War in Ukraine puts pressure on Polish economy
The transition of Poland in the last three decades is considered a development success story. The country moved from middle to high income status in less than 15 years, entering the group of high-income countries in the mid-2000s. The economy expanded rapidly with growth rates of 4 to 5 per cent per year, job and income growth were broad-based, and prosperity was shared. While in the early 1990s, per capita income was 38 per cent of the EU average, it now reaches 76 per cent.
Labour markets benefited from these developments and experienced an impressive turnaround. While unemployment was still at 20 per cent in 2000, the country has currently one of the lowest unemployment rates in Europe at 3 per cent, while the employment rate is slightly higher than the EU average (74 per cent vs 72 per cent).
The Polish economy recovered quickly from the COVID-19 pandemic, but economic growth is expected to stall in 2023. Poland was one of the fastest-growing economies in the EU during the post-pandemic period, benefiting from strong policy support, low unemployment, and continued inflows of foreign direct investment. However, Russia’s invasion of Ukraine has put significant pressure on the economy. Elevated commodity prices are weighing on both real disposable incomes and consumption growth. High uncertainty, a deteriorating business sentiment, and the increased cost of borrowing are impacting economic activity, particularly investment.
Unemployment remains at historically low levels and one the lowest in the EU (2.6 per cent in 2022), giving rise to acute labour shortages. Low labour market participation of some population groups, and a decline in the working-age population keep weighing on labour supply. At the same time, business surveys suggest that companies are having problems finding people with the right skills, pointing to significant skills mismatches. The 2022 ‘Polish Deal’ tax reform is estimated to have lowered the tax burden on labour benefitting more the lower income employees as well as older workers delaying retirement, while it increased the tax wedge for higher-income self-employed. The reform should also boost the labour supply over the medium term.*
The successful integration of displaced persons from Ukraine has helped the labour market, but challenges remain. The unprecedented support to the roughly 1 million displaced persons from Ukraine who settled in Poland contributed to their speedy integration into the jobs market. According to the OECD, these are estimated to have increased labour supply in Poland by 2.1 per cent by the end of 2022, easing the shortage of workers, especially in services.
Productivity growth has been strong, but Poland’s growth potential is being held back by low levels of investment and innovation as well as challenges in the education system. The green and digital transitions are being held back by a lack of digital skills among workers in particular specialists in information and communications technology, as well as by low rates of adult participation in learning.
Further challenges are high job insecurity with Poland having the highest share of temporary and atypical contracts in Europe. Women, older people, persons with disabilities, and those with lower qualifications participate in the labour market much less than in other EU countries. The low availability of childcare is one of the key reasons for the relatively low employment rate of women. Despite the high gender employment gap of 16 per cent, the gender pay gap remains rather low at 4.5 per cent. Income inequality and the share of people at risk of poverty have shown a decreasing tendency during the last decade but are still higher than in other countries of the region.
The cooperation between the ILO and Poland
Poland was one of the founding members of the ILO in 1919.
Viewed from a historical perspective, the most important milestone of the cooperation between Poland and the ILO was the dispute to provide a legal status to Solidarnosc, Poland’s most famous free trade union movement established in 1980. From there, the road ultimately led to free elections in Poland and many other countries in Central and Eastern Europe, European Union membership, and Poland’s new role in the international arena.
Since the early 1990s, ILOs support to Poland focused on reforming labour markets in the context of a transition from a centrally planned economy to a socially responsible market economy. The next major step was to advise Poland on aligning labour market and social policies with EU directives preparing the country for EU membership. After EU accession in 2004, the ILO supported active labour market policies, minimum wage policies, and rights- based labour emigration of Polish workers.
Today, Poland joined the group of ILO’s development partners making voluntary contributions to the technical work of the ILO in other countries. In 2015, Poland supported a project strengthening labour inspections in Ukraine.
Text last edited on 07/23
*Unemployment, total (% of total labor force) (modeled ILO estimate) - Poland | Data (worldbank.org)