EU membership led to rapid economic change
When my family moved to Prague for several years in 2003, the Czech Republic was on the cusp of a major transformation. Just a year later, the country joined the European Union (EU)—a decision that would become a defining moment in its modern history.
Back in the early 2000s, life in Prague felt remarkably affordable. A pint of beer cost just 15 CZK, about 50 Euro cents, while a cheeseburger at McDonald’s was a mere 10 CZK (33 Euro cents).
Historically, Bohemia had been part of the industrial heartland of the Austro-Hungarian Empire, a hub of manufacturing and culture. However, decades of communism and a difficult post-Soviet transition had left the country economically stagnant.
Czech Republic began a rapid journey of growth and modernization when it joined the EU. Infrastructure improved, foreign investment poured in, and living standards rose dramatically. Today, it’s astonishing to see the extent of the change in Prague. Prices are now comparable to those in Germany, and incomes are also high.
This story is not unique to the Czech Republic; it reflects a broader trend across Eastern Europe. The EU’s support and integration policies have turned what were once struggling economies into some of the fastest growing and most dynamic regions in the world. This blog explores how the EU has played a pivotal role in creating one of the greatest economic success stories of our time: the rise of Eastern Europe.
Eastern Europe successfully transitioned to high-income status
The World Bank classifies countries by how wealthy they are, ranking them from low income to high income. In the early 1990s, following the of disintegration of the Soviet Union, Eastern European countries like Czech Republic, Poland and others were still in the lower-middle income group. More than 40 years of communist leadership had led to long-term economic stagnation and poverty. As those countries transitioned to capitalism with the prospect of EU integration, economic growth took off rapidly.
Source: World Bank
As of today, every single Eastern European country that has joined the EU is now part of the rich group, transitioning from lower-middle to upper-middle to high-income group in just over two decades! That is a remarkable success story that is pretty much unique to Eastern Europe. In the same time period, many other regions around the world have struggled to obtain high-income status (think, Latin America).
Source: World Bank
Incomes and wages have risen rapidly
The chart below shows the extent to which GDP per capita has risen in Czech Republic in recent decades relative to Germany, from less than 20% in 1995 to about 60% in 2024. And the chart even understates the amount of improvement that was made. Given that prices are still cheaper in Eastern Europe, actual living standards have converged more.
Because of this distortion, economists typically look at incomes or wages adjusted for purchasing power (local prices). Average annual wages in countries like Poland, Estonia, and the Czech Republic are about 60% of German wages nowadays. Slovenia and Lithuania stand out as two Eastern European countries that are even richer.
Note: For the purpose of the analysis, we have grouped together the three Baltic countries (Estonia, Latvia, Lithuania) and three central Eastern European countries (Czech Republic, Hungary, Slovakia) as to not overcrowd the charts.
Eastern European capitals are rich now
The Eastern European capitals have especially benefitted from recent economic growth. While GDP per capita in most of Eastern Europe is still below the West, especially in some of the more remote and rural regions, capitals like Prague, Bratislava, Budapest, and Warsaw have now much higher living standards than the EU average. These cities, of course, have large populations, relative to rural areas: 1.7 million out of 10 million Hungarians live in Greater Budapest, about 1.3 million of 10 million Czech live in Prague.
GDP per capita across EU regions (EU average = 100), adjusted for purchasing power
Labor markets are tight
Labor markets in Eastern Europe are currently tight. Unemployment rates across the region are low, typically below 5% except for the Baltic states.
Demographic developments will favor workers in the years to come. For now, net migration in Eastern Europe is still relatively low compared to the West. Furthermore, fertility rates have been plummeting since the 1990s. Most Eastern European nations like Hungary and Czech Republic will soon experience shrinking population levels. Worker bargaining power is therefore expected to increase as labor shortages become more prevalent, which should also continue to drive up workers’ wages.
Prime-age labor force participation has been rising since 2000 across Eastern European economies thanks to higher female participation rates (potentially one of the factors contributing to lower fertility). Participation rates in the region are generally above 75%, exceeding those of Southern Europe.
An educated workforce rising economic complexity
Eastern Europe also boasts a highly educated and tech-savvy workforce, a legacy of rigorous educational systems and a strong emphasis on technical and scientific fields during the socialist era. This foundation has been further enhanced by access to modern technologies and the global digital economy, making the region a hub for innovation and IT services. Countries like Poland, the Czech Republic, and Estonia have emerged as leaders in software development, cybersecurity, and engineering, with a growing number of startups and tech companies thriving in these sectors.
Enrollment in tertiary education is commonly exceeding 70%, putting it as high as in Germany. Language knowledge of English, but also German and Russian, is widespread, too.
The combination of academic excellence and technological proficiency has positioned Eastern Europe as a competitive player in the global market, attracting significant investment and fostering economic growth.
In recent years, the Economic Complexity Index (ECI) for many Eastern European economies has been steadily rising. A higher ECI indicates more diverse and sophisticated production capabilities. It also shows an ability to diversify and innovate across various sectors.
The ECI is strongly correlated with per capita GDP. The upward trend showcases how Eastern European countries have moved beyond traditional manufacturing to incorporate advanced industries such as automotive engineering, electronics, and information technology. This enhances their economic resilience, making these economies less vulnerable to external shocks and more adaptable to changing global market demands.
Joining the EU has catalyzed one of the most remarkable economic success stories in the world, transforming Eastern Europe into a region of high-income economies. The integration into the EU provided access to vast markets, significant investment, and structural funds that fueled modernization and growth. This access accelerated economic convergence with Western Europe, enabling countries like the Czech Republic, Poland, and Hungary to rise rapidly in prosperity and global competitiveness.
Recruiters should no longer view Eastern Europe as a source of cheap labor but rather as a wellspring of skilled and highly educated professionals. Cities like Prague, Budapest, and Warsaw have emerged as vibrant centers for talent in fields such as finance, technology, consulting, and advanced manufacturing. Global banks, tech giants, and consulting firms are increasingly establishing operations in these cities, drawn by their rich pools of expertise and innovative environments. Prague, with its thriving tech scene, and Warsaw, known for its growing financial services sector, exemplify the region’s transformation. As wages rise and economic complexity deepens, the narrative has shifted from low-cost labor to a strategic workforce capable of propelling businesses to new heights in the competitive global market.
