Changes to education necessary to fix high structural unemployment
With a gradual decline in the unemployment rate and a steady rise of the number of jobs to choose from Slovakia’s labour market experienced a successful year in 2015.
But the new situation on the market has underlined the paradox that employers struggle with: despite its gradual decline, the unemployment rate remains high, while employers complain about the shortage of qualified and skilled labour. Companies now pin their hopes on new legislation that introduced elements of dual education. Analysts see the economic development in countries that are Slovakia’s major trading partners as the key factor for the development on the local labour market.
Back to the pre-crisis level
Branch managers of Grafton Recruitment agree that the year of 2015 was turbulent, with the IT sector expanding and increased demand for workers for the production sector reaching pre-crisis levels.
“The labour market experienced a significant revival,” said Michal Batis, Grafton branch manager in Bratislava. Under the influence of new investments and projects, regions reported higher demand for specialists for technical positions, IT, HR, accounting, administrative workers with a good knowledge of languages, and workers to take care of clients - among other fields.
“There is a significant lack of IT specialists, especially developers of concrete programming languages, but also technical specialists and qualified manufacturing workers,” Dana Blechová from Blechova Management Consulting told The Slovak Spectator, adding that truck drivers and warehouse workers have been missing from the labour market for a longer period of time, too. Companies mostly search for graduates from technical schools, either secondary schools or universities, according to Blechová.
“This reflects the need of the labour market where workers for the production sector, IT but also service shared centres (SSCs) are being sought,” said Blechová, adding that in terms of the latter the knowledge of one or even more foreign languages is more important than even general education level. Graduates of universities with an economic focus also have a good chance for employment, said Blechová, while employers choose graduates also according to evaluation rankings and the reputation of schools.
“There are schools that are known for their low quality of studies and their graduates often end up at labour offices after graduating,” said Blechová. This is why it is important for students not only to choose the right study field but also a quality university.
But a look at statistics from the end of October 2015 indicates that pupils or their parents have hardly taken recommendations of HR experts to heart. Based on data of the Education Ministry, only 39,686 people study in fields focusing on natural sciences and technical sciences and out of a total of 162,568. On the other hand, more than double, 89,305 studied social sciences and related disciplines. In the case of secondary schools, out of 230,761 students, 65,944 studied fields focusing on natural sciences and technical sciences and disciplines, as compared to 138,964 studying social sciences.
A poor choice of school is one reason that unemployment remains particularly high in some regions, and some businesses in the country have problems finding a skilled labour force for the positions they need to fill.
“This paradox exists in Slovakia perhaps even more than in other countries of our region, due to archaic methods of schooling, untargeted education in sectors that have no application in Slovakia,” Pavol Strapáč, country finance manager at Adecco, told The Slovak Spectator. Slovakia’s labour market stops functioning at the unemployment rate around 9 percent, Luboš Sirota, CEO and general director of McROY Group, pointed out while this is approximately double the rate that is common in more advanced economies.
“The reason is the bad structure of Slovakia’s unemployed, in combination with low mobility of the work force,” said Sirota.
Slovakia is a country where automotive and machine industries are expanding, but the education is not able to produce a sufficient number of engineers.
Another sector that struggles with the lack of qualified labour force is IT, say HR experts.
“There the main reason is the inappropriate structure of the Slovak university education, which produces too many graduates in sectors like social work or pedagogy, while technicians are missing,” Sirota told The Slovak Spectator.
Strapáč also noted that there are too many people unable to find a job in the area of humanities.
“The solution would not just be declared, but really close cooperation between the real market and schools,” Strapáč told The Slovak Spectator.
Another related problem is the unwillingness of Slovaks to travel for work.
“A well-functioning system of connections between schools and companies, and a bigger support for commuting for work on the part of employers and the state could help,” Miroslav Garaj, country manager for Grafton Recruitment Slovakia, told The Slovak Spectator.
Companies in the most industrially advanced regions of Slovakia (Bratislava, Trnava, Trenčín, Žilina, Košice) are the most affected by this.
There is a very high portion of people who lack almost any working skills and are therefore almost unemployable, according to Mario Fondati, partner of Amrop. SSCs are also operating on a highly competitive market for a qualified labour, he noted.
“Many companies therefore have to hire people that need a lot of additional training or are trying to attract people from outside of Slovakia,” Fondati said.
Expectations are prospective
Economic forecasts are optimistic and count on keeping the economic growth that is significantly higher than the average of the euro area countries, Ivana Molnárová, executive director of the biggest job portal in Slovakia, Profesia.sk, told The Slovak Spectator.
“It is thus possible to expect that the positive development in the labour market will continue also during 2016,” she said.
Molnárová described 2015 as an exception when the number of new work places increased by almost one-third compared with 2014 and the jobless rate reached the lowest levels since 2009. She believes that it will be easier for job seekers to get a job while those who are employed but eager to change their job will have more opportunities to do so.
On the other hand, the situation for companies will be more complicated as for them it would become more difficult to fill their vacancies with suitable people as well as to keep their employees.
“Competition between companies will sharpen significantly,” said Molnárová, adding that this will happen especially in sectors which already report labour shortages and which require high qualifications.
In terms of what positions will be required in 2016, Grafton expects the year to mimic 2015.
“We assume that several companies will have a tendency to innovate the production process with the aim of reaching a higher automation of production with stress on lean production and optimised processes,” said Marian Mitošinka, branch manager in Trenčín. “Thus we expect a demand for process engineers, quality controllers or project managers.”
Personnel professionals for Grafton in the Bratislava Region expect that the IT sector will be on the upsurge while
there will be a persisting demand for .NE, iOS and Android developers. SSCs and business process outsourcing keeps growing and firms will look for leaders and language specialists. In production, they assume more positions in R&D while employers in eastern Slovakia are looking for such workers too. Candidates with little chance of getting a job include those with non-technical education without knowledge of at least one world language. Graduates of non-preferred study fields like social work, environmental management, security management, leisure time animators, tourism, public administration or mass media communication will have difficulties. There is a persisting problem with the number of graduates in the legal and psychological fields, according to Grafton.
“We often meet with candidates without a chance to find an appropriate job,” said Anna Ričányová, regional manager of Grafton Recruitment in Košice, adding that this is true mostly for graduates of managerial programmes, lawyers, teachers, translators, graduates of political sciences and international relations. “In case of these graduates we build many times on the knowledge of foreign languages and they find jobs, for example in client service.”
But Jana Šimková, the manager of the division of finances and banking at Grafton Recruitment, added that it is not enough to study the proper field when employers often require candidates with experience. Employers also welcome language studies, trainings and internships at employers abroad.
“A significant benefit is their participation in various programmes, competitions and participation in projects and activities outside school,” said Šimková.
Slovaks abroad as a resource
The education sector and the unemployed are the most often mentioned untapped resources on the labour market. Drawing Slovaks back from abroad and employment of older people are other possibilities. Companies searching for qualified workers are already actively searching for and addressing candidates among Slovaks living abroad, according to Blechová.
“Most of them are satisfied on their with place of work,” said Blechová, adding that those with family contacts back in Slovakia or those who are not so successful abroad may be responsive.
Sirota sees luring Slovaks back home from abroad as a very complicated goal because such people do not have any relevant reason to return, other than homesickness.
Martin Krekáč, chairman and owner of Jenewein Group and senior partner of Amrop, cites the global index of competitiveness of talents, in which Slovakia ranks in the top third out of more than 100 countries. Krekáč believes Slovakia cannot get by without hiring workers from abroad for certain positions. In this sense immigrants may be a chance for Slovakia, “if they as well as we will manage to set up mentally for this process”.
Employment of foreigners is showing to be only a temporary solution because after these people find out what the situation in Slovakia is, they move westward for higher earnings, according to Sirota.
“Employing foreigners, because of the lack of a qualified labour, will be inevitable unless an economic crisis occurs again,” Rastislav Machunka of the Federation of Employers’ Associations (AZZZ) told The Slovak Spectator.
Plenty of unused sources
Blechová also sees a so-far unused potential in hiring older people, as companies often prefer younger candidates who are less loyal and experienced and often more expensive.
“I know many qualified older candidates for higher managerial positions who were not able to find a job in Slovakia for more than half a year and nobody even invited them for a job interview and now they have even more interesting jobs in Austria, the Czech Republic or Germany,” said Blechová.
Sirota believes that there is a plenty of unused resources on the labour market.
“But the problem is that many of those people do not want to work [under real conditions],” he said.
About 100,000 unemployed only have primary school education and the labour productivity of many of them would be so low that it would not be advisable for employers to employ them even for minimum wage. Scrapping the minimum wage and introducing a concurrence of salary and social benefits would help these people to find a job, according to Sirota.
Sirota also pointed to the low mobility when people from so-called hunger valleys with high unemployment rates do not want to commute or move for work, while on the other hand, they often have nowhere to move.
“For example, a seller will get less than €20,000 for a three-room apartment in Rimavská Sobota [in a hunger valley], a sum for which he cannot acquire his or her own housing in western Slovakia,” said Sirota and suggested that more intensive construction of rental housing would help.
Dual education and more targeted education of students tailor-made to the needs of employers is a solution that could bring additional resources to the labour market, according to Krekáč, as currently many graduates end up unemployed.
Molnárová of Profesia.sk says that academia is not interconnected with practice.
“Young people often study fields that will not help them find a [proper] job on the labour market,” said Molnárová. “As a consequence also companies are unable to find employees with a suitable profile, which forces them to search for employees outside Slovakia and motivate them to move in.”
Employers also see the education sector and flexibility of labour market as areas for improvement.
Slovakia closed 2015 with the registered unemployment rate, the rate of those who were prepared to take a job immediately, at 10.63 percent. In annual terms, the jobless rate fell by 1.66 percentage points. The average registered unemployment rate in 2015 amounted to 11.50 percent, which was 1.29 percentage points less than in 2014, the Central Office of Labour, Social Affairs and Family (ÚPSVaR) announced in mid-January.
“If we sustain this pace, we can attack the magical 10-percent threshold as early as the summer,” said Prime Minister Robert Fico.
Labour Minister Ján Richter added that for the first time since 1990, the number of jobless in December was not higher than that registered in November while he put the economic development as the key factor for this.
In absolute numbers, the number of jobless ready to take a job immediately stood at 286,825 in December 2015, down by 44,908 people compared to December 2014.
The total unemployment rate in December 2015 was 12.40 percent, down by 1.45 percentage points in annual terms. The labour offices registered a total of 334,379 jobseekers, a drop of 39,375 people year-on-year.
Bank analysts ascribe the decline in jobless rate to favourable developments in Slovakia’s economy, with growth dynamics in 2015 that were the highest since 2010. Dominika Ondrová, an analyst with Poštová Banka, indicated that spending last EU funds from the 2007-2013 programming period and a milder winter might be behind the faster decline of unemployment.
“In spite of the positive development the unemployment rate in Slovakia still ranks among the highest within the whole EU,” Ondrová wrote in her memo, when only seven members of the EU reported a double-digit jobless rate in November 2015.
Vladimír Baláž from the Institute for Forecasting of the Slovak Academy of Sciences points out that while the jobless rate in Slovakia, compared with other EU countries, is quite high, most of these unemployed are unemployable. He estimates the natural rate of unemployment in Slovakia at between at 8-8.5 percent. Even when the Slovakia’s economy grew 10.4 percent in 2007, the unemployment rate was 11 percent.
“We are close to this bottom [of the natural rate of unemployment],” Baláž told The Slovak Spectator. “Such a rate includes people who have low education or do not have it at all, and these people simply will never work and can only transition into retirement. Such unemployment simply cannot be reduced.”
Bank analysts expect that unemployment would continue to decrease in 2016 while the registered unemployment rate may decrease below 10 percent. They expect positive effects from the arrival of the fourth carmaker to Slovakia, too. The British carmaker Jaguar Land Rover (JLR) plans to build a brand new plant near Nitra and employ around 2,800 people in the new facility, while thousands of jobs are expected to open with subcontractors.
“We assume that the positive trend on the labour market will continue also during 2016,” said Ondrová as cited by the TASR newswire. “This is because the Slovak economy should continue to grow at a solid pace; conditions for the growth of consumption should persist.”
According to McRoy Group, the growth of employment should be supported especially by increasing performance of the Slovakia’s economy and the growing demand for Slovak products on Slovakia’s export markets. Thus industrial production, specifically the sectors of automotive and machine engineering, should generate the most new jobs. Traditionally, the strongest growth is expected for the regions of Bratislava, Považie and Košice.
“Later we expect also a significant increase of employment in Nitra and its vicinity; the reason will be the announced investment of JLR,” said Sirota. “But this will happen only after 2016 because the construction of the plant and induced arrival of subcontracting companies will take time.”
Ľubomír Koršňák, an analyst with the UniCredit Bank Czech Republic and Slovakia, warned that the structure of unemployed may slow the decline in unemployment as there are still many long-term unemployed without work experience or qualifications.
Slovakia keeps registering high long-term unemployment and those without a job for more than one year made up 51.7 percent of all the unemployed. Ondrová of Poštová Banka sees the low or unsuitable qualifications of these people as preventing them from finding a job.
“Another factor is that we will find long-term unemployed especially in districts with a high jobless rate where it is in general difficult to find a job,” Ondrová wrote in her memo, adding that the longer a person is jobless the more difficult they find it to get a job. “This is because employers are afraid of lack of work habits in the case of these people and thus they avoid hiring them.”
Molnárová of Profesia.sk traces long-term unemployment back to the1990s when, “as a consequence of the economic transformation a lot of people lost their jobs and afterwards they failed to establish themselves on the labour market under new conditions”.
Sirota of McROY Group sees the bad structure of the unemployed behind the high long-term unemployment, who have a low qualification and in case of part of them it actually cannot be found out for what positions they would fit as they have not yet worked at all.
“Apart from this such people have practically no work habits and they do not search for job actively,” Sirota told The Slovak Spectator, adding that some subsist on social benefits while earning extra money via short-term contracts and are not interested in full-time work.