1. Assessment and recommendations

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.

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.

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.

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