses to workers at the plant in Poland where it's producing its headline-grabbing new mini, the 500.
But the Turin-based auto maker didn't address a labor union claim for a 100% increase in basic minimum wages that could yet escalate into a strike in September, potentially disrupting production of the 500, which Fiat hopes will make a major contribution to future earnings.

Wanda Strozyk, chairwoman of the NSCC Solidarnosc union branch at Fiat's Polish auto operations, told Dow Jones Newswires Wednesday that Fiat proposed paying each worker at the plant a total of 1,000 zlotys, or about EUR267, in new bonus payments. Fiat employs more than 3,500 workers at the factory in Tychy, southern Poland. "But we again asked for management to provide a strategy for increasing the basic minimum starting salary for workers to PLN2,800 from PLN1,400," said Strozyk, who believes that the contribution of Fiat's Polish auto workforce to the company's success hasn't been reflected in wage growth. "They didn't respond, but we'll be looking for answers in the next meeting on this scheduled for early September."

Fiat officials confirmed the details of the new bonus payments, and said they expect the basic wage issue to be on the agenda for a meeting with labor representatives early in September. They declined to comment on the substance of any proposals that may be discussed at the meeting but said Fiat will approach it in a constructive manner.

The wrangling between Europe's fifth-biggest auto maker by volume and Solidarnosc, which regional Solidarnosc vice president Rajmund Pollak says represents about 15% of the Tychy workforce, comes as auto workers at East European plants owned by U.S., Asian and West European car makers flex their muscles. There hasn't been a serious strike disruption at Tychy since the 1990s, but Solidarnosc says it's very serious about its ability to organize protests.

With skilled labor in short supply, East European workers are recognizing the increasingly important role their lower-cost plants are playing in manufacturing vehicles that are cheaper to produce than in their companies' home territory.

Thanks to the low costs in Poland, analysts say Fiat's operating margin on the 500 is likely to be in the region of 4%, well above the levels possible on minis made in Western Europe with correspondingly higher labor costs. Any significant increase in Fiat's labor costs in Poland could have an impact on those margins.

Fiat said last week it has already taken 40,000 orders from dealers for the car, launched amid much fanfare in Turin on July 4. Under the stewardship of acclaimed Chief Executive Sergio Marchionne, its auto operations have roared back to profit in the last 18 months on a mix of asset sales, increased sales of a freshened-up range of models and tight cost controls.

Earlier this year, Volkswagen AG's (VLKAY) Czech unit Skoda Auto agreed to a 12.7% across-the-board pay increase for Skoda Auto staff, ending months of talks that culminated in a one-day strike at Skoda's three plants in the Czech Republic. Unions had sought a 17% raise.

In Tychy, Solidarnosc's Strozyk said that Fiat earlier Wednesday proposed paying a PLN500 bonus to each worker to mark the launch of the 500.

She said Fiat also proposed raising the annual pre-Christmas bonus it pays workers at Tychy by PLN500 to PLN2,000. With more than 3,500 workers at Tychy, the total extra outlay for the bonuses is at least EUR935,000.

"We welcome the bonuses as a sign of management goodwill," Strozyk said, describing Wednesday's meeting as "a positive and welcome step. But the basic wage problem isn't resolved."

Pollak said, "When we see goodwill and we get results, we like to continue (to negotiate). There won't be any protests over the summer, but we need to see progress on the basic wage claim, that's very important. In September we will be determined and we have the capacity to organize protests."

Solidarnosc is one of seven unions recognized at Fiat's Polish operations, which include another auto plant at nearby Bielsko-Biala, and it isn't clear to what extent any action would be matched by other unions.

At the official launch of the new car - a revival of Fiat's classic 1950s mini that's been made over in a way analysts say is reminiscent of BMW AG's (BWM.XE) revival of the British Mini - Marchionne said the Tychy plant was running at saturation capacity as Fiat gears up for production and sale of at least 120,000 cars a year.

Marchionne also praised the contribution of the Tychy plant, saying it was one of Fiat's best.

As well as the threat of disruption at Tychy, Strozyk said the union is in contact with unions representing workers at Fiat plants in Italy and Brazil - the company's two biggest auto markets - and will seek to organize global stoppages if its claims aren't satisfied.

More on FDI in Poland

From the BBJ this morning:

Poland attracts $746 million in FDI in H1 of 2007


18 Jul 2007
bbj.hu

Poland attracted 31 new foreign direct investment (FDI) projects in the H1 of 2007, primarily in the electronics sector, the Polish Information and Foreign Investment Agency (PAIiIZ) announced Wednesday.

The value of the projects totaled $746 million (€541 million) and will create up to 10,500 jobs, according to the PAIiIZ which also notes this year's half-year FDI total is a 319% increase over 2006. “The increased influx of investment in the first half of 2007 is a snowball effect of other (foreign) investment in Poland,” PAIiIZ official Iwona Chojnowska-Haponik said. She notes recent major investments by LG and Sharp in flat-screen TV and monitor factories in Poland have attracted other smaller companies specializing in related production. The list of investors includes six companies from the United States, five from Japan, three from China and three from Germany, predominantly in the electronics and research and development sectors.

PAIiIZ President Pawel Wojciechowski says attracting high tech FDI has become a top priority for Poland. The largest Central European country which joined the European Union in 2004, has attracted a total of near $90 billion (€65 billion) in FDI since shedding communism in 1989. Poland also recorded robust 7.4% growth in GDP in the Q1 of this year.

Poland, Is The Party Over?

Claus has been posting on some of the macroeconomic capacity issues which face the East European "Lynx" economies in the light of massive demographic exodus that has taken place in some countries in this group in recent years.

I had long meant to post about this article from the Financial Times, which drew attention to the way in which young university graduates have been leaving Poland, and in particular Eastern Poland, in very large numbers:

Poland has seen one of the largest peacetime migrations in history as about 1m people, many of them young, have moved west to find work, although there are no hard official numbers. There are estimated to be 250,000 Poles in Ireland, about 500,000 in Britain and more than 600,000 in Germany.

While those numbers include doctors, plumbers, welders and office workers, a large number of migrants are young people fresh out of university looking for foreign experience and wages four or five times higher than they could earn at home.

Sitting in the Jadlodajnia Filozoficzna (which translates as the Philosophical Diner), Beata Tymkoff says that the effects of the migration have been even more dire in eastern Poland, where wages are lower and where there are very few foreign investors. In Lublin, in Poland's north-east, "the nightlife there died. Everyone left," she says. "The bands that played there and the people that listened to them, they're all gone."

The missing clubbers are recently graduated 20-somethings, a generation that in former times would have been enjoying its first pay cheques. Their migration is causing labour shortages, even though Poland's official unemployment rate is 14.9 per cent, the highest in the EU. The real rate is probably much lower once people working at home or abroad but still officially on the unemployment rolls are discounted. Many others, particularly former workers at now dissolved collective farms and older miners and workers in communist-era heavy industries, are often unemployable.

So the key issue here is what is happening to Poland's human capital stock? As the Polish economy grows and this stock steadily diminishes, something somewhere is going to hit a limit. (Same story - even if on a rather gentler scale - Italy, and same story Serbia, to name only two more cases of what is now evidently a very general problem).

The article tries to end up on a rather positive note:

"If Poland's young migrants return home, attracted perhaps by rising wages and increasing demand for their labour, they'll be able to find the same kind of music they partied to in London, Glasgow and Dublin."

As they say, if they return home. The if in question is rather a big one it seems to me. Especially since the level of wages necessary to attract people back would be unthinkable in terms of the kind of slow and steady economic development which Eastern Europe needs in the medium term.

Coincidentally I came across this article on Poland in Bloomberg this morning. In particular there is this:

Poland must cut labor costs urgently to halt emigration, lift employment and avoid a slackening of economic growth, Deputy Finance Minister Katarzyna Zajdel-Kurowska said.

The nation must end the ``vicious circle'' in which employers face growing difficulty finding workers as people leave for jobs abroad and the unemployment rate remains the highest in the European Union, Zajdel-Kurowska said in an interview on May 31.

and then this on the state of the budget deficit:

Poland must maintain fast growth to bring down the debt burden and reduce the budget deficit to 3 percent of gross domestic product, meeting euro-adoption criteria laid down when it joined the EU in 2004.

The ruling Law & Justice party plans to cut employees' contributions to social welfare funds by 3 percentage points this year and by a further 2 percentage points next year. Employers' contributions will be cut by 2 percentage points.

``The most clear bottleneck in the Polish economy is the labor market as still-high labor taxes and high social spending do nothing to encourage greater participation,'' said Thomas Laursen, the World Bank's chief economist for the European Union's eastern members, at a press conference in Warsaw on May 31. ``There's not much you can do about emigration, but there's a lot you can do to address the situation on the Polish labor market.''

Unfortunately however the migration and the high level of social spending may well be interconnected, at least in the longer term, since with very low fertility - 1.2 Tfr - increasing life expectancy, and a hemorrhage of population in the middle age groups, the burden of meeting the health and welfare costs of the elderly will fall on an increasingly smaller proportion of the total population.

And of course the pressure to reduce the "tax wedge" which weighs down on job creation is meeting with strong resistance from some quarters:

Junior coalition partners Self Defense and the Polish Families League, will not support the cuts in costs as they want the money to be spent on wage increase for physicians, teachers and other groups threatening strikes for higher pay. The average salary in Poland is a fifth of the EU average. The unemployment rate was 13 percent in April.

In addition there is obviously now a growing skills and age mis-match. As Claus indicates some 20% of GDP still comes from agriculture, but this is produced by a population with relatively low educational levels, and after the migration, an increasingly elderly one. The same may be true of the 13% of the population which is currently unemployed. Although many of these workers could be employed in the lower skilled occupations typically occupied by migrants in a West European or United States context, and for West European and US wages, there may well be cultural and other resistance to them doing this in the Polish context and for Polish wages. Of course part of the solution would be to maintain sufficient levels of economic growth to attract inward migration in the way Spain and Ireland have done. But to be able to sustain the necessary growth Poland needs to move steadily up the value chain in terms of the profile of economic activities being undertaken. But this is just what is going to become very, very difficult to do given the recent brain drain of the young and educated.

So there is, it seems to me a growing problem here, one which is touched on in the following assessment made by the Polish Economics Ministry:


The Economy Ministry estimates that GDP may be lower by about 400 billion zloty through the year 2025 because 2 million Poles have emigrated since May 2004 and others will follow. As many as 3 million people are considering leaving in the coming years, according to a May 15 survey by IMAS Intl. for Rzeczpospolita.

Now I think any assessment at this point of GDP so far out into the future is a pretty thankless exercise, but the view expressed does at least recognise that there is going to be a problem, even if no one really knows quite what to do about it.