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Polish Companies Plan Significant Layoffs Amid Rising Costs and Slowdown

BUSINESSPolish Companies Plan Significant Layoffs Amid Rising Costs and Slowdown

According to the Central Statistical Office (GUS) data, by the end of March, 159 companies in Poland announced plans for group layoffs totaling 17,000 employees. Business sentiment surveys indicate that positive sentiments prevail among entrepreneurs, yet significantly more of them plan to reduce employment than to increase it. “This is not yet a sign of Armageddon, but it’s worth considering what this stems from. Largely, it’s the result of rising business operating costs and economic slowdown,” evaluates Dr. Jacek Męcina, Professor at the University of Warsaw and advisor to the board of the Confederation Lewiatan.

“Announcements of employment reductions of several or even tens of thousands are not yet threatening, but they will negatively affect local labor markets. So, if we are talking about layoffs in regions like Kuyavian-Pomeranian or Greater Poland, the local markets will feel the negative effect. However, this will not necessarily lead to a rise in unemployment. Poland is a country that is aging rapidly, and we do not have a constant influx of new, young workers into the labor market, so we don’t even have to worry about rising unemployment,” Prof. Męcina emphasizes in a conversation with Newseria Biznes.

By the end of 2023, there were already reports of planned group layoffs. Scania in Słupsk announced the dismissal of 700 people, ABB in Kłodzko – 600 people. In April, the Levi’s factory also announced that it is shutting down its operations in Płock and laying off 800 people. According to GUS data, by the end of March this year, 159 companies had declared group layoffs of 17,000 workers, including 300 from the public sector.

Marcin Klucznik, an economic analyst at the Polish Economic Institute, who compared the March GUS data on planned group layoffs with data from the same month since 2004, points out that this is the sixth lowest result in the examined period, and in terms of the number of people who will lose their jobs – the 10th. Additionally, company announcements do not always coincide with the number of actual layoffs. As recently recalled by the head of the Ministry of Family and Social Policy, Agnieszka Dziemianowicz-Bąk, in 2023 employers announced the intent to lay off 30,000 workers, but only just over half of them (17,000) actually lost their jobs. This year, the family ministry has already announced that it will preemptively transfer 50 million PLN to districts where group layoffs are planned.

“This is certainly a good action, but it will only mitigate the social consequences. It will provide more resources for those employment offices that will have a larger number of potentially unemployed registered,” notes the advisor to the board of Confederation Lewiatan.

Group layoffs should not affect the overall unemployment rate, which remains at a low level. In March this year, it was 5.3%. On the other hand, in March, there were 88.1 thousand new job offers, which is 9.1% less than last year. Moreover, GUS business sentiment surveys confirm that significantly more companies plan to reduce employment than to increase it. Depending on the industry, 20-25% of entrepreneurs declared intent to cut jobs, while only 5-6% intend to hire new employees.

“This is definitely a result of the economic slowdown we are observing, in addition to a drop in orders, especially from Western Europe, from our western partners, which contributes to changes in employment potential plans. But I am afraid that these are also negative structural factors related to the rising costs of operating a business in Poland, too large increases in the minimum wage year over year,” evaluates the expert.

The minimum wage as of January 1, 2024, is 4242 PLN, and it will rise to 4300 PLN in July. This represents an increase of 700 PLN (19.4%) compared to the amount from July 1, 2023. According to the expert, future decisions regarding the minimum wage will be crucial.

“The mechanism that is currently in place shows that the rise in the minimum wage must correspond to the indicator of half the level of GDP plus the inflation indicator. So, these should be single-digit increases,” calculates Dr. Jacek Męcina.

Rising salaries are one of the biggest barriers to business operations – as indicated by 67% of enterprises surveyed by PIE in the April Monthly Business Sentiment Index (MIK). Rising labor costs were a problem mainly for construction companies (73%). Other obstacles in business operations included economic situation uncertainty (55%) and rising energy prices (53%).

“All these elements contribute to not the best situation and not the best business sentiment. This should also lead us to reflection and seeking methods to mitigate this wage pressure, to think four times before we decide on too high increases in the minimum wage. The rising

wave of negative factors may also cause us to go from a country that has enjoyed huge investments in recent years to one that will worry about some businesses moving out of Poland. We cannot allow this to happen,” convinces the advisor to the board of Confederation Lewiatan.

The MIK in April was 100.3 points and despite a slight drop during the month, it still remains above the neutral level (100 points). This indicates a prevalence of positive sentiments among entrepreneurs. In the April reading, the new orders index increased to 93.6 points, which is a good prognostic for future sales value growth in companies. The investment component reading, which fell m/m by 9.2 points to 69.4 points, is concerning. This is the lowest reading since November 2022 (66.8 points). It reflects companies’ reactions to economic uncertainty and increased investment risk.

“I believe that the negative readings and decisions about group layoffs are indeed a result of the assessment of the whole of 2023 and the beginning of 2024, because we know that the Polish economy will develop faster, we know that the Eurozone will also develop better this and next year, so the prospects are positive,” evaluates Prof. Jacek Męcina.

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