Halving Unemployment: Poland in the 2000S in 2004 at the Growth And

E. Karwowski – Labour Market Analysis 2010 “Halving unemployment: Poland in the 2000” Halving unemployment: Poland in the . Turning from passive to active labour 2000s market policies and introducing special measures for those difficult to employ Reducing unemployment is policy priority in (young, inexperienced, unskilled or South Africa long-term unemployed, single parents, In 2004 at the Growth and Development disabled individuals or ex-offenders). Summit South Africa set out to halve An extensive subsidy scheme was unemployment by 2014. At that time the introduced in 2002 to address youth unemployment rate was 28 per cent. While unemployment. many countries have halved unemployment, these are often from a relatively low level Employment growth between 2003 and (for example, Korea reduced unemployment 2007 added 2.2 million jobs to the Polish from 8% to 4% during the 1960s and economy. This was possible because of the 1970s), however, there are relatively few economy’s strong performance with growth examples of countries achieving such a averaging above 5% per annum. Yet, growth dramatic fall in unemployment as required does not automatically translate into job by South Africa. Poland is one of these creation. Indeed Poland itself experienced countries, which makes it a pertinent high unemployment that persisted at levels country to study and learn what policies above 10% during the 1990s despite strong helped lower unemployment so successfully. growth. Complementary policies – such as conditional unemployment benefits, more What can we learn from other countries? – The flexible labour legislation and active labour case of Poland market policies – were introduced to ensure Poland had an unemployment rate close to that economic growth supported strong job 20% in the early 2000s, which was halved creation. This multi-pronged approach by 2008. Half of the unemployed had been provides some useful examples for South out of jobs for over a year (long-term Africa to learn from. unemployed) and the youth unemployment rate was 40%, which bears close The origins of Polish unemployment resemblance to the current situation in South After the disintegration of the Soviet bloc, Africa. The analysis below highlights a unemployment in Poland doubled from number of policies that helped to achieve 9.9% in 1998 to a peak of 19.9% in 2003 this outcome1: despite strong growth (on average >5% . Tightening unemployment benefits and annually) during the 1990s. However, this turning them into conditional grants. increase was successfully reversed between Such reforms were introduced during 2003 and 2008 as the economy continued to the mid-1990s in order to reduce grow strongly and the authorities reservation wages and increase labour implemented policies to promote job supply. creation (see graph 1). Poland has also . Increasing labour market flexibility managed to contain the impact of the recent particularly with respect to restrictions economic slowdown on employment better on temporary employment. A relaxation than many other countries. of labour regulations was introduced in 2002, to the benefit of young and low- Poland struggled with high unemployment skilled job seekers in particular. for youth and a high incidence of long-term unemployment. In 2003 when the unemployment rate reached its peak, a 1 There is little evidence that accession to the EU quarter of all those unemployed were aged explained the fall in unemployment. The between 15 and 24 years. This translated to significant net job creation highlights that unemployment fell because new jobs were created rather than through the replacement of workers emigrating to the EU. 1 E. Karwowski – Labour Market Analysis 2010 “Halving unemployment: Poland in the 2000” an unemployment rate of 43%.2 In addition, A major driver behind the job creation was more than 40% only had basic vocational temporary employment. More than three training, illustrating the predominance of quarters of new jobs created between 2003 lower skilled unemployment. At this time and 2007 were based on temporary contracts almost half of the unemployed were jobless (although less than 2% were signed through for over a year implying structural problems temporary work agencies).4 This in the labour market. development coincided with a relaxation of labour regulations in 2002 when the duration Graph 1. Unemployment in Poland, 1990- of temporary contracts was extended and 2009 allowed to exceed 6 months (including 25 Unemployment renewal). GDP 20 Poland’s policies to boost employment 15 Poland introduced a set of active labour 10 market policies in 2004 passing the Act on 5 the Promotion of Employment and Labour Market Institutions. Labour market Annual percentage change Annual 0 institutions were re-oriented away from a -5 focus on paying unemployment benefits towards promoting employment. -10 Simultaneously, under-25 year olds were identified as a main target group for Source: GUS (Main Statistics Bureau, Poland), World government policies. Bank. Polish labour market trends, 2003-2007 i) Reform of the unemployment benefit Poland halved its unemployment rate system between 2003 and 2008 creating more than After its reform in 1995, Poland’s 2 million jobs. During the period 2003-2007, unemployment benefit system became for which detailed data are available, Poland relatively stringent. In the early 1990s, lowered its unemployment rate by more than school leavers were eligible for fixed rate 5 percentage points - 2.2 million jobs were unemployment benefits (equivalent to the created and the number of unemployed fell 3 minimum wage) regardless of their work by 2 million. Almost a quarter of the experience.5 After the reform this was reduction in unemployment was among the young (15-24 year olds). More than 700 000 jobs were created in Polish manufacturing, almost 400 000 in construction and 300 000 4 These figures refer to employees only and in the trade and repair sector. The latter exclude self-employed individuals. sectors are more intensive in the use of less- 5 Persons are eligible for benefits if they have skilled labour and therefore helped alleviate worked (employed or self-employed) for at least the unemployment problem around low 365 days over the last 18 months. The benefit skilled workers. Employment of people with will be granted if, within a week from general secondary education or less registration, the labour office cannot provide the increased by 30% during 2003-2007 making claimant with employment or an employment programme. People receiving retirement, up one third of all job creation. maternity leave or sickness benefits cannot register for unemployment benefits. The period of benefit payment cannot exceed 18 months and 2 In South Africa 31% of the unemployed are 15- depends on the regional unemployment levels 24 with a youth unemployment rate of 50%. with longer payment periods in regions with high 3 The number of new jobs exceeds the reduction unemployment rates. Drawing the remainder of in unemployment because of the growth in the unemployment insurance is possible if labour force. participants enter employment but lose their job 2 E. Karwowski – Labour Market Analysis 2010 “Halving unemployment: Poland in the 2000” changed, introducing a flexible system that it is kept for 2 to 3 years (in the case of conditional on the period worked. This SMEs and large companies, respectively). might have reduced reservation wages particularly among the young and b. Public works inexperienced work force. In contrast, health-insurance continues to be practically This programme targets the same groups as unconditional. the intervention works programme with the exception of the young. Participants are ii) Active labour market policies employed through local government or non- governmental organisations in activities In 2002, the Polish government introduced such as environmental protection, culture, the ‘Entrepreneurship – Development – education, health care, unemployment or Work’ economic strategy, which placed a social assistance and by water companies. strong emphasis on active labour market Work is provided for a maximum of 12 policies. The strategy aimed to accelerate months with the reimbursement of wage the pace of GDP growth gradually to 5% by costs capped at 50% of average wage in the stimulating entrepreneurship and reducing economy. unemployment. Funding was provided out of federal and regional budgets but also via Generally, public sector efforts were not the the European Social Fund (ESF). European principal method to absorb the unemployed Union funding is extensive amounting to since the number of government employees EUR9.7bn for the period 2007-2013. Most decreased by just over 8% from 2003 to of the funds go towards measures to 2007, while private sector employment rose encourage employment creation and human by more than 40%. capital improvement. c. Work experience a. Programme of intervention works Young unemployed individuals can work for The programme provides subsidised work to an employer without a work contract for a unemployed people mainly focusing on the period between 3 and 12 months. The young (under-25 year olds), long-term participant receives a ‘scholarship’ of 140% unemployed, women post-maternity leave, of the unemployment insurance benefit. over-50 year olds, unskilled labour, the unemployed without work experience as d. Vocational preparation at a work well as single parents, ex-offenders and place disabled unemployed. Wage costs are reimbursed to employers on a local level. The

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