Labour hoarding and future open unemployment in Eastern Europe: the case of Polish industry

Abstract

Labour hoarding ensures that unemployment remains disguised or mostly disguised in socialist economies. Labour hoarding was prevalent in the 1960s after the absorption of post-capitalist labour reserves. The pattern was similar in almost all East European Central Planned Economies (CPEs), but the nature of labour hoarding was different from market economies, where it is usually confined to smoothing adjustments over the business cycle. The paper contains an estimate of labour hoarding in Polish industry based on a Cobb-Douglas production function of the type employed earlier by Denison. A part of the residual factor of labour productivity growth that reflects underutilization of labour is used to derive estimates for labour hoarding. The results show a huge increase in labour hoarding (disguised unemployment rate) in Polish industry from less than 5 per cent of the labour force in the late 1960s up to more than 25 per cent in the late 1980s. The main conclusion is that as a result of western-type stabilization programmes, future open unemployment in Poland (and probably in other former CPEs) could be much bigger than government expectations unless various institutional changes supporting new openings and structural changes are initiated. The study also shows that a shifting out of the Beveridge curve (a typical phenomenon in market economics lately) can be observed in the Polish economy if the disguised unemployment rate is taken into account