CEE - 10 challenges for the new decade
No.6 Labor Market

The working age population is likely to continue to shrink over the decades to come. The CEE region should thus focus on increasing participation rate.

The labor market in CEE faced a fast convergence process in both wages and productivity after EU accession. Emigration, improving educational attainment (despite the heritage of archaic education systems) as well as a dynamically aging population have been the main trends shaping the labor market over the last two decades. As a result, unemployment has been continuously falling and the labor markets, before the pandemic outbreak, had never been so tight across the CEE region.

The working age population is likely to continue to shrink over the decades to come. The CEE region should thus focus on increasing participation rate by higher employment of young people and women. Among these two groups, the gap to the benchmark country (Sweden) is the highest. Flexible work arrangements (part-time employment, teleworking), supported by investment in digital infrastructure, services and skills, could be positive for women’s employment as well and labor market participation among elders.

The pandemic outbreak only revealed the need for flexibility and accelerated changes. Such work arrangements tend to dominate among white-collar workers and highly educated people. This brings us to another aspect: further improvement of educational attainments, including life-long learning, which reduces the probability of being unemployed. Among other factors that could increase labor market participation, we should mention an increase of the retirement age, including information about estimated pension entitlements, migration, as well as addressing structural problems, such as the unemployment of marginalized groups.

CEE labor market trends

After a fast catching-up process, the CEE region continues to offer a relative labor cost advantage vs. Western Europe, with companies benefiting from a similar regulatory environment. At the same time, accelerated know-how and technologies transfer within the single market have resulted in much faster productivity convergence in CEE relative to income convergence.

The main trends that have been affecting labor market development over the last two decades are:

  • Migration: Number of CEE-born population living abroad has increased fourfold since EU accession, i.e. almost 9mn people have emigrated from the region.
  • Education: Currently, one third of the working age population has a tertiary education, compared to only 10% in 2000.
  • Aging society: Low fertility rates and an increase in life expectancy result in a rising share of the population over 65.

Youth employment gap

While employment rates in CEE do not differ significantly from the EU average, we look at Sweden as a benchmark target, as it has one of the highest employment rates in the EU27. Firstly, the youth employment gap is quite visible. While in the case of men this gap closes at the age of 25 (CEE has an even higher employment rate than Sweden), in the case of female employment, the gap persists for another 10 years, due to particularly lengthy maternity and parental leave in CEE. Low female employment before the age of 35 is another distinctive feature of the region. The gap compared to Sweden closes between the age of 35 and 50 and opens up again for the 50-64 age group, due to the relatively low retirement age, among other factors.

Integration of the young generation into the labor market is a factor that could also ease pressure for employers, especially in Slovakia, Romania and Bulgaria. The high share of young people (aged 20-34) neither in employment nor education and training (NEET) in these countries could also be partially explained by the significant marginalization and segregation of Roma population.

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CEE Challenges for the new decade:

No.1 Demography

No.2 Going Green

No.3 Rule of Law

No.4 Healthcare

No.5 Euro Adoption

No.7 Education

No.8 Regional Development

No.9 Capital Markets

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