Efficient like a Pole
The labour market in Poland is constantly changing, including people’s approach to tasks execution. A dynamic growth of productivity is noticeable in our country, which is a very positive phenomenon. To find out more we recommend to read a very interesting article by Arkadiusz Balcerowski: https://www.fxmag.pl/artykul/polacy-pracuja-coraz-bardziej-efektywnie
Poles work much more effectively
Along with significant improvement on the labour market, not only in Poland but also in the world, led to discussion about the influence of that change on inflationary processes. Nevertheless, against the economic theory, we didn’t experience the appreciable increase in prices growth in the biggest world economies so far. In Poland this pattern was similar. Although at the end of the year we can see the growth of the annual change of the consumer price index indicator up to 4%, in the later part of the year we will be running towards the inflationary goal of National Bank of Poland, i.e. the 2.5%.
In this analysis I would like to refer to publication from over 2 years ago, which concerned wages and the labour productivity in the economy. Therefore, in the study I describe how productivity of work factor in selected economies changed over the past years, as well as why the factor should cement the present status quo at the Monetary Policy Council.
Labour productivity in chosen states, source: Bloomberg, OECD, InsiderFX Research
The measurement of the labour productivity isn't simple
and its calculation is probably never accurate. However, on a macro scale, it seems that the other approach hasn’t been developed. Therefore, we usually measure the labour productivity as the relation of production and the amount of worked hours and employees. The first approach is used by the Organisation for Economic Co-operation and Development (OECD), which data I used in the current analysis. Analysing a period of over 20 year. it is clear that Poland had come a long way not only towards the most developed economies, where the rate of growth is naturally lower, but also towards the neighbouring economies such as Hungary or the Czech Republic. Since 1995 labour productivity in the Polish economy has doubled, whereas in the corresponding period of time in chosen economies, as well as in the entire countries of OECD, the economies didn’t exceed 50% increase. Referring to the average growth of productivity amongst all countries of OECD (33%) we can notice that Poland experienced more rapid growth over three times (119%). It is also worth noticing that the last crisis didn’t trigger the noticeable fall in the labour productivity in Poland (as well as in the USA) but was clearly visible in case of Germany or Japan.
In my view, the relatively faster rate of growth of the labour productivity was a factor supporting the last improvement in growth dynamics of the salary in Poland, which we didn’t experience in other economies in spite of the equally tense situation on the market. On the basis of that fact we can try to explain the current phenomenon of the lack of higher inflation. In Poland the rise in individual labour cost is just being slowed down through comparatively high rate of the productivity growth (we can reach a similar conclusion based on quarterly data from Central Statistical Office). In the meantime, in other economies, such as: the USA, Germany or Japan, individual labour cost remains low, because neither wages increase nor the work output are undergoing significant change.
Source: Eurostat, InsiderFX Research
The improvement in the labour productivity is visible also in other area, which is
the lack of number increase in worked hours. Moreover, annual dynamics of the average week’s number of worked hours in the quarter even lowered in last years. We have been dealing with such trend uninterruptedly more or less since 2015, meanwhile the annual growth dynamics accelerated quickly since 2016. Thereby, the economy was able to generate the higher production with even less worked hours (such pattern would also be available if the economic growth rate had been higher than the growth rate of worked hours, i.e. if growth dynamics of worked hours wasn’t negative). In the division into sectors we can notice that we recorded the biggest decreases of number of worked hours in farming and trade, whereas industrial and private services’ sectors were beneficial to the general dynamics. Now it is worth to mention that such relation won’t last forever and therefore, staying in a decreasing trajectory of worked hours will be a disturbing factor for growth over time. However, it doesn’t mean that the labour productivity must clearly go down if only the reduction in the economic growth rate isn’t higher than the number of worked hours.
From the National Bank of Poland point of view, seeing that is quite soothing. Therefore, the higher growth rate of the salary (an inflationary factor) is being compensated by the higher growth rate of the labour productivity (a disinflationary factor). As a result, the annual growth dynamics of individual labour costs remained stable over the last decade. Moreover, there are other factors that keep the current quo status in the Monetary Policy Council. Among them, we can refer to the outside balance of the Polish economy (a current account, the balance of portfolio and foreign investments), exogenous character of the inflation (a risk of wider spilling this factor to the economy seems to be reduced), relatively low growth rate of the credit shares, reasonable rises in prices of the real estate market in relation to salary increases and a rather disinflationary foreign environment.
Source: Macrobond, InsiderFX
To sum up,
we should focus on EU, where the European Central Bank doesn’t expect the inflationary achievement of the goal until the end of 2021 and already after taking into account the recently announced stimulating package. This aspect is essential from an econometric viewpoint as a causal link between CPI for the eurozone and Poland indicates clearly the one-way relation in the direction of the Polish economy. Therefore, I don’t believe that the Monetary Policy Council will be forced neither to increase interest rates, nor to reduce them the following year considering its current reaction. The possible reduction could take place only during the decrease being below the potential level in the economic growth. In practice, it means that the annual growth rate of real GDP would have to decrease below 3% next year, which isn’t my baseline scenario.
Arkadiusz Balcerowski, InsiderFX.plA