Two Faces of, and a single Punch for, Slovak Labor Market

TheWMatt || CC

The most important figure of the Slovak economy in the last 5 years has been the trend in unemployment. This rate had been decreasing since the first quarter of 2013 and had dropped to almost a half in the first quarter of 2018. The unemployment rate fell from more than 14% to nearly 7%.

This positive trend was not due to uniqueness of the Slovak labor market policies but instead it was a reflection of the overall progress in the economy of the EU. During the same period the average unemployment rate in the EU decreased from 11% to 7.1%. There are eight countries with a sharper decline in joblessness than Slovakia. Among them there are the three V4 neighbouring countries. It is true that the unemployment rate in Slovakia decreased by 48%.

However, it slumped by 58% in Poland, 64% in Hungary and 68% in Czechia. And yet, all of these countries enjoyed a lower rate of unemployment back in 2013 so they experienced a decrease from lower initial levels than Slovakia.

The fact that the unemployment ceases to be a problem in Slovakia does not mean that it is so in its every corner. On the one hand, there are regions such as Bratislava, Trnava, and Trenčín, where the unemployment rate stands below or around 4%. Thus, we can assume that unemployment is no longer a problem and instead, a new one is emerging – lacking labor force. 

On the other hand, we have regions of Banská Bystrica, Prešov and Košice where the unemployment rate is close to 10% and more.

The two western regions (Bratislava and Trnava) happen to have even more job vacancies than unemployed people. In cotrast, in three of the regions lagging behind there are 6 to 8 unemployed people on average for every job available.

If we take a look at these regions we will notice that in districts like Rimavská Sobota, Medzilaborce or Gelnica the ratio of unemployed people to job vacancies is often tens to one. In the Poltár district there are 67 people waiting for a single job offer.

A useful depiction of labor market differences between eastern (or central) and western Slovakia is a comparison of the overall number of unemployed people in the district of Rimavská Sobota and five districts of Bratislava.

Even though the population in Bratislava is five times larger than in the district of Rimavská Sobota the number of jobless people is smaller. The two-faced labor market in Slovakia is clearly to be seen if we realize that there is the same number of job offers in Bratislava region as in the regions of Banská Bystrica, Prešov and Košice combined.

In this situation it is hazardous to move forward with the agenda the way the current government is doing. The cabinet acts as if there was a homogenous Slovak labor market and adopts intervention measures accordingly.

The minimum wage is increasing rapidly – between 2013 and 2018 the average wage grew by 22% whereas the minimum wage jumped twice as much by 42%.

Such an increase in minimum wage has a negative effect on less developed regions. For instance, in Prešov region the minimum wage reaches up to 72% of the local median income while in Bratislava region this figure is around 48% (our own estimates for 2018).

In addition, the government is lifting up the tax burden on low-income workers. People earning minimum wage had to face the overall tax burden targeting their work income of 26% in 2015 but this figure has risen to about 36% in 2018.

All these costs are falling more heavily on the shoulders of less developed parts of Slovakia and they make it more difficult for the long-term unemployed to find a job again. They could also jeopardize the jobs creation in such regions and in the future in the case of an economic slowdown also the already existing jobs could be in danger.

Robert Chovanculiak