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Poland’s ruling party pledges big minimum wage rise to woo voters

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Via Financial Times

Poland’s ruling Law and Justice government is offering a sharply higher minimum wage if it wins re-election on Sunday — renewing its vote-winning platform of support for the poor but setting the country’s businesses on edge.

The conservative-nationalist party swept to power four years ago with a promise to dramatically expand public welfare spending. This time, it says the minimum monthly wage would increase in steps from 2,250 zlotys (€511) today to 4,000 zlotys by the end of 2023 — a 78 per cent jump.

The party’s leaders claim this will provide a fairer deal for workers and foment radical change in the model that has powered Poland’s economy for the last three decades.

“We want to close the chapter [in which Poland was] a country of low wages and cheap labour,” Poland’s prime minister, Mateusz Morawiecki, told Poland’s state press agency (PAP).

“The authors of Poland’s growth model during the transition were even proud that the fruits of Polish growth largely went abroad or to Poland’s economic elite, and not the wallets of the majority of Polish society . . . We want to build a country of prosperity, and in the medium or long term, make Poland the best place to live in Europe.”

Business leaders agree that Poland’s economic model should rely less on cheap labour. But many question whether raising the minimum wage will have the desired impact and fret that the speed will be too much for small business. According to Alicja Defratyka, senior analyst at Spotdata, the lowest wage will rise to about 60 per cent of the average wage in 2023 — the highest share in the OECD club of mostly rich nations.

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“For sure there will be inflation, some lay-offs . . . and also bankruptcies of some small companies, because they won’t be able to pay the [higher] wages,” she said.

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The raise — which will mainly affect sectors such as retail, restaurants and the hotel industry, and also some public sector workers — will put daylight between Poland and the rest of the region. Poland’s minimum monthly wage was €502 in 2018 compared with €480 in Slovakia, €477 in the Czech Republic and €445 in Hungary.

Karol Pogorzelski, an economist at ING, said that while Poland had scope to increase salaries — wages equate to 39 per cent of economic output in Poland, compared with 48 per cent in the EU — the speed of the increase planned by Law and Justice meant some businesses would simply find ways around the rule rather than paying higher wages.

“It won’t solve the problem of inequality and the working poor and will create another one, namely skewed competition between companies that can get away with not complying with the minimum-wage rules and those that can’t,” he said.

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Business leaders also warn of possible unintended geographical effects. The higher threshold will prove far more demanding in Poland’s poorer east than in cities like Warsaw and Gdansk, where most jobs already pay more.

“There will be a mix of reactions. But one thing is for certain: the countries that tried before us to raise the minimum wage so fast . . . experienced an accelerated decline in employment in poor regions, and a migration to bigger companies,” said Jeremi Mordasewicz, from Confederation Lewiatan, an employers’ association.

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Piotr Bujak, chief economist at PKO BP, a bank, said that while the change would put pressure on margins in labour-intensive businesses, it could ultimately help Poland transition to a higher-value economic model.

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“Given the overall demographic challenge for this country it may be positive in the long term because it will foster the process of shifting labour from less productive to more productive sectors. The key is not to do this shift too abruptly,” he said, adding that it was possible that the government could ease the schedule for the wage rises.

Other economists argue that Law and Justice’s plans would simply encourage companies in low-value parts of the economy to replace workers with mechanisation — while doing little to shift investment towards higher-value, more innovative sectors.

“This is not solving the problem of economic competitiveness, because it is not these low-skilled labour-intensive sectors that decide the competitiveness of the economy,” said Witold Orlowski, chief economic adviser to PwC in Poland.

Mr Pogorzelski is also sceptical. “It would be nice to have more investment and more value added in the economy, but I’m afraid that [simply raising the minimum wage] is not the way to do it,” he said. “Everyone wants to fuel economic growth, but if it was so easy, we’d all be rich by now.”

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