Master Class CEE Insight Talk on “Labor and skill shortage in CEE”

24. Jänner 2022

Last week we had the first part of our Master Class CEE Insight Talks series. The “Insight Talks” provide an informal discussion platform with the corporate partners of the Master Class CEE and other guests on the topic of our research seminar. This class’ topic is on “Labor and skill shortage in Central and Eastern Europe: How do firms deal with this situation?” The purpose of the project seminar is to analyze the current developments in CEE labor markets, learn about the causes of workforce shortages and skill mismatches and explore how foreign investors are responding to this situation.

Why is this topic so interesting? More than 40% of manufacturers in Hungary and Poland state labor shortage as a limiting factor in production. The lack of machine operators, truck drivers and IT professionals threatens business growth in different industries. Unfortunately, the demographic outlook is dire too as the workforce will shrink in CEE in the following decades. While average wages are still 40-70% lower than in Austria or Germany, real wage growth has already accelerated before the pandemic eroding the cost advantage of CEE. Labor markets are turning into candidate markets where the bargaining position of job seekers gets stronger. Firms are pressured to accommodate the employees and job seekers with concessions regarding wages and benefits, work conditions and further training measures. In addition, the pandemic seemed to have triggered a change in attitudes towards work not just in Western Europe but in CEE too. Candidates and employees are demanding more career opportunities, a better work-life-balance, remote working possibilities and livable wages.

Two human resource managers responsible for Central European countries at Mondi Group, a global leader in packaging and paper with a strong CEE footprint, and at Henkel, a global technology and consumer goods company with leading market positions in the region, discussed the topic with us.

Hana Velíšková, HR Country Manager for Czech Republic, Mondi Group, started her presentation by pointing at the fact that the Czech Republic has the lowest unemployment rate in Europe and the highest job vacancy rate. Job seekers can choose between five offers on average. Difficult to fill positions range from data analysts and IT experts to machine operators and truck drivers. The job market in Czechia is now even worse than before the pandemic. The root causes for this situation are a shrinking workforce, high net emigration, border restrictions due to Covid-19 and strict immigration rules. This makes it difficult for firms to expand their business. Firms have to deal with excessive overtimes and related health issues of the staff. Key personnel leaving the firm can lead to challenging situations in operations. On the positive side, salaries are growing faster now, narrowing the gap to Austria and Germany and so muting the desire to emigrate. Furthermore, firms pay more attention to the demands of their employees and job seekers. Mondi is responding to the tight labor market by putting the focus on people development, addressing the segments of women and 50+ aged persons and investments into digitalization and automatization.

The second speaker, Csilla Gera, Head of HR Henkel Hungary and Head of HR CEE (with focus on CZ, SK, HU), Henkel, put the labor and skill shortage into a broader context. She emphasized the necessity to promote continuous education as the demand for digital, social, emotional and higher cognitive skills will grow. The firms need more people who are able to create value-added as routine tasks get more automated in operations and administration. Policymakers are not fast enough in responding to these changes in the work environment. Curricula for schools and universities have to be adapted and re-education initiatives started. A better cooperation between governments and the business sector is necessary to avoid the skill mismatch. Moreover, industrial manufacturers and multinationals in general are facing a strong competition by IT and telecom firms as well as start-ups for young talents.

Henkel is reacting to the tight labor markets in CEE by listening better to the employees’ and job seekers’ expectations. They are differentiating their HR measures by segments as for instance blue-collar workers, engineers, young management talents and experienced managers are looking for different benefits and work conditions. Tailor-made communication and actions shall help attracting and retaining talents and key personnel.

The following discussion centered on the importance of the comprehension of the local language and English for the hiring decision, the role of immigration and automation to deal with the shortage. Restrictive regulations, missing education and language barriers make it difficult for Ukrainians, (Bela)Russians or Turks to move to Czechia, Slovakia or Hungary. While a regional labor market is emerging, existing gaps in salary levels between Central and Western Europe make it still a one-way movement from the countries with lower salaries and wages to those with higher ones.

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