LABOUR MARKET GRADUALLY HEALS; A LACK OF WELL-TARGETED EDUCATION IS STILL A PROBLEM

Business calls for more flexible labour

Unemployment numbers, although they belong among the highest in the EU area, are far from being market observers’ only concern when looking at Slovakia’s labour market. Employers, foreign investors, and businesses in general keep calling for a more flexible Labour Code. They assert that this would not only help squeeze down the jobless rate but also would allow for a simpler and more transparent funding for the social system, and for better targeted study programmes at Slovak universities.

The trade unions are not enthusiastic about changes proposed by the government to the Labour Code. The trade unions are not enthusiastic about changes proposed by the government to the Labour Code. (Source: ČTK)

Unemployment numbers, although they belong among the highest in the EU area, are far from being market observers’ only concern when looking at Slovakia’s labour market. Employers, foreign investors, and businesses in general keep calling for a more flexible Labour Code.
They assert that this would not only help squeeze down the jobless rate but also would allow for a simpler and more transparent funding for the social system, and for better targeted study programmes at Slovak universities.

Jobless rate still swollen

After some tough times in the previous year, 2010 has exhibited a small revival in the labour market. Observers note however that there are too many reasons not to rejoice just yet. According to the mid-year analysis of the data of the Profesia job portal, the number of job offers rose by almost 3 percent year-on-year in the first half of 2010. At the same time, the number of newly-added CVs on the job portal dropped by more than one tenth.

The main rise has been recorded in those areas of business that were hardest-hit by the economic crisis the year before.

“The most significant rise in job offers has been recorded in the first half of 2010 in the automotive industry, where the number of offers went up compared to the first half of 2009 by 42 percent,” Lucia Burianová, the PR manager of Profesia, said. “A rise in job offers higher than 30 percent was recorded year-on-year also in the chemical industry, quality management and production.”

At the end of August 2010 the jobless rate stood at 12.19 percent, according to the Labour, Social Affairs and Family Office. The long-term unemployed – those without jobs for more than 12 months – accounted for nearly half of all jobless people. According to the Slovak Statistics Office, the actual levels of employment continued to decline in August in all economic sectors compared with the previous year.

In September 2010, the unemployment rate in Slovakia grew slightly in comparison to the previous month, to 12.42 percent. However, in the year-on-year comparison, the unemployment rate was lower by 0.03 percent. Market watchers noted that the month-on-month rise was due to seasonal circumstances, mainly the regular inflow of secondary-school graduates onto the labour market in September.

According to Vladimír Vaňo, the chief analyst of Volksbank, Slovak contemporary economic development provides several textbook illustrations of macroeconomic concepts. One of them has been the beneficial contribution of euro adoption for the small, open and export-driven economy. Lucky timing of euro adoption contributed to over 20 percent annual recovery of Slovak industrial production in the first eight months of 2010, approximately twice the pace of the similarly open Czech economy.

“Although this recovery is mainly driven by the resurrection in the external demand from Germany and the eurozone, comparison with similarly open economies of the Czech Republic and Hungary nevertheless points to the fact that Slovak exporters reap benefits of euro adoption in their improved competitiveness: they enjoy exchange rate stability, lower transaction costs in international trade with the eurozone, as well as more favourable interest rates conditions,” Vaňo told The Slovak Spectator.

According to him, if Slovak export-driven industry continues to use this advantage, the outlook for
employment seems optimistic.

“Nevertheless, this is still not the time nor place for too speedy-optimism: one should keep in mind that only after four consecutive solid quarterly increases in real GDP did Slovak employment carve out its first and very slight employment growth,” Vaňo said, referring to the 1.3 percent increase of the employment rate in the second quarter of 2010. “More importantly, the results of this year seem to corroborate our earlier academic theory; that for an emerging economy such as Slovakia, it takes real annual growth to the tune of over 4 percent in order to see new jobs being generated again.”

While Slovakia enjoyed a staggering 4.7 percent real annual GDP growth in the first half of 2010 and is well on track for an annual result close to the 4 percent milestone, one should be wary of the risks for potential slowdown in the economic growth next year, Vaňo noted, adding that such a slowdown is no major catastrophe per se, however emerging market economies are able to squeeze out a mild pace of economic growth in a so-called job-less recovery, mainly through increases in work productivity.

“Hence, the Slovak job market is on an optimistic footing, when looking forward, but still by far not out of the woods yet,” Vaňo said.

Better Labour Code sought

For quite some time now, businesses operating in Slovakia have been calling for a more flexible Labour Code in the belief that this could help curb unemployment rates and enable the market to respond to the economic crisis impact in a much more effective manner. A better payroll tax system, less administrative burden on employers, new and clearer rules for hiring new employees and limits to the influence of the trade unions are among their most often cited desires.

The National Association of Employers (RÚZ) said the objective of the new government should be to create suitable conditions for a resumption of economic growth and support the creation of new jobs. This goal requires changes in the Labour Code and gradual easing of the burden of social and health insurance contributions, which must be preceded by a far-reaching reform of funding for the social system, the SITA newswire reported.

In fact, Labour Minister Jozef Mihál seems to belong to the most active members of the new cabinet, which serves as newfound hope for businesses that he may introduce the desired changes to the labour market rules in the short run.

In mid-October 2010, Mihál introduced changes that his ministry plans to propose for the Labour Code with the aim to make it more flexible and decrease unemployment rates.

The Labour Ministry plans to introduce a so-called ‘inter-market of labour’, by which the ministry means a measure which would let the long-term unemployed who find a job to continue receiving the allowance for long-term unemployed for some time after returning to work. Analysts agree that such a measure could solve the problem of low motivation among the long-term unemployed to start working again, the Sme daily reported.

Mihál also plans the following: to release limits for overtime work; curbing the notice period; cancelling the current simultaneous payment of severance pay and notice period. Moreover, the ministry also plans to create conditions for private companies to be able to take part in the system of including the disadvantaged groups in the labour market.

The discussions on Mihál’s proposals started in late October. Note, it is only after this discussion takes place, that the above-referenced changes can be incorporated into a new set of laws.

The payroll tax burden is certainly something that will continue to pose a challenge for policy-makers. Nevertheless, an environment of more urgent need for fiscal consolidation dims any near-term outlook for major helpful changes with regard to the tax burden on labour, Vaňo said.
“No matter how unflattering or cruel it might sound, the low level of labour code flexibility is something that might provide politically palatable job security to the voters. On the other hand it might provide a roadblock for the employers when they decide whether the resource needs of ongoing recovery should be met by a revival in hiring, or rather by squeezing higher productivity from the existing capacity of their current payroll,” Vaňo told The Slovak Spectator. He added that there is empirical and research evidence that economies which keep the labour code flexible enough with regards to firing, usually also enjoy a more flexible and faster response in terms of hiring – such as in the US. On the contrary, those economies which have overly protective employment security – such as France – face not only lower productivity and flexibility, but also the reluctance of employers to hire new workers.

According to Vaňo, a remedy to the unemployment rate which goes well beyond the labour market is creating a conducive environment for establishment, growth and expansion of small and medium-sized enterprises (SMEs).

According to the Kafmann Foundation research, the prevailing majority of new jobs generated in the US over the past few decades were in companies younger than five years. When discussing economic growth prospects, but also job creation, it is necessary to revert to the topic of entrepreneurship and creating an environment conducive not only for inflow of large and incentivized FDIs, but also for the emergence and flourishing of indigenous local SMEs, Vaňo noted.

Education for business

However, changing the Labour Code is not the only requirement that businesses see as a necessity for the labour market to experience a substantial revival and hence become much more effective. Observers particularly note that the characteristics of those unemployed rather than their numbers might be the core of the problem, because long-term unemployed and new school graduates, two groups of job seekers who can find it difficult to find employment, currently make up the largest portion of the jobless. In this respect, the proposed reductions in the number of state employees might further compound the situation.

“We believe that there is a certain discord on the Slovak labour market between the structure of the vacant job positions and the nature of jobseekers,” Poštová Banka analyst Eva Sadovská told the SITA newswire. “It might perhaps not do harm if high schools and universities cared more about the needs of the businesses.”

Sadovská said that a gradual decline of the unemployment rate is expected in the coming months too, in reaction to the revival of the Slovak economy.

Luboš Sirota, the general director of Trenkwalder, also admitted that graduates at the moment represent the hardest-to-employ group of jobseekers.

“The reason on one hand is the missing work habits, on the other hand also the insufficient interconnectedness of their education with the needs of the employers,” Sirota told The Slovak Spectator, adding that most of the unemployed graduates are those who graduated in humanities.
According to Profesia’s Burianová, the most desired graduates on the labour market, as per the job offers posted on the job portal, are those who finished studies in commerce, IT, administration, economics, finance and accounting. The most-frequently offered job positions are sales representative, administration staff, business manager and programmer.

In its programme statement, the government has voiced an obligation to be more effective in motivating universities to cooperate with the business sector and to gaining finances from private sources.

The availability of skilled labour was one of the major reasons for the high inflow of foreign direct investment during the first half of the decade.

“In fact, demand was higher than the Slovak labour market was able to provide,” the German-Slovak Chamber of Industry and Commerce (DSIHK) spokesperson Markus Halt told The Slovak Spectator. “As a result, the lack of skilled labour even slowed down the expansion plans of some investors in the pre-crisis years, particularly in the industrial sector.”

According to Halt, the number of graduates from Slovak universities and vocational schools on its own would have been sufficient to close the gap but unfortunately employers often complain that these individuals are not sufficiently well-prepared for a profession. In a survey among German, Austrian and French investors, the quality of education in universities and vocational schools was rated as one of the 10 worst local factors in Slovakia.

“Employers criticise the lack of combination of theory and practice, which frequently forces them to training on the job,” Halt said. “This is especially true for industrial engineering on the vocational level. For certain professions, such as varnishers or mould makers in the automotive industry, companies have to rely completely on training on the job or seeking partnership with vocational schools.”

Vaňo remarked that the lack of a qualified labour force was an emerging issue back in 2007, but after the recession hit the economy, the situation somewhat improved, particularly thanks to the return of many highly qualified Slovaks with a good education and extended experience from abroad.
Halt agreed that the economic crisis and its consequences turned the situation on the labour market into another direction last year.

“Recently, more employers from the industrial sector have been looking for new staff,” Halt said. “According to the latest survey, conducted by the German-Slovak Chamber of Industry and Commerce in September, the overall availability of skilled labour still is satisfactory. The number of industrial companies observing a poor availability of skilled workers and engineers in particular is rising, however.”

Observers speak in one voice regarding the targeting of university education, repeating that the cooperation of academia with businesses is essential in achieving the needed overlap of the skills and qualifications produced by universities with the needs of the business sector.

“When speaking of skills and qualifications, this very often includes topics well beyond just mastering the academic content of core subject textbooks: e.g. presentation skills, negotiation acumen, social and team working skills, but very often plain good quality verbal and written communication skills – in the respective field of expertise – are sometimes lacking,” Vaňo said. Moreover, it is paramount to ensure ongoing, efficient and timely communication between academia and businesses, since it is too late to discover the need for adjustment in curriculum regarding the feedback from past graduates in case they hit a hard place on the job market, he added.

“A typical and traditional way to ensure such a timely, efficient and ongoing communication between businesses and academia is either via company sponsored professorships, distinguished guest speaker lectures by business leaders, or via boards of advisors populated by senior business leaders,” Vaňo explained.

According to Halt, the Slovak educational system is lacking an essential pillar which secures practical training. He compared the situation to German-speaking countries, where vocational training consists of attending theoretical lessons in schools and practical lessons in companies on a balanced schedule.

“We suggest implementing inter-company vocational training facilities, which offer a joint curriculum of theoretical and practical training,” Halt said. “As education is a national objective, the state should support such facilities. Their integration into the educational system also needs to be flanked by acknowledging the degrees.”

Foreign investors therefore are actively involved in shaping the education in this direction. DSIHK and other foreign chambers of commerce as well as some well-known investors currently are working together on creating an inter-company vocational training centre in Bratislava which will be targeted to students of industrial engineering.

DSIHK has also installed a committee for labour-market related issues in which German companies exchange their experience, also in terms of educational matters, Halt said. As a result, DSIHK organised a job fair at the Slovak University of Technology in Bratislava and developed an online market for internships at German companies in Slovakia (“jobXchange”).

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

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