Central European nations struggle to raise future workers

Warsaw’s plan to pay 500zl (€114) a month per child to each family with two or more offspring has been criticised by economists and praised by the nation’s parents.

The policy has left the supermarket chain Biedronka caught between the two. Sales at the Polish discounter surged 10 per cent in the second quarter as the handouts started to hit bank accounts. But at the same time wage demands increased as workers with three or four children began to reconsider the benefits of keeping a job — after all, why work for only a bit extra when you can stay at home with your kids all day?

“We will be having some pressure in Poland, particularly on labour costs,” says Ana Luisa Virginia, chief of staff at Biedronka’s Portugal-based owner Jerónimo Martins. “There’s also a lack of labour on offer. That adds pressure on salaries.”

That is just one of the unexpected side-effects of the more than €5bn child benefit scheme. The EU’s sixth-largest economy — in purchasing power parity terms — has taken a drastic step to attempt to avert a demographic disaster.

Poland’s handout — more generous, relative to average wages than Norway’s famed social benefits — speaks volumes of the fear in central Europe of a looming population crisis. If this is not addressed, it will end the region’s economic success story as dramatically as it began two decades ago.

Put simply, central and eastern Europe is running out of workers.

Partly to blame is mass emigration, with millions of workers heading west since EU membership in 2004.

Compounding this are some of Europe’s lowest fertility rates as the region’s middle classes have fewer children to pay for a better quality of life in the future.

Those factors, with longer lives and expensive medical and pension costs for the elderly, mean the region’s governments want to encourage people to have more children and to stay.

According to European Commission data, close to 70 per cent of the population of Slovakia, Poland, Hungary and Czech Republic are of working age, comfortably above the EU average.

But by 2060, the number of workers will fall sharply, to 56 per cent of the total population in Hungary and the Czech Republic, 54 per cent in Poland and 53 per cent in Slovakia — the worst level in the bloc. This will put a large burden on taxpayers to continue to fund the elderly and the young.

Hence Warsaw’s decision to throw money at the problem with its “500+” programme.

This year the state will pay more than €3bn and about 3m families have signed up for the scheme so far. The government has allocated €5bn to pay for it in 2017. Beata Szydlo, prime minister, in August defended next year’s budget projections, which will push Poland’s deficit up to the EU’s permitted limit of 3 per cent of GDP. She said the most important goals for the government were “associated with our pro-family, pro-social policies”.

But even Mateusz Morawiecki, Poland’s minister for economic development and finance, has described the programme as a “crude measure”.

Meanwhile, the World Bank predicts that the scheme will all but eliminate extreme poverty and inequality. However, it is concerned about work incentives and the possible damage to labour force participation that the plans may have, which it says may carry “long-term poverty and inequality risk”.

The market for short-term, high-interest cash loans, typically in high demand around summer holidays or before the start of the school year, has decreased, with a survey showing just 1 per cent of families has taken a cash loan so far this year, down from 5 per cent a year earlier.

But the jury is still out on whether the programme will encourage people to have more children.

Instead, economists argue, Poland, Slovakia, Hungary and others should open their borders to skilled migrants to plug the hole in their economies, in the same way that Britain, France and Germany boosted their working populations and their economic growth by enticing eastern European citizens to come to work in their countries.

Yet political rhetoric in central and eastern Europe against immigration, especially from the Middle East, Africa and Islamic countries, means this is unlikely to begin in a big way soon.

Instead, former Soviet republics to the east, such as Ukraine, Moldova, Azerbaijan and Belarus, are seen as potential sources of labour.

Hungary, for example, has floated the idea of increasing immigration from non-EU countries in eastern Europe, but has ruled out accepting any refugees from the war-torn Middle East.

Just last month Poland’s President Andrzej Duda praised the “more than 1m economic migrants, mainly coming from the east” who now live in Poland.

The region, it seems, will continue to look closer to home to solve its potential employment problems for a while yet.