The uneven effect of the pandemic on CESEE labour markets

22 October 2021

An analysis of the labour market response to the pandemic reveals employment shifts between economic sectors.

By Maryna Tverdostup and Alexandra Bykova
Photo credit: Brazzoduro

  • The pandemic hit sectoral employment in CESEE region unevenly.
  • Manufacturing, transportation, accommodation and food services appeared most affected by the pandemic.
  • ICT, professional and scientific activities sectors remained widely unaffected, or even reaped benefits from the crisis.
  • Dramatic discrepancies between badly hit and winning sectors prompts potential structural changes in the labour market.
  • Job retention schemes helped to cushion shocks in several EU-CEE countries.
  • Wage growth was uneven across industries, with the healthcare and ICT sectors incurring the largest wage increases.

COVID-19 caused a massive negative shock for employment, but the impact varied substantially across CESEE countries. Stringent restrictions limiting economic operations, human mobility and both domestic and foreign demand, as well as the international trade slump and the supply chain collapse hit labour markets worldwide. CESEE was no exception; all CESEE countries for which comparable data for employment are available according to the Labour Force Survey (LFS) methodology, incurred a decline in employment in 2020. Due to substantial changes in the methodology between 2019 and 2020 Bosnia and Herzegovina has been excluded from the analysis. The CESEE region experienced an overall drop in employment of 2.2%. However, the magnitude of employment deterioration caused by the crisis varied significantly across individual CESEE labour markets, ranging from 0.1% in Poland to 10% in Montenegro (Figure 1).


One of the defining features of the pandemic from an economic perspective is a sharp differentiation in the employment downturn across sectors and groups of workers. Traditional headline economic indicators, including GDP, have been largely useless in reflecting the true reality of the pandemic. This certainly applies to CESEE, where the ability to adapt and run operations in the face of restrictions varied widely across industries. As a result, labour market data for CESEE show that the decline in employment was far from uniform across sectors, and while some sectors incurred massive employment declines, others topped pre-pandemic employment levels. In the whole region, the accommodation and food services sector was most affected (-10.4%), while the ICT sector rather profited from the pandemic and posted a 3.1% employment increase in 2020 (Figure 2).


Manufacturing, transportation, accommodation and food services appear to be the most affected by the pandemic in CESEE region. The selection of the most affected industries was based on their contribution to negative employment growth on a country level. We picked those sectors reporting a negative employment change in most of the CESEE countries1.). The aggregate employment drop in the three selected sectors mentioned above was -3.2%, which is only 1 pp worse than the overall decline in the whole economy. However, there are substantial heterogeneities in the magnitude of aggregate employment decline in the most affected sectors across countries (Figure 3). Montenegro (-13.6%), Bulgaria (-7.4%) and Kosovo (-6.7%) experienced the deepest annual decline in employed persons according to LFS statistics among CESEE countries in 2020, while annual declines in Russia (1.9%), Kazakhstan (1.8%) and North Macedonia (0.5%) were the smallest. Slight growth in employment (1.3%) in the most affected sectors over the same period was documented in Belarus. The difference between annual changes in the three most affected sectors and in the total economy in percentage points reflects the disproportionate impact of the pandemic, with the most visible gaps in Estonia (4.1 pp), Hungary (4.1 pp) and Bulgaria (4 pp).

The overall economic downturn in the face of the pandemic fuelled an employment slump in the most affected industries. Not surprisingly, accommodation and food services activities experienced the most massive lay-offs of employees in 2020, as imposed restrictions limited operations in accommodation and food services and cut off labour demand in the sector dramatically. Tourism remained in the doldrums throughout the year, contributing to a massive outflow of employees in this sector. A gradual recovery in tourism started only in mid-2021. Manufacturing and transportation incurred substantial employment reductions due to the decline in foreign trade, shrinking domestic demand and limited within- and cross-country mobility, which restarted only in mid-2021.


ICT, professional and scientific activities, and other service activities2.) remained, if anything, unaffected by the pandemic in the majority of CESEE economies, or even reaped benefits from the crisis. The least affected sectors were selected using an approach similar to the most affected sectors – based on a maximal number of CESEE economies where employment growth in the respective economic sector was positive.3.) Employment in the least affected sectors grew on aggregate by 1.5% in 2020, with a substantial variation in employment dynamics across individual countries. Latvia (18.4%), Belarus (16.2%) and Slovenia (11.5%) experienced the highest annual growth in aggregate employment in the three sectors and also the highest growth rate differential in percentage points compared to the overall employment performance in the economy (20.3, 16.7 and 12 pp respectively). Croatia (-5.5%), Turkey (-3.8%), Montenegro (-2.7%), Ukraine (-1.6%) and Romania (-0.2%) still experienced a decline in aggregate employment in the least affected sectors, albeit less pronounced than for the total economy (except for Croatia). The average growth differential in the three selected sectors compared to the total economy was about 6 pp for the whole CESEE region (Figure 4).

The ICT sector appeared to be one of the clear winners in terms of sectoral economic performance and employment growth, thanks to the specifics of the pandemic. A rising demand for digital solutions resulting in a surge in corporate investment in the high-tech sector, coupled with the high telework adaptability of ICT sector and professional/scientific activities, explains the sound economic performance and rising labour demand in the selected least affected sectors in 2020. In light of social distancing measures, a substantial share of FDI in 2020 was streamed into the development and launch of digital services, and this trend has been most pronounced in Estonia. However, for the latter the upswing in high-tech solutions raised employment in the other service activities sector4.) rather than ICT itself, since the pre-pandemic employment share of the ICT sector was already high (4.8%).


Dramatic discrepancies between badly hit and winning sectors prompts potential structural changes in the labour market. As the pandemic drags on, people keep moving across sectors and reallocating from the most affected to the least affected industries in response to looming labour shortages in the latter, particularly in EU-CEE countries. This change in labour allocation may prove lasting – employees may not return to former industries as the pandemic fades.

Diverse job retention schemes (JRS) were introduced by several EU-CEE governments in response to the imminent labour market crisis. To combat unemployment, short-time work schemes were launched in Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. State support measures were spread across the year following the pandemic waves and the severity of containment measures, as reported by monthly data available at Eurostat for nine of eleven EU-CEE countries. The proportion of jobs supported by governmental measures in 2020, calculated as an annual average of monthly data, ranged from 15% in Croatia to 3.5% in Poland. Figure 5 combines those data with employment growth data for the whole economy in the respective country, aggregated employment growth for the three most affected sectors (accommodation and food services, transportation and manufacturing), and employment growth in each of the most affected sectors separately. It appears that if anything, governmental job support measures cushioned the potential negative impact of the crisis on labour markets, as overall employment declines in countries with JRS ranges below the CESEE average of 2.2% for all countries, except Bulgaria and Estonia.


Despite the ongoing crisis, real wages increased in almost all CESEE countries in 2020. Real wage growth across the total CESEE economy reached 4% in 2020. Lithuania, Belarus and Bulgaria recorded the highest real wage growth in the region (9%, 8.5% and 8.1% respectively). Only Czechia, Kosovo and Turkey experienced a decline in real wages of 0.2%, 2.5% and 8.5% respectively.


Uneven wage growth across sectors in CESEE reflects sectoral economic performance. All economic sectors, except accommodation and food services, revealed a positive real growth rate, albeit of different magnitudes (Figure 7). Four sectors experienced wage growth far above the average for CESEE economies -- healthcare (12.7%), ICT (6.1%), education (5.8%), and public administration (5.7%). A striking wage increase in the health sector appeared as a response to the massive health crisis, while the ICT sector experienced an upswing in investment and skyrocketing demand for ICT solutions, reflecting on the wage dynamics in the sector. Wage growth in education and public administration likely relates to the overall wage increases of state employees in several countries, including Lithuania, North Macedonia, Romania, Serbia and Slovenia. Along with the overall impact of the pandemic, terminated minimum wage increases in several CESEE countries (e.g. in Estonia and Latvia) largely restrained wage growth in those sectors which rely heavily on low-paid workers such as agriculture, construction, accommodation and food services. The latter sector registered a stark average wage drop of 3.9% in CESEE countries, driven by a sharp decline in labour demand in the sector in light of lockdowns and social distancing measures.


Labour shortages in the healthcare sector and generous financial support explain the above average real wage growth in the sector in almost all countries of the region. Real annual wage growth in the health sector was higher than the average for the economy in almost all CESEE countries except Turkey, Romania and Estonia, while record high real wage growth in the health sector was observed in Kosovo (56.2%). Countries in the CIS4+Ukraine sub-region with the most underpaid healthcare workers in 2019 are also among the top five countries with the highest annual real growth rates in CESEE in 2020 - Kazakhstan (23.1%), Ukraine (22.7%), Belarus (21.6%) and Moldova (18.9%). The reality of the pandemic showcased the immense risks associated with the fragility of public health systems, related to the low pre-pandemic capacity of public hospitals and substantial lack of qualified workforce, and brought to light the urgency of attracting and keeping healthcare workers by raising wages (Figure 8). European Commission emergency funding in response to the outbreak of the public health crisis likely supported wage growth in the healthcare sector in EU-CEE countries, while long-term funding programs should facilitate further strengthening of the sector and stable wage growth for healthcare employees.


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), which is 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


1.) We selected sectors with relatively high overall CESEE employment shares (above 2%) and thus, a significant impact on total economy employment level.
2.) Other service activities is a residual category which includes the activities of membership organisations, the repair of computers and personal and household goods and a variety of personal service activities not covered elsewhere.
3.) We selected sectors with relatively high overall CESEE employment shares (above 2%) and, thus, a significant impact on the total economy employment level.
4.) Other services activities includes the repair of computers and various other ICT support activities. Growth in the latter is likely related to the overall upswing in ICT in the CESEE economies.