Dominic Swire in Prague -

Central and Eastern Europe used to be home to Europe's own cheap workforce. Now, as wages rise and populations drop during a labour squeeze of suffocating proportions, countries in the region are turning to Asia to fill jobs.

The sheer number of workers who have travelled westwards in search of better-paid employment since the older members of the EU opening up their labour markets to eastern workers in 2004 caught everyone by surprise. The result has caused massive impact on both sides of the continent.

While some countries including the UK and Ireland have received an economic shot in the arm from the influx of a young and enthusiastic workforce from the east, the corresponding depletion of workers from CEE has unbalanced the region's demography and threatens to derail the recent economic progress seen by the new emerging economies. "It's like a time bomb," says Ales Michl, an analyst at Raiffeisen Bank in Prague, who says the problem is one that's affecting all countries in the region.

One of the worst hit has been Poland despite its population of 38m, the largest of all the new EU members. Since 2004, an estimated 2m Poles have left the country in search of higher wages and a better standard of living. "Many young Polish workers are travelling to the West before they've finished their studies, then when they find out things aren't as good as they imagined, they return without an education. The whole job market in this part of the world is a shambles," exclaims William Chasey, president of the Polish-based Foundation for Corporate Social Responsibility.

This resulted in the unemployment rate dropping like a stone from 11.1% in January 2007, the highest among new member states, to 8.6% in January 2008, below even Estonia and Slovakia. Wages have consequentially shot up, with the average hourly cost of labour rising from €4.74 in 2004 to €6.03 in 2006, fanning inflation fears that threaten the recent rapid economic growth.

It's a similar story for most of the other new EU members. According to figures from the World Bank, the total population of the eight countries that joined the EU in 2004, namely the Czech Republic, Poland, Slovakia, Hungary, Estonia, Latvia, Lithuania and Slovenia, declined by 1.1m. That's more than the size of Estonia.

Darius Baltusis, a journalist from Lithuania, recently returned to Vilnius after a nine-month spell in the UK where he worked for a Lithuanian newspaper. He explains the strong temptation pulling many of his compatriots westwards. "The majority go there to do jobs like construction if they're men, or cleaning and catering if they're women. Most of them don't speak English, but they still earn much more than in Lithuania, and some earn really good money like £1,000 per week, or more," says Baltusis, who laments that he was unable to land such a position.

With tales of sky-high wages, it's not surprising that so many young people are tempted to head west to seek their fortune. But coupled with a naturally falling population, it's a trend that's severely affecting the region. As the pool of available workers slowly dries up, employees are realizing that they can virtually pick and choose where they work. Employers receive minimal response to their job ads and those who do apply feel no sense of long-term commitment. Job turnover has increased and wage demands have soared to completely unsustainable levels (currently 18% year-on year in Lithuania, 20% in Estonia and 30% in Latvia), which in turn fuels inflation.

Jelena Hdorak, a Project Manager at the Latvian recruitment agency Adros Baltija describes the situation as "devastating."

"Take the construction industry. Manual workers with no higher education are now getting a monthly salary of LVL1,000 (€1,400) - the same as skilled engineers, which is quite a respectable amount," says Hdorak.

Asian workers

Some companies in the region are tackling this problem head on by employing their own migrant workers from countries further east, such as Ukraine, Belarus and Russia. Many are even looking further afield.

Working in partnership with China's Shanghai Construction General, Polish developer JW Construction intends to employ Chinese workers on the Polish construction market. Together, the two firms aim to form a joint venture company that will compete for tenders on some of the countries biggest construction projects, such as the National Stadium and the Warsaw ring road.

JW Construction is not the only CEE firm looking to Asia to fill its dearth of employees. German-owned Czech carmaker Skoda has a similar strategy. In addition to offloading a proportion of production abroad, the Czech company has started to recruit workers from Vietnam to fill vacancies in its factories in the Czech Republic. "We have a shortage of labour so we are using employment agencies to bring in staff. Vietnam is one of the areas we are bringing people from," the company said in a statement. "We would rather find people closer to home, and it is a long way for them to come, but until we can find the right people nearer home this is what we will have to do."

The strategy is prudent, according to Paul Newton, an analyst at economic forecaster Global Insight. Newton says the situation in the Czech Republic is only going to get worse, especially now that South Korean car maker Hyundai is gearing up to open a new 3,000-worker plant in the country.

But it's not just manual workers that the Czech Republic is lacking. Last year, anti-virus software start-up Grisoft tried and failed to find 40 new workers to open a technical support centre in the Czech Republic. Instead, Grisoft was forced to turn to Bulgaria to grow. The company now plans to hire another 40 workers in the coming months in its Sofia office.

Dutch firm SEO predicts the Czech Republic will be short some 1.5m workers by 2050. If that's the case, it would be the worst labour shortage of all the countries in the EU. In a bid to avoid this scenario the Czech government is attempting to make it easier for migrants to settle in the country and form a decent labour pool by issuing green cards for workers outside the EU that will combine a residency and work permit.

Sitting in her office in Riga, recruitment agent Hdorak remains upbeat. She says new workers from countries further east such as Russia, Ukraine and Belarus can get her country out of trouble. "There is always a way out. The new workers from the East can help. The main problem they have is language because most of them don't speak Latvian. Of course there will be problems, and there are now, but they're not insolvable," says Hdorak.

Send comments to The Editor