cee overview - labour & employment

2020 | roadmap

Overview of the labour market and labour law trends in CEE

Central Eastern European countries have seen accelerated economic growth over the past year and the trend seems set to continue in 2019. This generally has a positive impact on their labour markets, the pace of foreign investment and general economic activities, such as transactions, sales of enterprises and restructuring.

But there are significant differences in each country's economic development, history and labour market. While Austria is one of the EU's strongest economies, other CEE countries are in an earlier stage of development. What's more, CEE countries acceded to the EU in several waves (2004, 2007 and 2013), while some, like Serbia, Montenegro and Turkey, are still negotiating the terms of their accession.
At the same time, all CEE countries are part of the global economy and global trends and challenges in employment law impact the region and each country's legislation.

Labour market trends – growth in employment, labour shortages
In the current economic climate, CEE labour markets continue to improve. In Austria, the number of people employed rose by 2.4 % in 2018, while the unemployment rate decreased by 0.6 %. Other CEE markets have also reached their lowest levels of unemployment and most enjoy unemployment rates lower than the EU average.
At the same time, many CEE countries report labour shortages in certain sectors, especially in blue-collar positions. In Poland, for example, so-called structural unemployment has begun to develop, with a relative dearth of blue-collar workers compared to a surplus of white-collar workers. A rising number of companies are citing labour shortages as a barrier to their expansion in the region, with job vacancies being especially high in the Czech Republic and Hungary. The same is true for Bulgaria and Romania, especially in the construction and development sectors.
This situation is a result of several factors, such as huge demand for workforce, a low birth rate and emigration (brain drain) to Western Europe by workers seeking higher wages.
Despite impressive growth figures, many companies in the CEE region are contending with workforce issues. They need to accept the greater wage bargaining power of their employees and are forced to accept higher compensation costs so that wage increases often exceed labour productivity gains. Still, regional labour costs remain much lower than in most Western European countries, which on average are more than three times higher than in CEE countries (not including Austria).
Legislators in CEE countries have responded to the above challenges by extending the number of people accessing the labour market, for example, by increasing the retirement age (Croatia), encouraging the employment of specific less active employee groups, increasing minimum wages (Czech Republic), increasing the amount of overtime work that may be ordered (Hungary), etc. An interesting statistic is the relatively lower participation of female employees in the labour market of CEE states compared to Austria, where female participation exceeds 70 %. This figure is still low in Hungary (59 %), Croatia (59 %), Romania (54 %) and Serbia (54 %).
To prevent structural unemployment, several countries are aiming to improve their vocational training system with specific trainings aimed at existing workforce.

Labour legislation – global or European trends in the region
The CEE region is also part of the global economy and subject to global trends affecting employment law globally. This primarily includes the rapid spread of alternative forms of employment, such as teleworking, home-office, application-based working and the gig economy.
This presents a constant challenge to the standard regulations governing employment and several countries have adopted or plan to adopt regulations in that regard.
Another trend that continues to raise questions is the application of the GDPR in an employment context. While Article 88 of the GDPR may allow Member States to provide more specific rules to the processing of employees' personal data (e.g. for the purposes of recruitment, planning and organisation of work, occupational health and safety, etc.), not all CEE countries have exercised this option.
In most jurisdictions, however, companies have been given a grace period to comply with the GDPR requirements. Nevertheless, this trend will come to an end as the authorities' enforcement and control measures become more stringent. There will be a significant need for legal advisory regarding GDPR compliance issues at the workplace, an advantage for law firms with regional geographic coverage, as they can offer clients harmonised solutions that have already been tested or applied in other countries.

Transaction, restructurings – increased activity
There was an increase in transactions and restructurings in the region in 2018 and 2019, from which our CEE-wide Labour & Employment practice group benefitted vastly. Nevertheless, there is growing uncertainty about the global economic outlook, which effects investments in the region despite its healthy fundamentals. A slight economic slowdown or downturn may attract investors to restructuring opportunities particularly in the manufacturing and retail industries.
Also, the development of manufacturing processes and the increased use of AI and machinery technologies in the workplace is likely to eliminate or transform certain jobs, which may again lead to restructuring and redundancies in several industries. To demonstrate our Labour & Employment practice group's capabilities, we have prepared a "Restructuring Map" that shows the triggers for collective redundancies and some basic information on the process for the entire CEE region in an easily digestible and comparative map that you can find in the next pages.