Poland lowers its retirement age Sunday, a costly election promise by the ruling conservatives that goes against a European trend of gradually increasing the pension age as people live longer and stay more healthy.

Lowering the age to 60 for women and 65 for men is popular in particular among supporters of the governing right-wing Law and Justice (PiS) party, and reverses an increase to 67 approved in 2012 by the former centrist government.

It is seen as having a limited immediate impact on the economy, which is booming, but might put pressure on state budgets in the future.

Unemployment low

The move comes at a time when unemployment in Poland has fallen to its lowest level since the transition from communism in the early 1990s, and could increase the pressure on wages, which are growing at their fastest pace in five years.

“The Polish labor market faces increasingly limited access to workers,” said Rafal Benecki, a Warsaw-based economist covering central Europe at the ING Bank.

Poland’s population of 38 million is among the most rapidly aging in the European Union.

“The government is throwing away the most effective tool to increase the labor market participation rate,” Benecki said.

The state pension agency ZUS has estimated that 331,000 people could decide to take advantage of the option to retire earlier, which would amount to 2.0 percent of Poland’s 16.3 million workers.

Labor from Ukraine

Economists and central bankers say the rising flow into Poland of hundreds of thousands of workers from Ukraine could reduce the pressure on wages.

Labor ministry figures show that Polish employers requested more than 900,000 short-term permits for Ukrainian workers in the first half of 2017, compared with 1.26 million in the whole of the previous year.

“With the inflow of workers from Ukraine, so far the problem that some have foreseen — labor shortages, pressure on the labor market — is diminishing,” central bank Governor Adam Glapinski said in early September.

The PiS government has estimated the cost of the retirement age reduction at 10 billion zlotys ($2.74 billion) in 2018, roughly 0.5 percent of GDP.

Since coming to power in 2015, the current government has sharply increased public spending to meet campaign pledges to help families and distribute the fruits of economic growth more evenly.

Despite the increase in spending, the state budget posted the first surplus for the January-August period in more than two decades, mainly because of a government crackdown on tax evasion and because a new child benefit has fuelled consumption.

Economic growth reached 3.9 percent in the second quarter, but economists warn that the higher cost of pensions could cause problems if the economy slows.

“I’m worrying what will happen when the economic cycle turns,” said Marcin Mrowiec, chief economist at Bank Pekao.

“We might wake up with wages above levels that firms can cope with and … permanently higher budget spending on pensions.”
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