Economic restructuring and labour market developments in the new EU member states

This article, written by Michael Landesmann, Hermine Vidovic and Terry Ward and published by the Vienna Institute for International Economic Studies (wiiw), offers a comprehensive look at the aggregate developments in the new EU member states' labour markets.

In contrast to the old EU where employment rates increased steadily over the past decade, these show a declining trend in most of the new Member States. Only Hungary starting from a very low level shows a modest recovery from the mid-1990s, the Baltic States from 2000 onwards. By 2003 only the Czech Republic recorded a higher employment rate than the EU-15, Slovenia and Estonia resembled the EU-25 pattern, while there was a remarkable gap in Bulgaria and Poland.
However, measured in full-time equivalents the gaps in employment rates between the new and old Member States are much smaller due to the low share of part time employment in the NMS.
Disparities exist also between the NMS and the EU-15 with regard to employment rates for different age and gender groups. Female employment rates remained above the EU average in a number of countries, exceptions being Hungary, Poland and Slovakia. The latter two show, together with the Czech Republic, the most pronounced reduction between 1996 and 2003. However, over the past few years we observed upward developments in Hungary, Bulgaria and the three Baltic States. The full-time equivalent (FTE) employment rates for women exceeded the EU-15 level in all NMS but Poland.
By contrast, all NMS but the Czech Republic reported lower male employment rates than the EU-15. Suffering from declines in the second half of the 1990s male employment rates started to grow again in most NMS from 2000 onwards. Measured by FTE male employment rates are in all countries except the Czech Republic significantly lower than in the EU-15.
As regards young people, employment rates have been on the decline from the late 1990s and were in 2002 by 16 percentage points lower than in the EU-15. A substantial part of the drop was caused by extended education. E.g. in the 16-18 age group in 2003 90% of the total was in education in the NMS, while only 68% in the EU-14 (excluding Germany). These gaps are narrowing from age group to age group. As for the employment rate of the 20 to 24 year old people we found a similar value for the NMS-4 as for the EU South. The worse record for NMS-8 is almost entirely accounted for by Poland.
Also employment rates of older workers are well below the EU-15 average, which might be partly explained by the lower statutory retirement age in the NMS than in the old EU, but also by early retirement programmes implemented in the 1990s and the increased use of disability pensions in order to combat unemployment.
In contrast to the old EU where part time work plays an important role this form of employment is almost negligible in the NMS. Relatively higher shares of part time work are to be found in countries with a large agricultural sector, particularly Romania, Poland, Lithuania and Latvia. Overall, the NMS are resembling the pattern observed in the EU-South (Greece, Portugal, Spain) where part time employment plays a subordinate role too. One of the reasons behind these developments is the underdeveloped services sector in the NMS.
Unemployment levels in the NMS are almost double those in the old EU. The incidence of unemployment varies from country to country. Roughly speaking the NMS/CC can be divided into three groups according to their unemployment record: In the first group consisting of Hungary; Slovenia, Romania and the Czech Republic the unemployment rate (6-8%) is well below the EU-15 average, while the second group comprises the high unemployment countries Poland and Slovakia; the third group including the Baltic States and Bulgaria ranges in between.
Regarding the features of unemployment, long-term unemployment has become a serious problem all over the region. Levels are much higher than in the EU-15, but seemingly the further increase came to a halt in most countries. Hungary is an outlier with a share of less than 40% long-term unemployed in the total number of jobless, while all other countries report shares between 50% in the Czech Republic and 65%! in Slovakia. In the long run we might expect an exit from the labour market for many of those registered as long-term unemployed.
Youth unemployment in the NMS is more than twice as high as both the national average of the respective countries and the EU-15 average. However, calculating the youth unemployment rate based on the age group between 20-24, the picture changes substantially with the unemployment of 17.5% in the NMS-7 ranging between the EU-15 and EU-South levels.
Inactivity is still on the increase in most of the NMS. Between 1998 and 2003 activity rates fell in all countries, exceptions being Hungary and Slovakia. Activity rates fell most among young people, shrinking between 2003 and 1998 by 9 and 7 percentage points for those aged between 15 and 19 years and 20-24 years respectively.

Over recent years job creation in the NMS was mainly concentrated in the tertiary sector, whereas employment in agriculture and industry fell in all countries. From a comparative perspective the NMS exhibit still a much lower portion of services sector employment than the EU-15, but are close to EU-South patterns. The differences are less pronounced in the community services segment than in market services.
However, we found also some signs of recovery in manufacturing employment, particularly in Hungary, and to a lesser extent in Slovakia and some of the Baltic States. This does not apply to Poland. These favourable developments seem to be driven by the strong inflow of FDI in the manufacturing sector.
In four countries � Hungary, Slovakia, Slovenia and Latvia � job creation in the services and/or manufacturing sectors could offset job creation in other sectors over the past years.
In general, the NMS still have a relatively large industrial sector, particularly in the Czech Republic, Slovakia and Slovenia. On the other hand there is still a high portion of agricultural employment in Poland and Lithuania (about 19% each), in Bulgaria (25%) and in Romania where it was 36% in 2003. In these countries agriculture has had an important function as a buffer against unemployment, absorbing workers laid off from other sectors.
Employment gains in the services sector were mainly concentrated in the market services segment in all countries. Though market services activities are concentrated in low-skill segments � trade, tourism and transport � employment gains were � apart from trade � mainly reported in the high-skill segments, where there is still a wide gap between the NMS and the EU-15 average.
Between 1998 and 2003 increases in market services were reported for all countries, but the Czech Republic and Romania. Within market services job creation in the business services sub-segment, particularly �other business services� (legal, architectural and engineering services, advertising) contributed most to the overall job growth over that period. By contrast, we observe employment reductions in R&D, which were in absolute terms most pronounced in the Czech Republic and in Slovakia, whereas jobs in that category rose significantly in Hungary.
Jobs in tourism (hotels and restaurants) grew most in Hungary and Slovakia, but fell in Slovenia and the Czech Republic between 1998 and 2003. Overall, tourism absorbs a lower portion in the NMS than both in the EU-15 and in the southern EU countries (traditional tourist destinations). Only Bulgaria exhibits a higher share of employed in tourism than the EU-15.
Employment in financial intermediation stagnated over the past years characterized by job destruction in the banking sector (except Slovenia and Latvia) and job creation in the insurance, pension funding and auxiliary activities. In 2003 employment in financial intermediation accounted for 1.8% in the NMS versus 3.3% in the EU-15. Considering the still limited supply of financial instruments in the NMS, a convergence towards EU-15 levels seems to be feasible both in the banking and insurance sectors.
Transport and telecom is the only declining employment segment within market services in the whole region, with job losses occurring in all sub-segments. The drop was felt in all transport sub-categories, except auxiliary transport activities and activities of travel agencies. However, the bulk of job losses was reported in postal services and telecom, excepting Slovenia and Latvia. Transport and telecom is the only segment employing a higher proportion in all NMS (but Romania) than in the EU- 15. Notable differences exist in the employment share in land transport, which in several NMS (Czech Republic, Hungary, Slovakia, Estonia and Latvia) is twice as high as in the EU-15.
Community services sector employment grew in all NMS except Hungary, Bulgaria and Romania caused by increases in almost all sub-segments, most pronouncedly in health/social work and public administration. By contrast, employment in education fell in a number of countries. Overall, the proportion employed in the NMS community services sector is smaller than in the EU-15, but higher than in the EU-South � employment levels in that segment are highest in Hungary and Estonia and lowest in Slovenia. Public administration employs a similar portion as EU-South in the NMS as a whole; Bulgaria, Hungary and Slovakia already resemble the EU-15 pattern. The proportion employed in education is higher in the NMS than both the EU-15 and EU-South. Health and social work employment is above the EU South but significantly lower than in the EU-15.

Economic restructuring and labour market developments in the new EU member states

Economic restructuring and labour market developments in the new EU member states

In Short:

Economic restructuring and labour market developments in the new EU member states