Poland weighs costs of German job market opening

WARSAW Wed Apr 13, 2011 9:57am EDT

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WARSAW (Reuters) - Adam Malkowski thinks the lifting of Germany's restrictions on east European workers is such good news that he has already voted with his feet and moved there, weeks before the job market formally opens on May 1.

Germany and Austria won a seven-year exemption shielding their jobs markets from ex-communist states such as Poland that joined the European Union in 2004 but that is about to expire, raising the prospect of hundreds of thousands moving west.

"Why Germany? Simple - the money. It would take many months in Poland to earn what I can make here in just one month," the 37-year-old construction worker told Reuters by telephone from southwest Germany where he is now based.

"I have a good boss and good money here and I really can't complain. The only problem was leaving my family behind, but I'm seriously considering bringing them over here too."

Malkowski's wife Marzena, still in Poland, said up to one third of their friends were now considering leaving the country, where the average monthly corporate wage of 3,400 zlotys ($1,215) is roughly a third of that in Germany.

The opening up of the market coincides with robust economic growth in Germany -- even as some euro zone peers sink deeper into government debt crises -- stimulating demand for workers ranging from IT specialists and engineers to bakers, nurses and hotel staff.

The Malkowskis' gain, however, may prove Poland's loss.

Pessimists fret that Poland may be on the verge of a new brain drain causing labor shortages and bigger wage demands, fuelling in turn higher inflation and interest rates and exacerbating the demographic risks of an already aging society.

Nearly 40 percent of Polish employers, especially bigger companies, are worried about the impact of Germany's opening, according to a survey by online job center pracuj.pl. Two thirds of those polled expect problems finding blue collar workers.

In a country of 38 million, the Polish government expects up to 400,000 people to seek work in Germany and Austria over the next three years, not an insignificant figure though much less than the estimated 1.5 million who left, mostly to Britain and Ireland, after Poland joined the EU in 2004.

WAGE INFLATION

Some economists fear the impact on the local economy could exceed that of 2003-04 due to a tighter labor market. Polish unemployment is now 13 percent and expected to fall to below 10 percent by year-end whereas in 2004 it was above 20 percent.

"Inflation will pick up faster and unit labor costs will grow. When companies cannot get the labor they need wages rise, so much is riding on the scale of emigration that we see," said Michal Dybula, chief economist at BNP Paribas in Warsaw.

His research suggests up to 900,000 may move to Germany and Austria from new member states in 2011-2015, more than half of them from Poland, the EU's biggest ex-communist nation by far.

The Polish central bank may need to raise borrowing costs more than hoped to tame inflation, denting economic growth that is expected to reach 4 percent this year but is still way short of the peaks seen after the country joined the EU.

The bank raised rates this month for the second time this year to 4.0 percent.

"The key risk for Poland is if we see wage inflation as a result of companies trying to hold on to workers," said Peter Attard Montalto, an economist at Nomura International in London.

"This would erode their competitiveness versus other countries. Poland is already at a disadvantage versus southeast European countries which have lower wages and taxes. Labor costs are also relatively high versus Germany in some areas."

A big exodus of higher skilled workers could erode tax revenues somewhat, Montalto added, though other economists said any fiscal fallout could be partly offset by lower unemployment leading to fewer Poles claiming social benefits.

Poland's center-right government, which faces an election in October, is struggling to rein in a budget deficit that totaled about 8 percent of gross domestic product last year.

But some economists are much more sanguine about Germany's opening, noting among other factors that Poles are less likely to speak German than English, thus limiting their employability.

Witold Orlowski, chief economic adviser at PWC in Poland, said he expected the impact to be felt mainly in limited sectors of the Polish economy such as construction and in areas bordering Germany where people can commute easily.

GERMANY "NOT BRITAIN"

"The people who were sitting on their suitcases have already left," Orlowski said, rejecting the chance of a repeat of 2004.

The head of Warsaw University's center for migration agreed.

"There is a myth that Germany's labor market is only opening up now, but in fact it has been open to seasonal workers and also to certain highly skilled groups for some time," said Pawel Kaczmarczyk, head of the migration center.

Kaczmarczyk believes some 400,000 Poles are currently working in Germany, legally or illegally, and that this figure is unlikely to rise much beyond 600,000 over coming years.

Statistics office data show remittances from Poles living in Germany already reached 1.15 billion euros in 2010, more than the 0.81 billion euros sent home by British-based Poles.

Total remittances last year from Poles living abroad were nearly 17 billion euros -- a drop in the ocean now for Poland's 353 billion euro economy but providing a useful boost for poorer rural areas where many migrants still have families to support.

Kaczmarczyk added that much Polish unemployment is structural and not heavily affected by migration patterns.

Ultimately, free movement of labor is not only about money.

"Unlike Britain or Ireland in 2004, I don't think Germany is seen as such an attractive place to move to," said Kaczmarczyk.

"It is not seen as friendly to immigrants and the decision to keep its market shut in 2004 has contributed to that image."

(Writing by Gareth Jones, editing by Patrick Graham)

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