Poland plans to increase minimum wage in 2019. Then what?

Krakow, Poland – The Polish government proposed to increase the minimum wage by 7% next year, bringing it to 2.250 PLN (approximately 520 euros), Prime Minister Mateusz Moriawecki announced earlier this month.

Poland to boost minimum wage in 2019

“We have made a decision at a meeting of the Cabinet to recommend a higher than originally planned minimum wage – 2.250 PLN a month”, he told reporters, which represents an minimum hourly salary of 14.7 PLN. The government had previously planned to set the new minimum wage at 2.220 PLN in 2019.

After a previous 8% increase last year, the minimum wage is currently set at PLN 2.100 a month, with a minimum hourly salary of 13.7 PLN.

As can be seen on the graph below, Poland’s minimum wage is one of the lowest in the European Union and part of the last tier, along with most of the other Central and Eastern European countries.

But cost of living in Poland is also among the lowest in Europe. Taking into account a wide range of products and services (from housing to clothing, energy or food), Eurostat recently ranked Poland as the third cheapest country in the EU.

Bearing this in mind, Poland’s current minimum wage is actually relatively high in purchasing power standards (PPS) – in other words, when we take into account the cost of living: as shown on the graph and the map below, Poland’s minimum wage in PPS is positioned in the middle group: it’s higher than all other Central and Eastern European countries – except for Slovenia – and comes right after countries like Malta and Spain.

As we can see on this (promise, last) graph, the median gross hourly revenue in Poland converted in purchasing power standards is also higher than almost all of its Central European neighbours, including the Czech Republic and Croatia, and overtakes Portugal as well.

The average purchasing power of Polish workers, even within low-income households, therefore appears stronger than we might have thought at first glance. However, this doesn’t tell the whole story.

The looming threat of inflation

First, despite its booming economy and record-low level of unemployment coupled with the generous social programs implemented by the government in the last few years, the overall economic situation is much more nuanced: social and income inequalities remain high, while approximately 18% of Poles are considered “at risk of poverty” (with revenues below the threshold of 60% of the median disposable income after social transfers). This is the highest rate in Central Europe – although in line with European average.

The risk of inflation and rising prices is also casting a shadow over Poland’s economy. As reported by an insightful essay published in OKO.press, the International Monetary Funds predicts that Poland should experience one of the strongest inflations in the EU in the next five years (around 2.5% a year) – a phenomenon fueled by low-interest rate policies, a booming economy, rising energy prices, a tight labor market and fast wage growth.

This price hike is bound, as academic research demonstrates, to primarily hit low-income households, who tend to spend a bigger share of their disposable income on products, like food and energy, where inflation has the strongest impact. The latest demonstrations in Warsaw, where thousand of protesters took to the streets to demand higher public sector pay, are a good illustration of that trend.

The era of fast economic growth coupled with small price growth seems to be coming to an end in Poland. Inflation remains, for now, under control, with a consumer price index rising by 2% year-on-year in August, according to the Polish statistical office. Central Bank governor Adam Glapinski remains optimistic and persists in his “wait-and-see” approach, predicting no change in the interest rate before the end of 2020.

If, however, the IMF’s projections are proven right, and the inflation starts galloping, this will put in jeopardy the purchasing power and, more generally, the livelihood of many Polish workers. The government’s approach of social benefits programs mixed with small minimum wage increases might, in that regard, quickly reach its limits.