WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

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By Maryna Tverdostup and Alexandra Bykova

• An analysis of labour market performance reveals a rebound in employment in 2021 in the majority of CESEE countries.
• Real wage growth in CESEE continued at an average of 4.3%.
• While to a large extent pandemic-driven, above average real wage growth continued in the healthcare and ICT sectors, trade and accommodation also started to recover.
• The health sector continued to post above average growth in real wages in 17 out of 23 countries in the region.

Employment started to grow again in the majority of  countries in Central, Eastern and Southeastern Europe (CESEE) in 2021 after the negative shock in employment caused by COVID-19 in 2020. Despite the continuing pandemic, 14 out of 21 CESEE countries for which comparable data for employment are available according to the Labour Force Survey (LFS) methodology, posted an annual increase in employment in 2021. Data for Kosovo are estimated based on half-year data. Due to the changes in the methodology between 2020 and 2021 and an absence of comparable growth rates, Bosnia and Herzegovina and Montenegro have been excluded from the analysis. The CESEE region experienced an overall increase in employment of 1%. In Kosovo and Turkey employment recovered by an impressive 8%, following pronounced employment drops in 2020. However, seven countries posted a decline in employment with Slovakia, Ukraine and Latvia being hit the most (-1.7%, -1.9% and -3% respectively). This was likely related to many sectors still being affected by the pandemic, including the service sector, entertainment and recreation (Figure 1).

Real wages continued to grow in almost all CESEE countries in 2021. Real wages in CESEE grew by 4.3% on a simple average basis (Figure 2). Economic revival, especially in the second half of the year, coupled with mounting labour shortages, fuelled wage growth across the region. Out of 23 countries in the region only Montenegro experienced a decline in real wages of 1.1%. This decline was observed in almost all economic activities in Montenegro except construction, trade and health services, as the economy had not yet fully recovered from a huge pandemic-related drop in GDP of 15.3% in 2020 amid a tourism slump. The strongest increases, of over 8%, were observed in Ukraine (10.5%), Kazakhstan (8.8%) and Latvia (8.2%).

Many sectors, including industry and business activities, faced substantial labour shortages.  The restructuring of private demand due to economic restrictions fostered involuntary savings, which were streamed into other spending, such as that related to the improvement of living conditions (purchasing or renovating real estate), or investing in consumer durables. As a result, labour shortages and employment grew disproportionally across sectors in response to consumer demand.

Sectoral real wage performance in 2021 was dominated by the pandemic-related increase in health and ICT activities, but also a strong recovery in accommodation and food services which suffered a decline in real wages in 2020. While all economic sectors posted positive real wage growth rate in CESEE on a simple average basis in 2021, there was a sectoral differentiation in its magnitude (Figure 3). Five sectors experienced wage growth above the average for the CESEE economies - healthcare (9%), accommodation and food (7.9%), ICT (6.5%), arts (5.7%), trade (5.3%), other services (4.7%) and manufacturing (4.4%). The wage increase in the health services and ICT reflects the continuing response to the pandemic – the health crisis and a boost in demand for ICT solutions. However, lower restrictions and a recovery in consumer demand led to above average growth of real wages in the accommodation, food and trade sectors. The latter sector was in dire need of manpower as it incurred the largest layoffs in response to economic restrictions and, as these were internationally lifted, severe labour shortages surfaced. The lowest increase in CESEE on average was observed in utilities-related water and electricity activities (1.8% and 1.1% respectively) and in public administration (1.2%), which is likely related to these sectors’ steady employment and wage dynamics throughout the pandemic.

The healthcare sector, the target of policy support measures in the wake of the pandemic in 2020, continued to post above average real wage growth in the majority of CESEE countries in 2021. Latvia, Bulgaria, Moldova, Kazakhstan and Ukraine posted impressive real wage growth of above 20% in the healthcare sector in 2021 (Figure 4). This may be related to a certain extent to the initially low wage level of healthcare workers and above-average labour shortages in the sector, making it dangerously vulnerable in the face of major public health challenges. A higher than average increase in real wages in the health sector was seen in 17 out of 23 CESEE countries. However, in Russia, Kosovo, Romania, North Macedonia, Slovenia, Bosnia and Herzegovina the growth rate of real wages in the health sector was lower than the average level for the total economy.

Data for employment and average monthly gross wages by activity used in this article are available in our wiiw Annual Database.

The database offers data on the main labour market indicators (LFS), employment by economic activity in thousand persons, as well as average monthly gross wages by activity in the national currency and in euros. In addition to our database online retrieval tool, our new wiiw visual analytics tool CESEE Visual Data Explorer (CESEE VDE), available exclusively to members, offers visualization of structural data on employment and wages:

• employment structure for broad economic sectors for all CESEE countries for selected years;
• cross-sectoral comparison of wages in EUR for individual countries for selected years;
• comparisons of evolution of wages in EUR for individual countries for selected economic activities;
• cross-country comparisons of wages in EUR for selected economic activities for wages in EUR for selected years.

Countries covered:

Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czechia, Estonia, Hungary, Kazakhstan, Kosovo, Latvia, Lithuania, Moldova, Montenegro, North Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, Ukraine.

Country groups list: CESEE countries