Regional Economic Inactivity Trends in Poland

1. Assessment and recommendations

1.1. Reducing economic inactivity for an inclusive recovery after the COVID-19 pandemic

Increasing labour force participation has a positive effect on public finances and removes constraints to economic growth. A larger labour force decreases public spending on social protection if the activated manage to find employment. Increasing economic participation also leads to better labour market matching by widening the pool of potential candidates. If structural non-economic barriers to employment persist, these can also constrain economic growth. Some individuals may be encouraged to become economically active as wage levels rise and the quality of work improves. However, other groups, such as women with caring responsibilities, face additional barriers. The problem of economic inactivity is exacerbated by a shrinking working age population. In 2019, Poland’s old-age dependency ratio – measured by the population aged 65 divided by the population aged 15 to 64 – stood at 26.4%, right at the OECD average, with little regional variation. Like in many other European countries, this ratio is projected to increase rapidly and reach 52.2% by 2050. Activating those of working age will be key to funding the pension system in the future.

Economic inactivity in Poland continues to be above the OECD average. The economically inactive are defined as those of working age who do not participate in the labour market, either by choice, such as early retirees or students, or due to constraints, such as disabilities or childcare responsibilities. Although economic inactivity decreased 5 percentage points between 2000 and 2019, labour force participation in Poland remains relatively low. In 2019, 29% of the working-age population in Poland was economically inactive, a rate two percentage points above the OECD average of 27%. Economic inactivity can further lead to economic precariousness or social exclusion, and can represent a form of “hidden” unemployment for those willing to work if the right conditions were in place. Estimates show that this “hidden” unemployment rate in Poland was 75% above the conventional unemployment rate in 2019.

Some Polish regions struggle relatively more to decrease economic inactivity rates for historical and geographical reasons. While regional economic inactivity rates were on a path of convergence over the past two decades in Poland, some regions outperformed and some regions fell below the expected convergence. These trends in economic inactivity across Polish regions are closely tied to trends in regional GDP per capita, which can in turn be linked to market access advantages and historical rates of economic activity. The Warsaw capital region and regions bordering Germany further attracted large amounts of foreign capital in recent years, leading to the presence of larger, more competitive firms that are well-integrated into international value chains. On the other hand, the foreign capital stock remained largely unchanged in the regions of Eastern Poland since Poland joined the EU in 2004. The same Eastern regions bore the brunt of the fast decline in agricultural activity.

People with low levels of education are at greater risk of economic inactivity. Around 51% of those with less than upper secondary education were economically inactive in Poland, presenting an unexploited resource of labour. Evidence suggests those with lower levels of education and lower wages also suffer the greatest loss in income and employment during economic crises. In Poland, labour market inequalities had already been increasing between those with higher and lower levels of education. The share of the economically inactive population between 25 and 64 years old with tertiary education decreased from 11.7% to 9.4% between 2000 and 2019, while it has increased from 45.6% to 50.9% for those with below upper secondary education.

Women are less likely to be economically active. The share of economically inactive women (aged 15-64) decreased from over 40% to 36.6% between 2000 and 2019, but the difference in labour market participation between men and women increased from 11 percentage points to over 14 percentage points in the same period. Care for children or incapacitated adults is a stronger driver of economic inactivity for women in Poland compared to other EU countries, particularly for younger working-age women. Limited access to childcare and long-term care, as well as the lack of flexible work arrangements, may push some women to stay home to care for young children, elderly parents or those with special needs. Women also tend to work in occupations at higher risk from COVID-19, such as service jobs requiring human contact, and have taken on greater care responsibilities in the face of lockdowns that have closed schools. The COVID-19 pandemic may have a negative effect on female labour force participation.

Disability, or more broadly illness, is another main reason for inactivity in Poland. According to the Labour Force Survey in 2020, 69% of all working-age people with disabilities were economically inactive. The low level of economic activity among people with disabilities has been ongoing for many decades. In 2010, only 26% of men and women with disabilities participated in the labour market. However, the funds available for employment policies geared towards people with disabilities focus mostly on supporting the employment of those who are already active, and very limited resources are targeted towards the activation of economically inactive people.

Going forward, there are policy actions Poland can take to help promote an inclusive COVID-19 recovery, address economic inactivity and prevent further increases of inactivity over time related to ongoing structural changes in the labour market.

Recommendations to promote an inclusive recovery from the COVID-19 pandemic in all local labour markets

Facilitate local transitions to telework for greater resilience in pandemics and to increase access to economic activity

• Provide technical assistance and financing to purchase supplies to SMEs and independent workers to make the transition to teleworking. Teleworking has been a key asset for local resilience during the COVID-19 pandemic that could be further developed in Poland to facilitate economic activity. As across the OECD, only a minority of jobs in Poland are amenable to teleworking. Many SMEs or independent workers may not have the human resource expertise or the equipment capacity to make the transition to long-term telework of their workforces. Following an example from the Basque Country (Spain), Polish national or regional governments could set funds aside to help local SMEs and independent workers upscale or adapt their activities to remote work. Such programmes can dispatch consultants to SMEs, for them to receive advice on how to best adapt to accelerated digitalisation through a series of actions, such as advice on creating online collaborative workspaces and mobile office tools, as well as subsidies for teleworking equipment and reinforcing cybersecurity. The existing teleworking grant that targets parents with children under the age of 6 could be extended in its scope and coverage by including parents of children aged 6 and above, and to those caring for elderly relatives living in the same household.

Connect local economic opportunities and social services to those economically inactive willing to work

• Make personal care, IT and childcare services available for those in need to facilitate access to the labour market. Evidence suggests a larger share of women in Poland remain economically inactive due to care responsibilities for children or relatives. Likewise, people with disabilities and those without internet infrastructure at home may not be able to access labour market opportunities or training due to these challenges. Poland could make individual state-recognised cheques available to those who need to hire home-based assistance, allowing both the individuals and those caring for them to turn to education, training or job search. Assistance can take the form of mobility help, personal care at home or help installing internet infrastructure to facilitate telework. A promising initiative is the “Personal assistant for persons with disabilities” programme, started in October 2019, that allows persons with disabilities to apply for a personal assistant who helps with everyday tasks. The programme could be extended to cover active labour market policies targeted at those who care for persons with disabilities.

• Further develop childcare infrastructure for very young children, in particular in regions with the highest economic inactivity rates. In Poland, the availability of childcare services has improved significantly since 2003, but still needs to be improved for very young children. A number of factors contributed to the increase in the availability of childcare, including policies that support the participation of children in preschool education, funded by the state and under the responsibility of local governments. However, the availability of care for children up to 3 years of age is still lagging behind. Expanding services tailored to caring for young children similar to pre-school education would likely benefit the labour market participation of economically inactive women with caring responsibilities. Geographically, it would benefit the voivodeships of Eastern Poland, where economic inactivity is relatively high and childcare provision for the youngest children relatively underdeveloped.

Redirect funds supporting the vocational integration of people with disabilities to include those who are economically inactive

• Public employment services could focus more on active labour market policies for people with disabilities. People with disabilities are largely underrepresented among those making use of labour market services and instruments. Therefore, mechanisms could be introduced to motivate PES to increase training for people with disabilities. In the case of projects financed by the ESF, older workers and people with disabilities could be treated as priority groups. It is also necessary to strengthen the competencies of local employment offices in working with people with disabilities.

• Funds supporting the vocational integration of people with disabilities could encourage the employment of the long-term unemployed and economically inactive, rather than just targeting those already in employment. To this end, the system of subsidising the remuneration of people with disabilities could be reviewed. Incentive mechanisms could be introduced, in particular to promote the reintegration into the labour market of the long-term unemployed and those who are no longer economically active. The mechanism could include a greater differentiation of wage subsidy rates. A relatively higher wage subsidy could be paid for the first 12-24 months of employment to people with disabilities who were previously economically inactive or long-term unemployed. Moreover, the share of funding from the State Fund for Rehabilitation of Disabled People (PFRON) funds allocated to non-governmental organisations for the professional activation of people with disabilities at the national and regional level could be gradually increased. PFRON-funded occupational therapy workshops could take into account the professional background of their participants to a much greater extent. Reviews could be conducted in close cooperation with local public employment services and employers.

So far, the (re-)integration of economically inactive people has not been an important goal of public policy in Poland. The economically inactive category as a target group has appeared only in recent years in programs financed by the European Social Fund (ESF). There is also a lack of comprehensive public policies addressed to this group, while existing actions could be more coordinated and integrated. Given the ageing of the population and the shortage of labour that Poland experienced before COVID-19, there is a pressing need to increase labour force participation so as to not constrain economic growth in the medium to long-term.

The social economy has also tried to fill the gap in social and professional activation policies in Poland. In particular, Poland has developed a model of social cooperatives. The development of social cooperatives accelerated after 2010, when they started receiving support from the ESF. Currently, European funds support not only social cooperatives, but the wider category of social enterprises, which also includes social cooperatives. This support is provided by the nationwide network of social economy support centres (OWES), which help create and develop social enterprises by providing business, training and financial support for job creation for people at risk of social exclusion. However, the social economy remains unintegrated with the rest of the social welfare system and public employment services.

Recommendations for building on existing labour market institutions to integrate the economically inactive

Begin the process of integrating public employment services and social assistance services

• The integration of services provided by different institutions could be encouraged to address the complex needs of economically inactive persons. Economically inactive persons are often in need of services that combine social support and work, but public employment services and social assistance centres are often unprepared to deliver the full range of required services. These services could be integrated and tailored to individual needs. Following the examples of other countries, these services could begin to work together such that they act as complementary institutions offering a full range of services “under one roof”. In the initial phase, pilot projects in cities with county rights (large and medium-sized cities) could be conducted. In these localities, labour market and social welfare institutions function at the same level of local government, which facilitates an easy assessment of the functionality of such projects.

Direct ESF funds to people who are economically inactive and at risk of social exclusion

• The European Social Fund is an effective instrument to serve economically inactive persons. ESF funded projects, particularly those implemented by non-governmental organizations (NGOs), have more flexibility and can be better adapted to the specific needs of those in the most difficult situations. However, particularly in the field of labour market integration, the interventions are addressed to economically inactive persons only to a limited extent. Therefore, national and regional authorities could ensure that ESF projects target economically inactive persons. Regional authorities responsible for the implementation of ESF-funded programmes could provide strong incentives for project providers to support those in the most precarious situations with individualised solutions.

Strengthen the competences of the staff involved in the activation of economically inactive people

• Effective actions for economically inactive people require knowledge of their challenges and experience in working with such groups. However, some institutions lack knowledge of how to work with economically inactive people. This may discourage staff from taking action. There are examples of activities and projects that appear to be effective. Knowledge and experience dissemination could be enhanced by organising training workshops and conferences, and issuing best practice guides and tips on working with different groups of economically inactive people.

Mobilise social economy actors to support the (re-)integration of the economically inactive into the labour market

• Consider testing a volunteer-based programme to direct discouraged, inactive and long-term unemployed people to local associations. Many of those most excluded from the labour market may not be ready to enter the open labour market. The economically inactive in Poland often have low levels of educational attainment, disabilities or caring responsibilities. As the Territoires zéro chômeurs de longue durée pilot in France, Poland could consider creating local committees, made up of public employment services, associations, local elected officials and social economy actors. Committees identify those among the economically inactive who wish to work, build their skills and progressively seek opportunities in the open labour market. The initiative seeks to “activate” passive social spending, by turning financial support into wages inside organisations.

1.2. Responding to labour market megatrends in Poland

Trends in economic inactivity will also depend on the evolution of labour market megatrends. Across OECD countries with data available, the median region has just over 47% of jobs at a high or significant risk of automation. In Poland, jobs in all regions face a risk higher than 48% of high or significant change from automation, with the exception of Warsaw where that figure is only 40%. The COVID-19 pandemic is likely to have accelerated automation within firms as companies digitalise the way they produce and deliver services in response to social distancing requirements and tighter profit margins.

As automation may accelerate, workers who are displaced face a risk of economic inactivity when unemployment spells grow longer. Automation could supress or reshape jobs in Poland’s export-oriented industrial sectors, displacing workers with firm-specific skills. Some regions are particularly vulnerable. In Mazowieckie, Lublin Province and Swietokrzyskie, the OECD estimates 58%, 56% and 56% of jobs to be at significant or high risk of automation respectively, the highest shares in Poland. Jobs in these regions may be particularly susceptible to automation due to the size of sectors containing vulnerable occupations, such as construction and manufacturing. In Poland, occupation-specific labour demand is tracked and forecast based on Occupational Barometer surveys. Local labour offices also utilise the survey data to design appropriate training for the unemployed.

As the world of work changes, job polarisation trends may give an idea of the way labour demand is evolving. Between 2000 and 2018, the relative share of middle-skill jobs in Poland decreased by 9.8 percentage points. The high-skill job share increased by 10.3 percentage points, while that of low-skill jobs decreased by 0.5 percentage points. In absolute numbers, these trends represent a gain of 262 400 low-skills jobs, a loss of 666 000 middle-skill jobs, and a growth of 2 213 700 high-skill jobs. In some regions, however, the share of low-skill jobs has grown considerably. For example, in Lublin Province and Podkarpacia, the shares of low-skill jobs increased by 4.5 and 2.1 percentage points respectively. There is a risk that those with low and intermediate levels of education fall into economic inactivity as skills demands increase. As these changes unfold, social dialogue can be a way to ensure workers are accompanied, supported and retrained through these changes.

Poland is facing the rapid ageing of society and the workforce. The demographic forecast clearly shows that the process will accelerate in the future. Older persons aged 55-64 are one of the key groups of economically inactive persons. Therefore, it is crucial to ensure that older persons remain active in the labour market longer. The key factor here is the existing pension system that provides a disincentive for work among older workers, but other factors may also play a significant role. One of them is the cohort effect, which may improve the participation of future generations in the labour market when they reach an advanced age. People aged around 60, compared to older cohorts, are on average better educated and more often work in jobs where a longer working life is more likely. On the other hand, employers facing an insufficient supply of labour are increasingly more interested in investing to extend the working activity of older employees.

In Poland, over 35% of the economically inactive population are part of the older working-age cohort. For those aged between 55 and 64, the share of economically inactive is over 10 percentage points greater than the average across OECD countries, and third highest in the OECD. Although the proportion of older working-age inactive has gradually decreased, likely due to pension reforms in 1998 and 2012, data on in-work poverty suggests labour market access has not decreased economic exclusion. Indeed, the share of those aged 55-64 in-work but at risk of poverty increased by 1.3 percentage points, from 10.4% in 2010 to 11.7% in 2019, calling for more focus on labour market transitions.

Some Polish regions will experience employment gains and losses due to the transition to net zero greenhouse gas emissions. To become a net-zero emissions economy by 2050, Poland will have to transform its energy system gradually. Jobs will be at risk in industries such as coal and other mining, manufacturing, transport and chemical and plastic production. Some regions in Poland face a relatively high risk of job loss due to the green transition. In Silesia, due to its heavy dependence on mining of coal and lignite, the share of employment in sectors at risk stands at 6.7%. Employment gains, on the other hand, are more difficult to forecast but may not coincide with employment losses geographically.

Recommendations to respond to megatrends across Poland’s regions

Leaning from social dialogue to ensure the future of work does not drive economic inactivity

• Strengthen the existing Social Dialogue Council to develop measures for the digital transition of industry to anticipate changes and ensure a fair transition. OECD data reveals jobs in Poland are at higher risk of automation than the OECD average. As the economy adjusts to the pandemic, automation inside of firms is likely to accelerate as companies adapt to social distancing measures and face tighter margins. Many of these changes are likely to occur in Poland’s industrial sector. Social dialogue centred on a fair transition would allow government to liaise with unions and firm representatives on how to best ensure workers can be adequately trained for new technologies, while those who lose their jobs can be supported and helped into new positions. The Social Dialogue Council launched by social partners and the Polish government in 2020 could be an opportunity to plan thematic work sessions on this topic.

The retention of older workers in the labour market requires a comprehensive and integrated policy approach

• The retention of older workers in the labour market requires a comprehensive investment in skills, health, work organisation and working conditions, as well as addressing disincentives associated with the pension system. Currently, many initiatives supporting older workers are undertaken, but they are fragmented and poorly coordinated. Therefore, it is advisable to create a body composed of key stakeholders with an impact on policies supporting the labour force participation of older people. The main task of the body would be to improve the coordination of actions undertaken by different ministries. Representatives of employers and trade unions could be invited to participate in the body. It is advisable to launch a programme that would co-finance activities undertaken by entrepreneurs to extend the working life of their employees: improving competences, introducing solutions to improve the ergonomics of work, increasing the use of flexible forms of employment, promoting lifestyle changes, etc. These activities could be co-financed from ESF funds. It is also recommended to increase the scale of training programmes addressed to older workers.

Place-based policies could support regions such as Silesia to manage the green transition and to mitigate the risk of a rise in economic inactivity.

• To avoid a rise in economic inactivity, regions facing job losses due to the net-zero transition can help smooth that transition through local active labour market policies that target those who are likely at risk of job loss. Following examples from other OECD regions, training programmes offered by Polish regional employment services could start to integrate the development of “green skills”. These polices would differ from those currently supported by the Occupational Barometer surveys as they would have to take a more long-term perspective of changing skill requirements within industries. One example from Flanders, Belgium, is the training of workers in the construction sector, where training offered by local employment services includes sustainable building and energy efficiency methods to prepare the sector for future skill requirements. “Green skills” can be included in the Occupational Barometer after Poland’s implementation of the European Skills, Competences, Qualifications and Occupations Taxonomy (ESCO).