Labour shortages have once again become an important topic in Central and Eastern Europe. Recent examples suggest that the availability of workers may already be influencing investment decisions in the region, including industrial expansion plans. But the picture is more complex than a simple shortage story: labour market tightness has eased compared with the pre-2020 period, while deeper demographic and structural pressures remain firmly in place.
Labour shortages are present, but less severe than before 2020
Labour shortages are definitely present in Central and Eastern Europe, partly because of unfavourable demographic trends. However, the problem is less severe than it was before 2020. At that time, the stronger economic environment resulted in tighter labour markets and higher vacancy rates, as also shown by recently published Eurostat data.
In fact, labour shortages were a relatively new phenomenon in the region during the 2010s. At the beginning of that decade, many countries in Central and Eastern Europe were still struggling more with low employment levels than with a shortage of workers. This was particularly true in Romania, Poland and Hungary.
By the end of the decade, however, the situation had changed. Labour shortages became increasingly visible across the region, with Romania perhaps being the main exception. As domestic labour markets tightened, companies began to compensate for missing workers by hiring from abroad.
Labour import became part of the regional adjustment
By the late 2010s, labour import had started to increase. Companies increasingly relied on foreign workers to fill gaps in the labour market. The main sources of this labour were countries in the Far East.
This inflow was further strengthened after the outbreak of the Russia–Ukraine war in 2022, as workers fleeing Ukraine appeared in the region, primarily in Poland.
For companies, labour import became attractive not only because of labour shortages. Imported workers were often cheaper, more resilient and more motivated, making them attractive to employ.
Cheap labour naturally represents a competitive advantage, and companies take this into account when making investment decisions. For employees, however, a less tight labour market is a disadvantage. This is at the heart of the current debate: labour availability has improved compared with the tightest pre-2020 period, while companies are also increasingly willing to employ third-country nationals.
The constraint is more structural than cyclical
The current labour market challenge should not be seen mainly as a cyclical issue. Apart from Poland and perhaps the Czech Republic, countries in the region have not recently been able to deliver strong growth due to successive crises. From a cyclical perspective, labour shortages were actually more severe in the past.
From a structural standpoint, however, the deterioration of demographic conditions and the decline of the working-age population clearly pose a problem. This can be traced back to two key factors: low birth rates on the one hand, and the opening of EU labour markets on the other.
The latter has led to emigration from the region toward Western European countries offering higher wages. As a result, while wage levels remain an important competitiveness factor in Central and Eastern Europe, a significant part of the workforce is lost because people can earn more elsewhere.
There are still some reserves in domestic labour markets, but they are often difficult to mobilize. In many cases, the main obstacles are insufficient skills, lack of experience or unfavourable geographical location.
Efficiency, training and controlled migration all have a role
There is no single solution to the labour market constraints facing the region. It is essential to base future growth on higher efficiency and higher value-added activities, especially given the limits to further expanding employment.
At the same time, demographic challenges also need to be addressed. This is neither easy nor a short-term solution, but it is unavoidable if the region wants to ease structural labour market pressure over the longer run.
In the shorter term, the better utilization of existing labour reserves should be a priority. Training and reskilling can still unlock some potential in domestic labour markets. Only if these measures prove insufficient should labour be imported from third countries – and even then, in a controlled manner.
The challenge for Central and Eastern Europe is therefore not simply whether companies can find enough workers today. The deeper question is how the region can maintain its investment attractiveness while moving beyond a growth model based mainly on cheap and readily available labour.
Editor’s note: The article is based on the response provided by Gábor Regős, Chief Economist at Gránit Asset Management, to an inquiry from Poland’s XYZ.
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