Poland and Hungary: soon no longer a low-wage country?

The Eastern European states have so far relied on low wages as a locational advantage. For some time now, however, Poland and Hungary have been recording perceptible wage increases that call this concept into question. Due to the shortage of skilled workers and announced minimum wage increases, wage dynamics are likely to remain high in the coming years. This applies in particular to Poland, where the current ruling party, shortly before the parliamentary elections in mid-October, has announced that the current minimum wage will almost double by 2023 to 4,000 zloty (about 912 euros) per month. The image of a „low-wage country“ is obviously being deliberately abandoned. Labour costs are therefore likely to be under pressure.

However, labour productivity should keep pace with wage growth so that Eastern European countries do not fall behind in international competition and jobs and important investments in production locations are not endangered. A look at the development of unit labour costs shows that this has not been the case in recent years.

Although the Eastern European countries could probably cope with a moderate increase in labour costs due to the very good labour market situation and the comparatively low labour costs at present, the development of unit labour costs is not as positive as in the past. However, if the trend continues for too long, this should slow economic growth.

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