Labour market responding with more flexibility

The labour market is one of the most reliable indicators that the global economic downturn has hit Slovakia with full force. While the number of vacancies in the Slovak labour market has dropped significantly, the ranks of the unemployed have kept rising. Experts believe that the bottom in the labour market has not yet been reached. Nevertheless, the labour force has been adjusting to the economic situation and those currently employed have become more loyal to their employers and job-seekers have become less particular and more flexible.According to Eurostat, the seasonally adjusted unemployment rate in Slovakia exceeded 12 percent in September 2009, while the average unemployment rate across all of the European Union was 9.2 percent. In Slovakia, the automotive, machinery and textile industries and their suppliers have been most affected by the economic crisis.The increasing trend in the unemployment rate is similar in all eight regions of Slovakia. According to Burianová, despite the fact that eastern Slovakia has always been viewed as the region with the highest unemployment rate, the drop in the number of vacancies has been the lowest in the Košice region, where it dropped by 27 percent. The Žilina region, on the other hand, has been worst-off as it was the only region where the number of vacancies dropped by more than 50 percent, followed by the Bratislava region with 46 percent fewer vacancies after the first nine months of 2009 in comparison with the beginning of the year.Jobless people flowed into the Slovak labour market from across borders – Slovaks who were working abroad began returning especially at the start of the economic crisis in Europe. At the beginning of 2009 a significant number of the new Slovak jobseekers were people who had been worked abroad until the economic crisis caused their unemployment where they were working and sent them home.What has changed the most in the Slovak labour market in the past year and what has given it the unfavourable attribute as ‘the crisis year’ is that employers became much more cautious in deciding to hire new people, mainly because predicting demand for their products or services is more difficult now, according to Páleník.

The numbers

The best illustration of the current situation in the labour market is the sharp decrease in the number of offered job positions. The number of job vacancies recorded by Slovakia’s Labour Office has fallen from an average of close to 30,000 in the past couple of years to only around 7,000, said Lucia Burianová, the PR manager of the Profesia.sk job portal.

At the same time, the number of jobless people increased rapidly. As a result, the number of unemployed persons per vacancy increased by five times in one year’s time and by the end of August 2009 it reached 50 unemployed candidates per vacancy.

“This is the factor that we see as the main problem in the labour market today,” Burianová told The Slovak Spectator. “A large number of new candidates flowed into the market from several sources – from mass layoffs as well individual lay-offs, from graduates [from secondary schools and universities] and from those returning from abroad.”

More secondary-school graduates seeking jobs were recorded in September than in June 2009. But on the other hand, university graduates were looking for jobs mainly just after graduation, in May and June, according to Burianová.

But the labour market is offering only limited possibilities for these graduates to find their first jobs, since most companies have stopped or nearly stopped the recruitment of new employees. On top of that, voluntary turnover that was often common in the Slovak labour market in the years before the crisis has significantly changed and employers do not need to fill positions opened up from voluntarily departing employees, Burianová added.

Prospects look dim for a while

Michal Páleník, an analyst with the non-governmental Institute of Employment, is not too optimistic about the prospects for a better trend in the jobless rate in the near future.

“Unemployment or employment follows the development of production, but with a certain delay, and therefore we can expect that the rise of the employment rate will not be as intensive or as soon as the increase in overall production,” Páleník told The Slovak Spectator.

Burianová agrees that revival of demand in the Slovak labour market is not expected to come very soon, despite some reports of reviving economies to the west of Slovakia, particularly in the US.
“We can expect the unemployment rate [in Slovakia] to grow up to 15 percent, and the latest news about the revived waves of mass layoffs indicate that the labour market is still far from having hit its bottom,” Burianová said.

The economic downturn has interrupted what was a marked decreasing trend in unemployment in Slovakia, as in 2008 the unemployment rate of 9.6 percent was the lowest in ten years and it had dropped by almost 10 percentage points in comparison with 2001 when the unemployment rate was 19.2 percent of the labour force, according to data from Slovakia’s Statistics Office.

“Obviously the 12 percent unemployment rate and some 350,000 unemployed are far from the numbers from 2000 – 2002, but despite that there are parallels which suggest that the current crisis in the labour market is starting to resemble the situation from that period,” Burianová said.

Regional differences

The differences among the jobless rates in the regions of Slovakia can be well seen by the locations of announced mass layoffs, according to Páleník.

“It’s a consequence of the economy’s structure in which we have a relatively low number of employers with a relatively high number of employees,” he said.

Mass layoffs are classified as sackings involving at least 20 employees within a period of 90 days. If an employer plans such layoffs, it must inform the Labour Office in advance. However, the recent decrease in the announced mass layoffs does not necessarily mean that no new people are being registered as unemployed. “Some people end their jobs with a mutual agreement or there are new job-holders who have a work contract for just a limited period of time,” Eva Švantnerová of the Labour Office in Rožňava told the Sme daily.

As early as January 2009 several big companies announced they would lay off a large number of employees. The car component-maker Molex, in the eastern Slovak town of Kechnec, announced almost 1,000 redundancies early in the year; and steelmaker Železiarne Podbrezová, in central Slovakia, said it would cut its labour force by 10 percent, making 361 people jobless. Both blamed the global downturn for their actions. Other companies announcing mass layoffs included Ina Skalica, Slovmag, Danfoss Compressors, SE Bordnetze, Zekon and Svik.

But the number of announced mass layoffs in July was at the lowest since the crisis started – only seven, as Sme reported.

The statistics of the central Labour Office show that while in May there were 2,574 people sacked in mass layoffs, this fell in June to 796 people and in July to 673. Moreover, not every announced layoff necessarily ended in actual dismissal. In western Slovakia’s Levice district, one of the districts with the highest unemployment, the last announcement of a mass layoff dates from March 20, when Slovenské Energetické Strojárne in Tlmače announced 66 out of 2,100 employees would lose their jobs. The final number was actually lower, said Rastislav Juhár, the head of the Office of Labour, Social Affairs and Family in Levice because the company agreed to contracts which saved 18 jobs.

A homecoming labour force

Slovaks have returned from Hungary and the Czech Republic as well as from Great Britain and Ireland, and most of them worked in manufacturing jobs, for example, in the automotive, machine or electro-technical industries as well as some with jobs in the service or construction sectors.

According to data from Profesia.sk, the highest number of workers who returned from abroad was recorded at the end of 2008 and beginning of 2009, most of them from the UK and the Czech Republic. The largest number consisted of men with lower educational levels who were working in sectors hit hardest by the crisis – the automotive, machine and electrical industries.

In the first quarter of 2009 there were 128,000 Slovaks (5.4 percent of Slovakia’s labour force) working abroad, which represented a drop since 2008 of more than 27 percent, according to statistics presented by a new project named ‘SlovenskoCalling’, which is seeking to stop the brain drain from Slovakia. Those who returned, however, are primarily less qualified people while experienced specialists and managers, people with many years of international practice and multicultural experience, have continued to stay abroad to further develop their potential, SlovenskoCalling reported.

Many Slovak companies, despite the current crisis time, would welcome the return of more highly-qualified labour back to Slovakia.

“In our business we count on specific requirements for some of our professionals and we need Slovaks with international experience and know-how,” said Zuzana Nosková from J&T financial group.

From the macroeconomic point of view those who are returning from abroad and registering at the Slovak labour offices as unemployed are, according to Páleník, ‘good unemployed’.
“They are willing and able to work, they are willing to move and they are skilled,” he said.

Caution and more flexibility

According to Katarína Bittalová, an HR expert from Lugera & Makler, the crisis has changed the labour market in the sense that more clever employees have started to increase their qualifications to become more competitive in the market. She also regards those companies that have continued educating and training their employees as being sensible and clever.

Companies responded to the crisis in various ways in regards to their labour force, depending on their core business, size and capabilities. Some companies immediately reduced their workforce to cut costs while others looked for ways to retain their quality labour or to use the forced periods of downtime for more education and training.

“Slovakia, in this case, turned out to lack experience,” said Luboš Sirota, the chairman of the board of directors of Trenkwalder. “At the moment when the crisis hit, employers rid themselves of their most flexible labour force – for example leased workers. In countries where alternative forms of employment have a longer tradition, in contrast to Slovakia, these flexible forms of employment are used during crises.”

Sirota believes that forms of employment in Slovakia will undergo a huge change. He sees personnel leasing as one of the fastest indicators of changes in the labour market.

“When the crisis burst out and companies were getting rid of their temporary employees, we were saying that these will be the workers who will return to companies first,” he said. “And today this is already happening. Employers prefer, in uncertain times, flexible and lower-paid workers.
It is impossible to predict developments in the labour market or in the whole economy towards the end of the crisis. The increased interest in workers employed on the basis of personal leasing is the first signal that the economy, even though slowly, is again reviving.”

According to Bittalová, companies facing the question of what to do with their full-time employees when there is not as much for them to do have reached for various solutions.

“Large companies such as steelmaker U.S. Steel Košice or carmaker Volkswagen have preferred shortened working time and eliminated agency workers,” Bittalová told The Slovak Spectator. “Others have tried to change employment contracts after an agreement with employees. We also are noting companies with increased interest in leasing workers, as this form is more interesting for them at the current time than paying a full-time worker.”

More information about Slovak business environment you can find in our Investment Advisory Guide.