Transition  LABOR   

Polish Big Bang and Unemployment

by Nicoline Blom:

 The Polish decision to follow the shock therapy approach had great ramifications for the economy.  One aspect of the economy that was immensely effected was the labor market.  However, this effect was anticipated but not to the extent that it grew.  Before the "Big Bang" was underway, the Polish government, on December 29, 1989, created the Act "On Employment".  This act was established to deal with the unemployment issue before it actually arose.  This act stated for the first time that unemployment was actually an issue and the unfortunate people will be able to receive benefits form the government following specific guidelines. 

    The good intentions of the government, however, did not eradicate the problem.  "The number of unemployed rose sharply in 1990.  From zero or close to zero at the start of the year, unemployment grew to 6.1 per cent of the labor force (1,124,000) by the end of 1990." (Gora, p.154)  This percentage may seem high, but it has not taken into account the hidden and structural unemployment that persisted under the command economy.  This growing unemployment occurred for several reasons.  Industrial production as well as demand decreased greatly after shock therapy was enforced.  Inflation occurred and the people did not have the funds to buy products.  Hence, labor is decreased in order to reach equilibrium.  In compliance with a decreasing demand for labor, real wages decreased.  A penalty tax was implemented to discourage firms from increasing wages above a specific level.  This occurred for stabilization reasons. 

 Labor hoarding is recognized as an evil attributed to the state firms.  The state firms are still employing too many workers to be efficient.  This is not allowing the labor force to relocate to new businesses where they are needed.  Until labor is able to redistribute and strong policies are implemented to curb unemployment the situation will persist or worsen.

Chilosi, Alberto. ECONOMIC TRANSITION AND THE UNEMPLOYMENT ISSUE., Economic systems, Vol.17, No.1, March 1993, pp. 63-78.

 Gora, Marek. SHOCK THERAPY FOR THE POLISH LABOUR MARKET.   International Labour Review, Vol. 130, 1991, No. 2 pp.146-161.

 Murrell, Peter. WHAT IS SHOCK THERAPY?  WHAT DID IT DO IN POLAND AND RUSSIA?. Post-Soviet Affairs, 1993, 9, 2, pp.111-140.

 Sachs, Jeffrey. THE ECONOMIC TRANSFORMATION OF EASTERN EUROPE: THE CASE OF POLAND. economics of Planning, 1992, 25, pp.5-19.

SHOCK THERAPY OR GRADUALISM FOR POLAND?
Michael Nachshen:

      Poland's economic transformation from a command to a market economy has been a rapid one. The transition in Poland began with liberalization and an attempt at stabilization in January of 1990. Private enterprise has become an  integral part of the economy. However, the growth in the private sector has  slowed down. It increased by 2.8% in the second half of '92 as opposed to 4.8% in the first half, and although it continued to grow in '93, it only increased by .1%. (1173)

The increases in the private sector failed to offset the decrease in employment in the public sector. However, it appears that growth in unemployment has slowed-down a bit. Public employment grew at a rate of 11.7% in '98,  6.6% in '90 and 6.1% in '93. (1173) Unemployment increased by 6.3% in '90,  5.5% in '91, 1.8% in '92 and 1.9% in '93. Unemployment  now stands at 15.7%.

      By American standards, this is extremely high, but it isn't so bad by many Western European standards. In Spain for example, unemployment hovers between 20-25%, and in the Andalusia province, is 30%. (Observed while living  in Spain)

  GDP in Poland however, has done the opposite. It initially declined by 18.3% from 1989-91, but increased from 1991-93, where it is now at 86.2% of  its 1989 level.

 There have been negative effects from shock therapy. However, it can be argued that now Poland seems to be recovering, whereas it still might be in decline if the gradualist approach were used.

Blanchard, Olivier Jean "Transition in Poland" The Economic Journal, September 1994

 

 

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