McDonald’s Free Housing Lays Bare East Europe’s Labor Crunch

Photographer: Luke Sharrett/Bloomberg
  • Hundreds of thousands of unfilled jobs threaten investment
  • Shortage of workers ‘keeps executives up at night,’ PwC says

Better-known for low-paid jobs than generous incentive packages, McDonald’s Corp. is facing a labor shortage so dire in Hungary that it’s offering free rooms to out-of-town burger flippers.

The accommodation -- a rare benefit in the more than 100 countries where the fast-food giant sells Big Macs and Happy Meals -- is just one perk employers in eastern Europe are dangling to fill open jobs. Others getting sweeteners include cashiers at Lidl Ltd. in Prague and software developers in Bucharest.

Once deemed a land of abundant cheap labor, the region has become a headache for employers. Aging populations, an aversion to mass immigration and the exodus of millions to richer European states have left thousands of jobs unfilled and bumped salaries higher. That spells increased costs for companies, and the threat of reduced investment for economies that have thrived since European Union membership.

“The labor shortage is what keeps executives up at night across eastern Europe,” said Robert Bencze, director of PricewaterhouseCoopers LLP’s human resources consultancy business in Budapest, citing an annual PwC survey. “The first question investors now ask themselves before coming here is ‘will I be able to find enough employees to make my business work?”’

The labor drought is worsening at an alarming pace. The number of unfilled positions climbed 166 percent in the past two years to about 110,000 in the Czech Republic, where unemployment is among the EU’s lowest. In Latvia, that share has tripled over the past year while in Poland it’s doubled since December.

In a bid to fill its own vacant jobs, McDonald’s ran ads this year in Hungarian newspapers offering free lodging, with employees only required to pay utility bills. The Oak Brook, Illinois-based company declined repeated requests for comment beyond a press statement published in May.

The dearth of labor isn’t limited to the restaurant business.

Lidl, which operates grocery stores, raised salaries by a quarter in the Czech Republic and by a fifth in Hungary. Romanian software engineers are being plied with gym and spa vouchers.

Car Plants

In Slovakia, a manufacturing powerhouse that makes the most cars per capita globally, PSA Peugeot Citroen employs Romanians, Bulgarians, Serbians and Hungarians, though most staff remain local, human-resource director Lubomir Kollar said last year. Companies must offer training and housing to lure more workers, Slovak Automotive Industry Association head Jan Pribula told the Hospodarske Noviny newspaper in August.

Kia Motors Corp. is a case in point. While its plant in Zilina, northern Slovakia, is set for another record year, it’s starting to feel a “real shortage of labor,” according to local spokesman Jozef Bace.

“Increasingly, more applicants lack the skills needed in the car industry, and quite often they aren’t interested in long-term employment,” he said by e-mail. “Recently, it’s hard to fill even less-qualified positions such as assembly-line and paint-shop operators.”

The result is surging pay checks and higher corporate expenses: Romanian gross wages grew 12.4 percent year-on-year in July following a 14.3 percent jump in June, the Statistics Office said Tuesday. Wage hikes are in many cases outstripping efficiency improvements, with Lithuania predicting salaries will rise 6.5 percent a year through 2019, double the pace of productivity growth.

Hungarian unit labor costs have risen the most in central Europe this year, according to Morgan Stanley. The increase wasn’t offset by a higher productivity, “which matters a great deal” for economic growth, the bank said in an August report.

“Eastern European economies have until now bagged the low-hanging fruit, providing plenty of cheap labor for investors,” said Martin Kahanec, a professor of public policy at Central European University in Budapest. “Now the hard work comes, investing in education and creating worker mobility, otherwise businesses will move.”

Shrinking pools of labor risk jeopardizing inflows of foreign investment, which helped propel ex-communist nations such as Poland and Slovakia to average annual growth rates of about 4 percent since joining the EU in 2004, more than twice the pace of western peers. Hungary recently lost out on a car-industry project because of the dearth of labor, Economy Minister Mihaly Varga told the Figyelo magazine in August, without naming the company.

“It’s a question of quantity and quality of labor across eastern Europe,” said Dirk Wolfer, a spokesman at the German-Hungarian Chamber of Industry and Commerce, which represents companies including Daimler AG and Commerzbank AG. “This needs to be solved in the next few years, otherwise investment may suffer.”

New Projects

For the time being, companies are still coming. Jaguar Land Rover is seeking 2,800 workers for a new plant in Slovakia, due to begin operations in 2018. While large-scale recruitment won’t start for 12-18 months, a Jaguar spokeswoman said by e-mail that the company had been “overwhelmed” by early interest in positions.

Daimler’s Mercedes division announced in July it would expand capacity in Hungary, adding 2,500 jobs by 2020. It didn’t respond to e-mailed questions about labor challenges.

Eastern Europe still has its advantages. Wages remain a fraction of those in the west, even after the recent upsurge. Governments are overhauling educational institutions to gear them more toward the labor market.

In the meantime, companies may have to follow McDonald’s lead and get creative to help meet their hunger for workers.

“Providing housing can be an effective recruitment tool for other industries as well in areas suffering from labor shortages,” McDonald’s said in its statement.

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