Thursday, June 20, 2024

Deloitte: Poland enters the phase of economic expansion

The divergence of economic moods in Poland...

Two Years On: War in Ukraine and Its Global Impact

On February 24, 2022, a full-scale Russian...

Restructuring and Layoffs Raise Concerns for Polish Job Market Amid Economic Stability

BUSINESSRestructuring and Layoffs Raise Concerns for Polish Job Market Amid Economic Stability

Several major companies have announced restructuring and layoffs in recent weeks, raising concerns about the condition of the Polish job market. Economists are reassuring, however, that there will be no wave of unemployment in Poland, as macroeconomic data show no signs of collapse. The layoffs announced in the first quarter of this year are in line with the average trend of recent years, and Poland’s unemployment rate remains at a record low level. “In the long term, however, this wave of layoffs is indeed a cause for concern. Labor costs are rising, which raises fears that in the long run, they will no longer be the main factor determining competitiveness. Therefore, Polish companies should now focus on innovation and productivity growth,” emphasizes Dariusz Brzeziński, managing director of the BPO Center at Meritoros.

“This year started with a worryingly large wave of layoffs, and announcements of further job cuts keep coming. These are usually foreign corporations reconsidering whether Poland is still the location that offers them the greatest cost benefits,” Dariusz Brzeziński tells Newseria Biznes.

For several months, media reports have covered restructuring and mass layoffs in large companies such as ABB, Volvo Buses, Stellantis, Scania, Infosys, PepsiCo, Carrefour, ING and BNP Paribas banks, and Nokia, which plans to lay off about 800 people across Poland. Levi Strauss, which has operated in Płock for over 30 years, also announced its intention to close its factory and lay off its 650-strong workforce, moving production to Asia.

“Levi Strauss has been a fixture in Płock since the 1990s, so this news is quite concerning,” the expert notes.

According to the April report by the Central Statistical Office (GUS) on “The socio-economic situation of the country in the first quarter of 2024,” a total of 159 companies had announced plans to lay off 17,000 employees (including 300 from the public sector) by the end of March. This is an increase compared to February, when 137 employers declared plans to lay off 15,900 employees. Some companies are cutting costs, while others are deciding to cease production entirely and exit Poland. For example, Stellantis will close its internal combustion engine plant in Bielsko-Biała by the end of the year, laying off all 470 employees.

These layoff announcements have raised concerns about an impending slowdown in the job market. However, economists are reassuring that there will be no wave of unemployment in Poland, as macroeconomic data currently show no signs of collapse. The layoffs announced in the first quarter of this year align with the average trend of recent years, and Poland’s unemployment rate remains at a record low. According to GUS, the unemployment rate in April was 5.1%, down 0.2 percentage points from March and April of the previous year. According to Eurostat, the unemployment rate in Poland was 3%, still the second lowest in the EU despite a slight increase.

“Experts point out that if we look at macro statistics, the labor market is still relatively stable. However, in the long term, the wave of layoffs is a cause for concern. Labor costs are rising, which raises fears that in the long run, they will no longer be the main factor determining the competitiveness of companies. Therefore, Polish companies should now focus on innovation and productivity growth,” assesses Dariusz Brzeziński, managing director of the BPO Center at Meritoros. “For the past 20–30 years, Polish companies have developed based on a simple model of lower labor costs, building their competitiveness on this basis. However, looking at innovation indicators, Poland has been stagnant for a long time. The productivity indicator – showing how much value in terms of products and services the average Polish worker produces – is about 50% of the EU average and only 33% of the level in leading European countries such as Germany. Meanwhile, the world is moving forward with new technologies, which Polish companies rarely use. For example, the digitalization index of Polish companies places us 23rd among EU countries.”

Experts indicate that one reason for the ongoing wave of layoffs is the sharp increase in the minimum wage (which has been 4,242 PLN since January this year and will rise again to 4,300 PLN in July), significantly increasing labor costs. Other factors include high energy prices and increasing difficulties in recruiting workers. As a result, production in Poland and Europe is now much more expensive than in India or Asian markets. In search of lower costs, companies are starting to move production to cheaper countries or undertake restructuring, as evidenced by the current wave of layoffs.

“To stop this wave, we need to act quickly by reorienting business models,” believes Dariusz Brzeziński. “In the long term, this must be a change of the entire operating model, moving from the current low-cost model to one where innovation and high efficiency are important – not only in terms of product but also in terms of organizing processes and management systems within the company. There is a lot to be done here regarding new technologies and the internal organization of enterprises. This needs to be done immediately because the low-cost model is eroding. In two to three years, we will see a major reorganization of how Polish companies think and operate. Those who do not make this change will simply be left behind, and low costs will no longer help.”

According to the report “The Future of the Competitiveness of Polish Companies” by the Polish Economic Society, the low level of innovation is one of the structural problems of the Polish economy. This makes it increasingly difficult for domestic companies to compete in international markets. Therefore, a change in approach is needed, and they can look to global leaders who have successfully implemented new management and development methods as a model.

“We are good as entrepreneurs at seizing opportunities, being flexible, and acting quickly. This is definitely a strong point of Polish companies. However, in terms of management models, there is not much to boast about. Various innovation and efficiency indices indicate that Polish companies are unfortunately inefficient. Three Polish workers are equivalent to one German worker – these are the proportions, and this needs to change,” the expert concludes.

Check out our other content
Related Articles
The Latest Articles