A Remarkable Transformation

Real minimum wages have increased across Europe this year.  The increases have been highest in the Southern and Eastern European countries where minimum wages are the lowest.  The only exception has been Latvia and perhaps only temporarily, as the three-year agreement between employers, employees and the government signed in 2017 did not call for a rise this year.

Elsewhere, change is dramatic.  Poland has plans for a 15.6% minimum wage rise in 2020, followed by a 15.3% rise the following year.  Slovakia’s minimum wage is rising by 11.5% next year and Lithuania’s 9.4%.  In Hungary and Romania, next years rise will be 8%.  Wage growth has become detached from productivity across the continent, but the disconnect is more extreme in the East than the West.  Poland’s long-term goal is a total minimum wage rise of 78% by 2023.

This trend marks a new phase for these countries in what the Financial Times terms a ‘remarkable transformation from communist basket cases to vibrant market economies fully integrated in to European business supply chains’.  Despite a worldwide slowdown, they are the European Union’s fastest growing economies and foreign investment there has become robust.

Transforming Economies

There are several factors behind these policies.  A low birth-rate and high emigration from the region have meant that running out of workers has become not just a genuine problem but the number one impediment to business growth.  But the new and intended rates of pay may have implications far beyond stemming an exodus from the countries and reviving native business.

Since the fall of the Berlin Wall, the economies of Eastern Europe have provided cheap labour for their wealthier Western European neighbours, most notably Germany.  This existence as dependent economies has also served to stagnate growth and leave Central and Eastern European countries locked into a situation where growth is only possible so long as their workers remain poorer than those in neighbouring countries.

The resentment felt towards this stagnation has led in no small part to the election of populist and nationalist governments throughout the region.  By essentially taking on the role of labour unions, these governments have won popularity amongst their citizens for reducing inequality and raising many families out of abject poverty.  However, though the economies of Eastern Europe have come a long way in recent years, these sudden and dramatic changes to the minimum wage also come with challenges.

The Challenge Ahead

The Universities and Research and Development sectors of Eastern and Central Europe will have a difficult task keeping up with the pace of change and ensuring that their workforces can move to higher-skilled and higher valued-added activities.  Small businesses will also feel a squeeze or, in the worst case, be put out of business by larger competitors who can better afford the new wages.

Fortunately for businesses looking to expand into Eastern and Central Europe, local changes such as these can be monitored, adjusted for, and taken advantage of remotely through Briars Group’s OfficeLogik service.  From one central office, an organisation can control all of its overseas operations, including any in Eastern Europe – which remains an inviting market.

EU membership and the regulation which comes with it means that Central and Eastern Europe remains lower risk than other destinations.   EU funded transport, energy and innovation projects have also laid the ground work for overseas investment.  The rapidly growing economy is a waiting opportunity that Briars Group can help you to grasp.