Labour productivity in Poland - how to catch up with Europe?
Although we spend much more time at work than the average European, we are also less productive. Why? What can we do to make our economy more productive? The increase of productivity has remained one of the most frequently mentioned recipes for accelerating the development of the Polish economy for years. Nevertheless, Poland still remains one of countries that work the least efficiently. Does it mean that the Poles are lazy?
We can’t really be sure about that as productivity is influenced by numerous factors – from the structure of the economy, through labour costs, to the method of management. In our new report, we look at the most important productivity indicators and compare the situation of Poland with other European countries. All in the interest of answering the following question: What can be done to work more effectively?
Productivity in Poland and Europe
Labour productivity is a measure of the value produced over a specific period of time or by a specific number of employees. In order to get the approximate picture of the performance of global economies on a macro scale, the Organization for Economic Co-operation and Development (OECD) measures it by using the ratio of GDP to total hours worked. Such data was used as the basis for our analyses. According to OECD statistics, an hour of work of the Poles in 2018 benefits the economy less than $40. At the same time, German workers produce more than 1.5 times more, Norwegian, Irish or Luxembourgish workers over twice as much.
If it’s any consolation, Poland is one of the fastest developing countries in the European Union. From 2007 to 2018, our productivity grew at a rate of approximately 3% per year. Although the Polish economy is almost half more efficient than before the outbreak of the global crisis, we are still among the least productive countries of the EU, i.e. next to Greece, Latvia and Romania.
We work a lot, but not very effectively
If we compare the productivity of individual EU countries, it is also worth taking a closer look at the average time spent on working. The OECD data clearly shows that Poland is today among the most hard-working EU countries. In 2018, the statistical Polish employee spent as much as 1792 hours at work (the statistics include all employees, not only those who work full-time). In the whole EU, only the Greeks worked longer than us.
We work a lot but not very effectively. In comparison to Germany, it is noticeable that they worked 429 hours less in the last year and that’s almost 54 days of working 8 hours! Nevertheless, the efficiency of our western neighbours is 1.5 times higher than ours.
What is the cause of such high disproportions? One reason is the specificity of the Polish economy that, among the EU countries so far, has been distinguished mainly by its low labour costs. Nowadays in Poland many man-hours can be bought for a relatively low price, that is why Poland is still being considered as the “assembly plant” of Europe. Compared to the largest European economies, it is easier to find cheap workers in Poland, while the added value of their products and services remains relatively low.
The above mentioned matters are highlighted by McKinsey in its report titled “Poland 2030”. According to the publication, the clearest differences between Poland and the most developed countries of the former EU15 are visible in the industrial production sector. In this area, Polish employees 59% less productive than Western European countries. Similar situation is noticeable in agriculture and energy. However, we are able to keep up with the EU in trade and services, in which the differences in productivity are approximately 12% and 20%.
Shortened working hours? The Poles prefer to earn rather than rest
In August 2019, Japanese branch of Microsoft conducted an experiment, i.e. its employees worked shorter hours for a month: nearly 2500 employees received five Fridays off-work in a row, while maintaining the current wages. Results were very surprising as the company noticed 40% increase in productivity while reducing expenses; the consumption of energy and paper in the entire office decreased significantly.
Similar experiments have been carried out by Perpetual Guardian, a company from New Zealand that manages trust funds, or the Swedish branch of Toyota in Gothenburg, where the employees’ working day amounts to 6 hours, since 2002. Each time, there was an improvement in work efficiency and increased satisfaction of employees who could balance their work duties with private life better.
The idea to shorten working time of employees came up in 2017. We were looking for solutions that would bring us closer to achieving work-life balance. This is mainly the result of a thought that we work too much. Articles and studies dealing with this issue and presented case studies of companies that decided to implement shortened working hours were brought up to us. Thus, we were inspired to conduct a similar experiment in our company.
We have been preparing for this change for over 6 months. The aim was simple – work 6 hours a day, with the same amount of duties.
The changes usually cause anxiety among employees, however this change was received very enthusiastically. Shortening the working time by 40 hours a month did not result in lower remuneration. In our industry, it was easy to give up remuneration dependent on reported working hours and switch to a task-based employee supervision system.
In September 2017, we started an experiment with 6 hours of work per day. It was preceded by working time management training for the employees. We also took care of introducing the project management tool, which became the only communication platform within the company. We shortened the processes that did not affect the efficiency of work but involved time. Individual meetings with employees were also an important aspect to help them eliminate time wasters in their daily activities.
Initially, the experiment was supposed to last 3 months, however as a result, we still work 6 hours a day. Frankly speaking, even after over two years, it was one of the best decisions in the company’s development strategy.
Therefore, shortening working time may have a positive effect on the productivity of the economy – although in some segments, e.g. industrial production, it would have to go hand in hand with additional investments in technologies and innovations. What do the Poles think about that? According to the report “Workforce View in Europe” published last year by ADP, only 38% of employees in Poland would vote for working 4 days a week if their salary would be reduce as well. Another researched conducted for money.pl shows that 55% of Poles would rather change their working time from 8 to 7 hours a day,
The end of cheap workforce
The Polish economy must become more productive as the amount of investments starting to weaken. According to the latest Eurostat data, in the last quarter of 2019, employment of an employee (i.e. the sum of earnings and social benefits paid by the employer) in Poland increased by 6.6%, compared to the last quarter of 2018. The increase is more than twice as fast as the average increase of the EU.
Average cost of work in Poland in 2018 amounted to EUR 10 per hour – nearly three times less than the average in the EU. There are only five countries in Europe with cheaper employees:
· Latvia, where the labour cost amounts to EUR 9.3 per hour,
· Hungary: EUR 9.2 / hour
· Lithuania: EUR 9 / hour
· Bulgaria: EUR 6.9 / hour
· Romania: EUR 5.4 euro / hour.
However, France and Sweden, two of the six EU countries where labour costs exceed EUR 35 per hour, are countries where solely the social benefits exceed EUR 11, which means they are higher than the total cost of an employee in Poland. At the same time, the economies of France and Sweden are almost twice as productive as in Poland.
Productivity and earnings
Moreover, over the past decade, the earnings in Poland increased noticeably faster than productivity. Between 2008-2018, the minimum wage grew at a rate of 6.5% annually, and the median wage increased by 55% in total. At the same time, the labour productivity of the average Pole grew by 3.4% per year.