Wages Are Rising in Hungary, Poland, and the Czech Republic

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At WSJ, "Labor Shortage Lifts Wages on Europe’s Eastern Flank":

Unlike in some Western economies, wages are rising fast as workers grow scarce in Hungary, Poland and the Czech Republic https://t.co/kX0itdZkNo

— The Wall Street Journal (@WSJ) September 29, 2018

Unlike in some Western economies, wages are rising fast as workers grow scarce in Hungary, Poland and the Czech Republic.

BUDAPEST, Hungary—Akos Niklai says he has increased wages at his historic restaurant in downtown Budapest by around 20% in each of the past three years. He still struggles to retain staff.

The Hungarian businessman was recently forced to stop serving lunch on Sundays due to a worker shortage. Unemployment in this nation of 10 million people is at an all-time low of 3.6%, down from 10% five years ago.

“It is very hard to find labor in Budapest,” said Mr. Niklai. “Wages are still not high enough.”

In a half-dozen countries across Central and Eastern Europe, hourly labor costs are shooting up by 9% or more a year, defying a trend of weak wage growth that has bedeviled many advanced economies for years.

The increases seem to answer a question economists have been puzzling over for several years: Does low unemployment still cause wages to rise?

In many Western economies, that notion has been tested by slow wage growth despite falling jobless rates. But in places such as Hungary, Poland and the Czech Republic, supply and demand appear to be pushing up wages as labor becomes scarce.

“These fundamental economic mechanisms are still working,” said Nigel Pain, an economist in Paris with the Organization for Economic Cooperation and Development. “If labor markets tighten we will see some pick up in price pressures.”

The wage increases are also putting pressure on Eastern European leaders—many of whom have called for stricter limits on immigration—to allow in more workers or risk lower future economic growth.

In Poland, for example, job vacancies are at a record high, and more than 40% of manufacturing firms say labor shortages are limiting production, according to a March OECD report. Poland’s ruling party has opposed immigration from Muslim countries, and the European Union has sued Poland and other countries for refusing to accept refugees under an EU-wide relocation plan.

“Wage pressure is rising,” said Andrzej Malinowski, the president of Employers of Poland, a business federation. Around 40% of large Polish companies employ workers from neighboring Ukraine, and 30% intend to hire Ukrainians in the near future, said Mr. Malinowski.

Migration patterns have been a major factor behind the wage boom. Labor is particularly scarce in the former communist states because workers have been migrating to Western Europe, where they can earn more. And limits on immigration from outside the EU add to the labor squeeze.

Low unemployment has also given workers more bargaining power. In the Czech Republic—where unemployment is 2.3%, the lowest in the EU—average wages grew by around 6% year-over-year in the three months through June, after adjusting for inflation, close to a 15-year high. Workers at Skoda Auto, the Czech unit of Volkswagen AG , recently got a pay raise of 12% and bigger bonuses.

Amazon.com Inc. announced in early August that it would sharply increase hourly wages for its workers across the region—by between 5% and 11% for staff in the Czech Republic, by up to 17% in Poland and by as much as 20% in Slovakia, a spokeswoman said.

“Eastern European countries are trying to persuade workers not to leave,” said Dan Bucsa, an economist with Italian bank UniCredit who focuses on the region...

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