Central Europe's wages surge as economies boom

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Vigorous economic growth combined with increasing worker shortages has led to a surge in wages in Central and Eastern Europe (CEE) with data released this month showing a big jump in labour costs across the region.

28 December 2007

Berlin (dpa) - Vigorous economic growth combined with increasing worker shortages has led to a surge in wages in Central and Eastern Europe (CEE) with data released this month showing a big jump in labour costs across the region.

Figures released by the European Union's statistics office, Eurostat, showed labour costs in new EU member states racing ahead by up to 30 percent during the third quarter, raising concerns about the region's competitiveness and fears about overheating in their economies.

Indeed, the push to higher wages comes as many skilled CEE workers head for better-paid jobs in western nations and labour immobility makes recruiting tough in parts of the region.

The biggest gains in nominal hourly labour costs were among the EU's three Baltic member states with Latvia posting a 30 percent jump, and Estonia and Lithuania both reporting that labour costs soared by about 20 percent during the third quarter.

This compares to an average increase across the 27-member EU of 3.7 percent.

Labour costs were up 2.5 percent among the 13 members of the euro with Europe's biggest economy, Germany, reporting the lowest increase of 0.9 percent and consequently helping to dampen the average increase.

At the same time, third-quarter labour costs in the four new leading EU states - Poland, the Czech Republic, Hungary and Slovakia - also recorded solid gains in labour costs as the region's economic transformation gathered pace.

While labour costs climbed by 8.4 percent in the Czech Republic, Hungary posted a 9.1 percent increase and Slovakia reported a 7.1 percent rise.

Labour costs in Poland, Central Europe's biggest economy, gained 11.9 percent during the third quarter with foreign investors having flooded into the EU newcomers since they signed up for membership in May 2004.

Wages in even the most advanced of the CEE nations are still a fraction of the levels in Western Europe with a low-cost highly skilled workforce considered one of the prime factors drawing in foreign investment, which last year totalled more than 30 billion euros ($44 billion).

Data released earlier this year by Germany's statistics office showed workers in Latvia earnings just 3.70 euros an hour and 5.40 euros in Slovakia, which is hoping to join the European economic elite as a euro member in January 2009.

This compared to workers in Denmark, Sweden and Luxembourg who enjoyed wages of 30 euros plus an hour.

But apart from the threat to inflation and pressures for interest rate hikes, the CEE labour cost data also helped to underscore concerns about the risks of investors seeking out even cheaper investment destinations further to the east. This includes Ukraine but also China and India.

Soaring labour costs also emerged in the EU's two more recent members, Romania and Bulgaria, which joined the Brussels-based bloc in January this year.

After running up growth rates of six percent plus over the last three years, labour costs in Bulgaria bounded ahead by 16.3 percent during the third quarter.

Meanwhile labour costs in Romania were up 23.2 percent with the nation's growth rate having not paused to draw breath in recent years and is forecast to top 5 percent this year and next.

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