Flux in labour market continues in 2010

Global economic downturn, financial crisis and recession will probably become less frequently used terms in upcoming business reports as the most recent figures on industrial production in Slovakia blessed market watchers, business people and ordinary citizens with the best results in many months and the economic forecasts for GDP growth in 2010 look more favourable than they have been for all of last year.

Labour Minister Viera Tomanová Labour Minister Viera Tomanová (Source: ČTK)

Global economic downturn, financial crisis and recession will probably become less frequently used terms in upcoming business reports as the most recent figures on industrial production in Slovakia blessed market watchers, business people and ordinary citizens with the best results in many months and the economic forecasts for GDP growth in 2010 look more favourable than they have been for all of last year.

Still, economic analysts and labour market experts advise business leaders and employees to keep their optimism tamed since the road out of the crisis will still be long and rocky, describing it as a step-by-step recovery, hindered by possible backward steps, rather than a victorious sprint. The tone is even more reserved when it comes to predictions for improvement in the labour market since the low number of available vacancies coupled with a still rising jobless rate do not give Slovakia’s army of unemployed much hope for better times right now or in the near future.

Last year almost half of all Slovaks felt they were living with the dark prospect of losing their jobs because of the global economic downturn and more than half were worried that their husband or wife might be laid off: at least this is what a 2009 Eurobarometer poll found. In fact, Slovaks were among the most worried Europeans when it came to their job prospects.

At the end of 2009, the country recorded 116,000 more unemployed than a year earlier and a total of more than 335,000 jobless citizens, making up 12.66 percent of those in the labour force. Labour market experts say it may take many more months until Slovakia’s jobs picture looks better and some analysts are predicting even gloomier news over the first six months of 2010, with new additions to the unemployed.

While human resource professionals are rather cautious with their predictions, they say some unmistakable trends can be detected: wastefulness, seemingly ever-secure diamond jobs with lavish pay, managers simultaneously negotiating job options with dozens of firms, and similar excesses have sunk into oblivion. Companies have trimmed down their human resources budgets and observers say only the fittest and most innovative and creative firms operating in the HR field will survive and prosper.

Recruitment freezes and staff downsizing are the two main responses taken by companies operating in the region of central Europe and CIS (Commonwealth of Independent States) to maintain or restore their profitability affected by declining sales caused by the economic downturn, according to a survey conducted by Amrop, a human capital consulting company, in 2009.

The evolving HR business

The challenge for human resource businesses has been to adapt to the new economic environment in which they must deliver more, of higher quality, faster and with fewer staff, and moreover at a lower price, Gerard Koolen, managing partner of Lugera & Maklér, a recruitment company, told The Slovak Spectator.

These companies have been forced to modify their scope of activities and make other adjustments to meet the needs of the market.

“The trend is that several consultancy firms that in the past provided only executive search services have currently widened their activities based on the needs of their clients and have started providing also personnel audits, training and coaching,” Vladimir Koša, managing director of Consilium Consulting, an executive search and HR consulting firm told The Slovak Spectator.

According to human resources professionals, it is not only that the labour market will lag behind a revival in the economy with a certain delay but also that the types of employees sought by companies will also change.

“The firms will be more careful in creating new jobs,” said Mario Fondati, a senior consultant with Iventa, a management consulting company. “With an increasing number of orders, production workers will be first hired, while personnel leasing will work as well.”

Other companies have been through acquisitions or mergers and they will first optimize their production, he added. The creation of all new managerial or administrative positions in these companies will be very carefully evaluated, Fondati said.

One HR professional said that the crisis has changed the type of managers that companies will seek in coming years, suggesting that a certain kind of top-level leaders are a thing of the past.

“Lavishly paid supermen are finished in business,” Martin Krekáč senior partner at Amrop Hever and chairman of the Jenewein Group told The Slovak Spectator. “The time after the crisis will be an era of humble leaders who more frequently inspire and support others rather than supervise and manage; they teach others and leave enough space around themselves so that other talents can grow and take a share of responsibility on their own shoulders.”

Krekáč believes that the crisis emerged from the chairs of those with a feeling of being “irreplaceable” and “overly self-confident” and that now firms will open their doors for a different type of manager – “flexible co-business, partner types who offer new ideas and are not afraid to take responsibility and make the right decisions, all the while motivating others and wanting to continue to learn themselves.

But HR professionals also say that the high number of employees seeking jobs will remain the big challenge for 2010. Monika Martináková of Trenkwalder said that in 2008 her company had huge problems in finding the needed number and qualified employees but that 2009 was a watershed moment for personnel agencies because the number of people searching for work became much higher than the number of job offers. Another change was that during the crisis some firms discovered that they were able to find employees on their own, without a need for external assistance.

“The structure of those unemployed will change as well with the number of long-term unemployed increasing, thus changing the work demands of personnel agencies linked to the selection and preparation of these applicants,” Martináková said.

Government anti-crisis actions

Since the economic downturn hit Slovakia the government of Prime Minister Robert Fico initiated several anti-crisis packages – with one set of measures specifically directed at the labour market to assist employers in preserving jobs or even creating some new ones. In February 2009, the government threw several lifelines to employers and employees in the labour market at a total cost of €332 million, while stating that the measures might inflate the government’s deficit.

An amendment to the Income Tax Act increased the non-taxable part of the tax base from its previous amount of 19.2 times the basic subsistence level (€3,435.27) to 22.5 times (€4,025.70) from March 2009 until the end of 2010. The income limit at which the non-taxable part of the tax base starts to shrink was changed from 100 times the subsistence level to 86 times the subsistence level. The income threshold for Slovakia’s so-called ‘millionaire’s tax’ (based on Slovak crowns) began to apply to persons earning more than €15,387 annually.

A so-called ‘employee bonus’ or in actuality a negative income tax for low-income wage earners was also initiated and can be claimed for the first time in 2010, based on 2009 earnings. Parliament also adopted an amendment to the VAT law that shortened the period for the government to refund excess VAT paid by businesses from 60 to 30 days. The amendment also permits certain companies operating under one business umbrella to register as a group for VAT purposes. As well, self-employed people with annual incomes under €170,000 who do not employ anyone else were also exempted from some bookkeeping duties, the SITA newswire reported.

A revision to the law on investment assistance authorised the government to provide financial assistance to more businesses during the period between April 1, 2009 and December 31, 2010.

Critics of the government said that some of the anti-crisis measures had come too late and that other measures which could have helped were not pursued at all. The government was also criticised by the opposition parties for failing to reduce public spending.

Rearding the government’s anti-crisis measures, Jana Mrvová, an analyst with Poštová Banka said that to support the labour market, the government should aid the business environment and improve its ability to generate new jobs after the recovery and help businesses to cut their labour costs.

Critics attack social companies

One of the most controversial government intercessions into the labour market was its authorisation for the development of so-called social companies, which have also raised some questions with the European Union. Critics say these social firms are non-transparent, expensive and not able to accomplish their primary task.

Eight pilot companies were established in 2008 and received €5.4 million in advance payments. The Labour Ministry’s goal was for these companies to employ 10,000 people annually. The average annual state contribution for each job position in a social firm was €3,303 in 2009 with €33 million in total funds allocated for these firms.

A series of reports in the Slovak media about social company pilot projects launched in August 2008 suggested that there were ties between the new enterprises and Smer, the largest party in the current ruling coalition. The Slovak Governance Institute (SGI), a public policy NGO, also said it detected flaws in the way that social companies operate and warned that the defects could result in the EC refusing to reimburse Slovakia for the money it spent on the enterprises. The Labour Ministry subsequently cancelled a contract with one of these companies – Arvik.

“The social firms operate mostly in areas already occupied by private investors,” Radovan Ďurana of the Institute of Economic and Social Studies (INESS), an economic think tank, told The Slovak Spectator. “A subsidy for jobs in social firms creates artificial competition for these private companies which, de facto, endangers existing jobs, particularly in areas of production with lower added value.”

The largest opposition party, the Slovak Democratic and Christian Union (SDKÚ), criticised the government for what it called ineffective policies to reduce unemployment. In November 2009, Eugen Jurzyca from the SDKÚ said the jobless rate in Slovakia had been growing much faster than the average in other EU countries and had grown faster than in neighbouring EU countries.

Jurzyca said that if Slovakia’s unemployment rate had grown at the same pace as in other EU countries Slovakia would have had 70,000 fewer unemployed. However, Michal Stuška, spokesman of the Labour Ministry, told TV news channel TA3 last November that if the government had not adopted its 35 anti-crisis measures there would have been at least 150,000 more unemployed in Slovakia at that time.

Labour market has multiple sore points

Since the economic crisis hit Europe, more than 4 million people in the EU have lost their jobs, with males, young people and employees with low qualifications or the contingent labour force being most affected.

Market watchers say that unemployment will remain one of the most painful sore points in the Slovak economy and they expect the jobless rate to exceed 13 percent in 2010.

Dávid Dereník, a macro-analyst with UniCredit Bank expects the jobless rate to increase further, mainly due to the influx of workers laid off from completed construction projects as well as employees who will return to the labour market from speculative sick leave.

“Reduced unemployment, in general, responds with a certain delay and an eventual turn is expected sometimes after the first half of the year,” Dereník said.

At the end of December the labour offices reported that they had only 5,000 available jobs listed in their databases.

The lower number of vacancies has considerably changed the dynamics of the job market, making it less likely that employees will seek to move on to another job because of the prospect of better pay.

Krekáč thinks that wages in 2010 will be very similar to 2009.

“New jobs will be added very slowly and wages will see no significant increase, perhaps except in the state sector where political rules rather than economic ones apply and in sectors that have not been affected that significantly, for example in energy, IT and telecommunications, or in the pharmaceutical sector,” Krekáč told The Slovak Spectator.

Fondati does not expect any significant slump in wages but he predicts stagnation in fixed salary scales or modification of wages towards the use of the variable parts of the salary or the revaluation of bonus systems.

In certain fields the labour market has a large available pool of employees.

“There are signals that mainly production companies have more possibilities in selecting employees, also for specialized positions,” said Fondati. “However it does not apply generally. In this time of recession firms are not getting rid of their best employees or experts in specialised areas who are crucial for the operation of the company.”

According to Krekáč, employers will demand that their employees handle more and more demanding tasks within the same time and for the same pay.

“In general, people’s willingness to work under conditions that they would not have accepted in better times will increase,” he said.

Koša said that some companies might still experience a lack of availability of high-quality candidates and excellent managers – those who are usually not free and on the labour market.

“Firms are trying to keep and motivate these kinds of employees so that they stay. Head hunters have a much harder time to snatch them for their clients than ever before,” said Koša.

Value of university degrees is questioned

Labour market pressures and toughening competition intensified questions about the shaky bridges between businesses and academia and the value that degrees granted by Slovak universities have for Slovak businesses. This was seasoned by a number of scandals that emerged last year in academia with one of these involving fast-track diplomas granted to students.

In mid 2009 labour experts warned that Slovakia’s jobless rate would surge in September when fresh graduates from high schools who failed to gain admission to universities or who did not plan further study but had not found work would register at the labour offices. The government decided that it was a better option to help young people go to universities rather than enter the unemployment lines. The government said it would find some extra cash to help the schools with the financial pressure that admitting 5,000 or more students would cause.

Education Minister Ján Mikolaj, apparently concerned about rising unemployment, rushed to join the crusade against unemployment among young people and pressured Slovakia’s universities to admit additional students over their annual admission quota. This opened additional questions: How will the schools accommodate extra students when Slovak dormitories are already a constant target of criticism? Do the schools have the available teaching capacities to assure that the additional students do not deteriorate the quality of education?

But the most urgent issue for most of the universities in 2009 was trying to meet the criteria that Mikolaj’s ministry required for gaining accreditation – in a massive assessment process that the schools are now to experience every six years.

The requirement for a maximum number of students per professor caused the most concern for many schools. The Education Ministry said that for a university to preserve its status the ratio of students to the number of faculty members (PhDs, professors and assistant professors) should not exceed 20. After having admitted extra students, however, this turned out to be quite a challenging task for some of the universities which then were at risk of losing their status as a university and being reclassified as a lower level school.

The Education Minister harvested instant criticism from the country’s opposition parties, as expected, but ethics watchdogs and think-tanks such as the Slovak Governance Institute joined in the chorus.

“Increasing the level of education is always a good step,” Miroslav Beblavý, onetime chairman of the Slovak Governance Institute think-tank, told The Slovak Spectator. “However, this measure was done in a way that seems counterproductive because it was carried out by forced pressure on the schools to admit more students, regardless of their ability to study.”

Beblavý said there are two reasons why the additional students could have a negative impact on the quality of education: first, if the quality of the newly-admitted students is low, which is likely, they will drag down the quality of study for all; and secondly, the universities must find finances for the study of these students, especially if the state fails to keep its promise of sending additional money.

University rectors and education professionals have been warning that pressures on quantity only harm the quality of education. The universities themselves have been showered by criticism that many of them are unable to produce qualified professionals suitable for the current requirements of business.

For more information about the Slovak labour market, HR sector and career issues in Slovakia please see our Career & Employment Guide.

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