Boosting Employment in Poland: The Pros and Cons of Civil Contracts

Poland has maintained an impressive record of job creation over the last decade, with positive net employment - the difference between new jobs and destroyed jobs-  even during the downturn caused by the global economic crisis.   

Going beyond these numbers, however, reveals that, in net terms, newly created jobs came largely with temporary labor contracts – a practice that carries with it as many risks as it does gains.

At present, roughly 25% of all wage employment in Poland is temporary – the highest level in the European Union according to Eurostat – and among these temporary workers nearly half (a total of 1.4 million individuals) are working though civic contracts, which are not regulated by the country’s labor code and carry a limited set of benefit and pension rights. While these temporary contracts can play a useful role in facilitating employment for youth, low-skilled employees, older workers and other, more vulnerable workers, they can also deter job advancement and lead to other, negative outcomes.

The flexibility, administrative simplicity, and lower taxation offered by civil contracts account for their popularity in Poland, according to recent focus groups conducted by the World Bank with employers throughout the country. These contracts are increasingly being utilized, as they tend to be more suitable for promoting employment among some segments of the labor force - such as older workers and women interested in part-time jobs - while simultaneously providing much needed experience to young workers just starting out in the labor market.

However, while nearly half of older workers say they are employed through a temporary contract by choice, these contracts are involuntary for most other groups of jobseekers. The analysis from the focus groups also revealed that workers under involuntary, temporary contracts earn less than similar workers employed under permanent contracts.

Although these employment practices are common throughout the world, they also have the potential to create a unique set of problems for Poland. Unlike permanent employment contracts, civil contracts do not provide automatic affiliation with health insurance or social security benefits. Furthermore, these contracts do not provide vacation benefits, a minimum wage, or a period of notice – leaving many employees trapped in a low-paying contract with virtually no job security. Furthermore, firms have few incentives to invest in training and building the skills of their temporary workforce – potentially creating an important obstacle to productivity growth in the country if most new hires are being employed under temporary contracts.  

As part of its ongoing knowledge partnership with Poland, experts from the World Bank Group are working with their counterparts in different ministries, organizations, and associations throughout Poland to better understand the impacts – both positive and negative – of these temporary contracts, as well as look at ways to improve the overall employment situation there. This partnership is simultaneously focusing on gaining a better understanding of the unique conditions being created in Poland’s labor markets and designing appropriate alternatives.  

According to emerging findings from this research, curbing the use of civil contracts will require interventions on multiple fronts in order to avoid significant disincentives for employment resulting from an increase in labor costs for current temporary workers, especially those with low skills.  

In particular, a first step should be to confine the use of civil contracts to atypical jobs, within the scope of the law, through stronger enforcement of regulations. Secondly, civil contracts should carry similar contributory and tax obligations as labor contracts, in order to reduce the current gap in conditions and basic protection.

At the same time, a number of measures could be taken to reduce the cost of labor contracts. First, increasing the non-taxable allowance of labor income, and engaging in a strong simplification of the labor code would reduce the costs faced by firms when switching workers from civil to labor contracts. Secondly, an additional set of measures could help reduce the gap between term and permanent labor contracts, especially addressing the costs and the predictability of dismissal procedures, so as to facilitate the path toward stable labor contracts for most workers.