Employment in Poland 2007: Security on flexible labour market

This Report is a third in the series Employment in Poland. It consists of four Parts, devoted to empirical analysis of the impact of macroeconomic shocks on EU New Member States labour markets‘ in 1996-2006; utilization of flexible forms of employment on Polish labor market, determinants of wages and wage inequalities in Poland; effectiveness of ALMP in Poland, respectively. In Part I, we present how the cyclical upturn propagated on Polish labour market in 2003-2007 and how the performance of that market evolved relatively to other EU countries. Then we apply a panel SVECM to study propagation of macroeconomic shocks in eight CEE countries which joined the EU in 2004. We show that demand side shocks (foreign demand and labour demand shocks) were of foremost importance to unemployment and employment fluctuations in the region. At the same time, we argue that the wage shocks, thought of as wage rigidities, were important internal disturbances affecting the developments on the labour markets in the region. Part II is devoted to atypical forms of labour employment. We show that in all CEE countries the incidence of nonstandard employment arrangements is much lower than in Western Europe. Although Poland stands out in the whole EU with its dynamic spread of temporary employment and integration of temporary work agencies in the functioning of the labour market, in general the potential of atypical employment in Poland and other CEE is largely unfulfilled when it comes to work- life balance or supporting the economic activity of people who find it difficult to work full-time due to age or health reasons. In case of Poland, we study in more detailed way the legal, infrastructural and tax-related factors affecting the utilisation of nonstandard forms of employment. In Part III, we study wage developments in Poland from macro- and micro-perspective alike. We argue that wage growth in Poland exhibited a significant inertia during the transition period. We find that the concurrent rise of wage inequalities in Poland was due to the fact that rapid technological progress favoured some professional and social groups more than others. The increasing return on formal education and rising premiums on work in managerial positions as well as increasingly diverse individual and market characteristics of Polish workers seem to play the key role. The public sector stands out with higher wage compression than private sector. We show also that, in international comparison, the gender wage gap in Poland is relatively small. Notwithstanding the above, even if differences in individual and employer characteristics as well as working time are taken into consideration, women still earn about ten percent less than men. Part IV focuses active labour market policies (ALMP). We assess the ALMP spending and structure in Poland and we use the survey, conducted for the purposes of this Report, to study to effectiveness of ALMP. To our knowledge, it is the first attempt at producing a rigorous and comprehensive evaluation of ALMP effectiveness in Poland in the recent years. Applying Propensity Score Matching, we find that intervention and public works turn out to be completely inefficient when it comes to enhancing employment chances of the unemployed. At the same time, even for those programs that are characterised by positive net efficiency, such as internships and traineeships, the deadweight loss is also high, i.e. support is extended to groups whose situation is relatively good, whereas more difficult cases are neglected. Thus, the placement of ALMP participants in Poland is sub-optimal, which partly reflects very poor job broking and counseling done by PES. We complete the report with policy implications

Unemployment and endogenous reallocation over the business cycle

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Hysteresis and the European Unemployment Problem

European unemployment has been steadily increasing for the last 15 years and is expected to remain very high for many years to come. In this paper, we argue that this fact implies that shocks have much more persistent effects on unemployment than standard theories can possibly explain. We develop a theory which can explain such persistence, and which is based on the distinction between insiders and outsiders in wage bargaining. We argue that if wages are largely set by bargaining between insiders and firms, shocks which affect actual unemployment tend also to affect equilibrium unemployment. We then confront the theory to both the detailed facts of the European situation as well as to earlier periods of high persistent unemployment such as the Great Depression in the US.

"Side Effects of Progress, How Technological Change Increases the Duration of Unemployment"

Why does a dynamic growing economy have a persistent long-term unemployment problem? Research Associates William J. Baumol and Edward N. Wolff have isolated one cause. Although technological change, the engine of growth and economic progress, may not affect or may even increase the total number of jobs available, the fact that it creates a demand for new skills and makes other skills obsolete can cause an increase in the overall rate of unemployment and the length of time during which an unemployed worker is between jobs. It goes without saying that society will not choose to slow technical innovation, but the task for policy is to find ways to offset the problems caused by this rising level and duration of unemployment.

Roots of the Recent Recoveries: Labor Reforms or Private Sector Forces?.

It is widely agreed that the natural unemployment rate recovered strongly in several OECD economies in the 1990s while not yet in the others. This paper draws on models by the authors endogenizing the path of the natural rate in order to trace the causes and apportion the credit. The results suggest that the five structural reforms of the labor market urged by the OECD Secretariat were effective and account for some of the recovery where adopted. However, the paper sees most of the recoveries as largely the emergence from structural slump to a structural boom--a boom brought by revived investment in employees, customers and fixed capital. Behind this revival is a recovery of business-asset valuations resulting from improved expectations for productivity growth and, judging by the stock market, hopes for a future lift in business earnings that exceeds extrapolations of the past--both driven by the "new economy."

Poverty Dynamics in Poland. Selected Quantitative Analyses

The present report summarises the outcome of a research project carried out jointly by researchers of the Polish Center for Social and Economic Research Foundation (CASE) and the German Centre for European Economic Research (ZEW) and funded by the Volkswagen foundation. The objective of this project is to analyse the mechanisms at work in the rise and persistence of poverty during transition in Poland, as well as its consequences for selected groups of the population. The transition process from a centralised to a market economy in Poland has been accompanied by an unprecedented increase in poverty and a deepening of inequality across households - not only in terms of income but also in terms of socio-economic status. Although a small number of studies describing the economic situation of the poor in Poland have been undertaken, our understanding of the mechanisms that make poverty persist in the household context is considerably limited. The interaction of a number of factors may for example, result in individuals being trapped in a vicious circle of poverty. Low household income may lead to social exclusion and family distress, which is likely to have far-reaching consequences for all household members. Social exclusion may contribute to foster alcoholism, impede the human capital investment in children, and thus jeopardise the socioeconomic situation of the next generation. Socially excluded people experience severe difficulties in finding re-employment. Social transfers might even worsen the situation by providing a disincentive to seek work. We need to understand the causes underlying the developments in social and economic hardship of Polish families during the course of the transition process. The introductory chapter therefore offers a general look at the picture of poverty in Poland; trends and new research results are described. In order to improve our understanding of the causes of social exclusion and to contribute to filling the gap in research we do not, however, restrict our attention solely to the analysis of the extent and nature of poverty in general but rather focus our analysis on issues that have been somewhat overlooked. This project contributes to the literature by investigating empirically different dimensions of the poverty debate in Poland - ranging from social exclusion through the relationship between transfers and labour supply to the transmission of poverty across generations. The empirical analyses are carried out on the basis of individual and household histories which are observed in the Polish Labour Force Survey and of administrative data on social assistance beneficiaries.alcohol abuse, education, labour supply, poverty, social exclusion, social transfers, unemployment

Competition Policy Trends and Economic Growth: Cross-National Empirical Evidence

Motivated by the general lack of empirical scholarship concerning the cross-national environment for competition policy, I present measures here of the overall resources dedicated to competition policy and the merger policy work-load for thirty-two antitrust jurisdictions over the 1992-2007 period. The data allow analysing a number of perceived trends in competition policy over the last two decades, and allow the generation of some factual insights concerning these trends: e.g., the budgetary commitment to competition policy in the cross-national environment for antitrust has substantially increased over this period; budgetary increases appear to be commensurate with increased antitrust workloads; yet, the role of economics does not appear to have substantially increased relative to the role of law. Moreover, I am also able to provide some evidence that budgetary commitments to antitrust institutions yield economic benefits in terms of improved economic growth: i.e., higher budgetary commitments to competition policy are associated with higher levels per-capita GDP growth. ZUSAMMENFASSUNG - (Entwicklungen in der Wettbewerbspolitik und Wirtschaftswachstum: Eine länderübergreifende empirische Untersuchung) Zu den Rahmenbedingungen für Wettbewerbspolitik gibt es kaum länderübergreifende empirische Forschung. Dieser Mangel soll in der vorliegenden Studie behoben werden, in der die Gesamtausgaben für Wettbewerbspolitik und die Arbeitsbelastungen von 32 Kartellbehörden im Zeitraum von 1992 bis 2007 untersucht werden. Die Daten bieten die Möglichkeit, eine Anzahl von erkennbaren Entwicklungen in der Wettbewerbspolitik innerhalb der letzten zwei Jahrzehnte zu analysieren. Folgende Erkenntnisse resultieren: die Gesamtausgaben für Wettbewerbspolitik sind länderübergreifend in der betrachteten Periode erheblich gestiegen; zur Etatsteigerungen sind auch die Arbeitsbelastungen der Behördenmitarbeiter entsprechend gestiegen; dabei hat die ökonomische Expertise jedoch im Vergleich zur juristischen offenbar nicht an Einfluss auf die Wettbewerbspolitik gewonnen. Außerdem kann gezeigt werden, dass die Bereitstellung von finanziellen Mitteln für die Wettbewerbbehörden eines Landes wirtschaftlichen Nutzen stiftet, was sich in einem höheren Wirtschaftswachstum gemessen als höheres BIP-Wachstum pro Kopf niederschlägt.Competition Policy, Trends, Growth

Low-frequency determinants of inflation in the euro area

We use frequency-wise Granger-causality tests and error-correction models to investigate the driving forces behind longer-run inflation developments in the euro area. Employing an eclectic approach we consider various relevant theories. With a general-to-specific testing strategy we distill the unemployment rate and long-term interest rates as causal for low-frequency variations of inflation. Money growth is found to be causal for inflation only if other variables are omitted, which we therefore interpret as a spurious result.money growth, Granger causality, quantity theory

From convoy to parting ways? Post-crisis divergence between European and US macroeconomic Policies

The response in 2008-09 to the global financial crisis was in many ways a high water mark for transatlantic policy coordination. The major economies of the EU and the US rapidly agreed on a series of measures to limit the crisis. However, the common approach has since unraveled. This paper explores why the Â?London consensusÂ? has not survived for much more than a year.In response to this situation this working paper suggests a critical quantum of coordination. Key measures include a commitment to avoiding deliberate currency depreciation and unilateral intervention; agreement to give the IMF an enhanced monitoring role; the adoption by parliaments of medium-term fiscal plans ; and cooperation on the issue of Chinese undervaluation.

Essays on non-search unemployment and monetary policy

This doctoral dissertation explores the role that institutions and policies can have in shaping aggregate economic outcomes. The thesis is comprised of an introductory chapter and three independent essays. All essays set up a clear structure that specifies how economic agents react to a changing environment. That is, each essay builds on the general equilibrium modeling of Macroeconomics. The first essay examines the equilibrium effects of occupational human capital protection during mass layoffs in a setup where human capital can depreciate during unemployment spells and commitment problems prevent markets from allocating layoffs optimally. As the consequences of the policy are tightly related to occupational mobility, the paper focuses on modeling reallocation incentives of heterogeneous workers. In a calibrated model, a policy that concentrates involuntary unemployment incidences to inexperienced workers, decreases workers’ incentives to reallocate, compared to an equilibrium where everyone faces an identical unemployment risk, leading also to a decrease in aggregate unemployment. Moreover, this policy change increases the market output and on average does not harm the inexperienced workers. The second essay explores the effects of unionization in an island model of Lucas and Prescott (1974) with different union structures. When a model with competitive labor markets is set to match the empirical fact that a large number of unemployment spells ends with recalls, an introduction of a large labor union, that represents all workers and sets a common economy-wide minimum wage, increases unemployment substantially. Moreover, the whole increase is about non-search unemployment as search unemployment actually reduces marginally. If the same degree of unionization is generated by a continuum of small unions, the aggregate unemployment reaction is somewhat smaller. However, the increase in non-search unemployment is still considerable. The workings of a large union are also explored when the union is assumed to bargain over the minimum wage with an employers’ organization. This environment leads to a considerably lower increase in aggregate unemployment. Yet again, the search intensity of unemployed workers drops significantly. In the third essay we show that the cancellation of income and substitution effect implied by King-Plosser-Rebelo (1988) preferences breaks tight coeff- cient restriction between the slope of the Phillips curve and the elasticity of consumption with respect to real interest rate in a sticky price macro model. This facilitates the estimation of intertemporal elasticity of substitution using full information Bayesian Maximum Likelihood techniques within a structural model. The US data from the period 1984–2007 supports low intertemporal elasticity of substitution and strongly rejects a logarithmic and an additively separable utility specification commonly applied in the New Keynesian literature.Tämä väitöskirja tarkastelee instituutioiden ja politiikkatoimenpiteiden vaikutuksia koko talouden tulemien kannalta, keskittyen erityisesti työmarkkinoihin. Työ koostuu johdannosta ja kolmesta itsenäisestä esseestä. Tarkastelu pohjautuu yleisen tasapainon malleihin. Ensimmäinen essee tutkii ammatillisen osaamisen suojelun vaikutuksia irtisanomistilanteissa, kun inhimillinen pääoma voi rapautua työttömyysjaksojen aikana ja epätäydellisistä sopimuksista johtuen markkinat eivät kohdista irtisanomisia tehokkaasti. Koska politiikkamuutoksen seuraukset ovat läheisesti sidoksissa ammatilliseen liikkuvuuteen, essee keskittyy heterogeenisten työntekijöiden uranvaihtojen mallintamiseen. Kalibroituun malliin pohjautuvat tulokset indikoivat, että irtisanomissääntö, joka kohdistaa työttömyysjaksot ensisijassa kokemattomiin työntekijöihin, laskee ammattien välistä liikkuvuutta verrattuna tilanteeseen, jossa kaikki työntekijät kohtaavat saman työttömyysriskin. Toisaalta talouden työttömyys on pienempää ja tuotanto suurempaa, kun irtisanomiset kohdistuvat kokemattomiin työntekijöihin. Väitöskirjan toinen luku tarkastelee erilaisten ammattiliittorakenteiden merkitystä Lucasin ja Prescottin (1974) mallin avulla. Kun kalibroinnissa huomioidaan, että suuri osa työttömyysjaksoista päättyy paluuseen samalle työnantajalle, suuren ja kaikkia työntekijöitä edustavan ammattiliiton vaikutus minipalkkaan ja työttömyyteen on merkittävä. Lisäksi koko työttömyyden lisäys on työnhaun poissulkevaa työttömyyttä. Jos vastaava järjestäytymisaste saavutetaan monien ammattiliittojen toimesta, työttömyyden ja minimipalkan reaktiot ovat pienempiä. Kuitenkin myös tässä tapauksessa työnhaun poissulkevan työttömyyden kasvu on huomattavaa. Tutkimuksessa tarkastellaan myös tilannetta, jossa suuri ammattiliitto neuvottelee minimipalkasta työnantajajärjestön kanssa. Tässä tapauksessa työttömyyden reaktiot ovat selvästi maltillisempia. Kolmannessa esseessä tarkastellaan uuskeynesiläistä mallia, jossa työn tarjonnan tulo- ja substituutiovaikutus kumoavat toisensa, kun taloudenpitäjien preferenssejä kuvataan tasaisen kasvun mukaisilla ns. King–Plosser–Rebelopreferensseillä (1988). Tällöin talouden inflaatiodynamiikkaa kuvaavan Phillips-käyrän kulmakertoimen – inflaation kustannusherkkyyden – ja kulutuksen korkojouston välinen tiivis yhteys rikkoontuu. Tämä ominaisuus helpottaa kulutuksen kasvuvauhdin korkoherkkyyttä mittaavan parametrin eli intertemporaalisen substituutiojouston estimointia rakenteellisissa malleissa, kun estimoinneissa käytetään täyden informaation bayesilaista suurimman uskottavuuden estimointimenetelmää. Yhdysvalloista kerätyssä, ajanjakson 1984–2007 kattavassa aineistossa intertemporaalisen substituutiojouston arvo estimoituu pieneksi