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How much will salaries increase?

Considering the low level of unemployment, the situation of Polish employees is already very good. In the forthcoming years we can expect not only more job offers, but also increasing salaries – comments Piotr Lonczak, Cinkciarz.pl analyst.

Piotr Lonczak, Cinkciarz.pl analyst

The two prior years in the Polish labor market were really successful. The unemployment rate reached its lowest level since 2008, the year in which the worldwide financial crisis began. Moreover, employment in the Polish companies expanded to record sizes. According to the Eurostat data, 16.3 million Poles had a job at the end of 2015. All that is needed for full satisfaction is an increase in salaries.

Wage paradox

A surprising phenomenon can be observed in the Polish labor market. In the years 2014-2015, salaries increased 3.8% and 3.5%, respectively (an average of 3.65%). On the other hand, in the years 2009-14 the average increase in salaries was 3.76%. This means that wages grew faster during the time of unemployment increase, rather than during its decrease.

At a certain point this fact may be explained by the completely different level of inflation at that time. Shortly after the crisis in 2008, the pace at which the prices in Poland grew was approximately 3%. On the other hand, a decrease in unemployment in the past two years overlapped a record low inflation, which reached a negative level for the first time since the collapse of the Iron Curtain.

It is possible that decreasing prices of fuel, food and clothes are so satisfying that they limit the wage expectations of the employees. The situation is, for example, similar in the United States and the United Kingdom. Increases in wages are quite moderate there, considering the low unemployment rate and high employment. The situation can change if the pace of an increase in prices accelerates again. This may encourage employees to increase their wage expectations.

Salaries will increase soon

Anxieties about the future of the worldwide economy have been increasing for the past few months. The price of oil has decreased to its lowest level since 2003. This factor is responsible for some serious problems within the countries which export this raw material. The situation in China is also unfavorable. This country's economy quotes the lowest pace of the GDP growth for 25 years.

It’s not only the emerging markets that are experiencing problems. The developed economies are also facing serious challenges. A lower pace of increase in the GDP of developed countries is reflected in the results of exporters. The uncertainty is also increased by the membership referendum in the United Kingdom, which may result in a split within the European Union. Also, the problems of the banks, excessive debt, and the immigration crisis is in the background.

Despite many potential risk factors, 2016 can be successful for the Polish economy. Just as it was last year, the European Central Bank just recently increased its monetary stimulation. This will support a revival in the euro zone, which is Poland's most important trading partner (56.4% of contribution in the Polish export). On the other hand, the Federal Reserve is likely to limit the pace of increase in interest rates, which will have a favorable impact on the worldwide economy. Also, China announced that it will stimulate an increase in the GDP. As a result, we can see a rebound in the prices of raw materials and a wide improvement of sentiments in the financial markets.

We forecast that within the next three years, the unemployment may decrease even below 9% (bit.ly/1Xhra14). This would be the lowest level since the beginning of the 90s. A decrease in the unemployment rate could be followed by an increase in salaries, which should definitely be higher than in the past years. In January 2016, the wages increased 4% in relation to the past year. The forecasts spoke of a result at a level of 3.4%. Thus, the beginning of the year showed that the salaries may increase significantly faster than they have so far.

This optimistic scenario assumes that if the pace of increase in salaries is sustained at the level of 4% per year, in three year’s time, the average salary would be approximately 500 zloty higher than in 2015, and it would also exceed 4.6 thousand zloty. This means that in December 2018, the average wage may reach 5 thousand zloty for the first time in history.

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