1

Chapter 4

Economic Transition in Poland and Problems of Unemployment

Masahiro TAGUCHIFaculty of Economics, Okayama Univeristy

Ⅰ Macroeconomic changes and problems of unemployment

Ⅱ Basic unemployment data

1. Definition of "unemployment" 2. Sources of information on unemployment 3. Actual situationⅢ Unemployment in Poland 1. High rate of unemployment 2. Territorial diversity 3. Unemployment among young people 4. Unemployment among unskilled workers 5. Long-term unemployment

Ⅲ　Concluding remarks

2

In this article the author intends to outline problems of unemployment in Poland. During thetransition period Poland suffered profound economic recession and mass-scale unemployment. Thosephenomena had been predicted in advance in the programme of radical economic reform. However,the decline of production and the growth of unemployment were much greater than it was initiallyanticipated. That situation gave rise to various political and social problems, i.e. mass-scaleunemployment. Those problems were bred not only by considerable disproportions and a radicalcharacter of economic reforms, but at the same time were due to many errors in economic policy.

The author shall first present the initial political and economic situation in which the radicaleconomic plans and the policy of counteracting unemployment in Poland were selected, and then thecharacteristics of unemployment in Poland. In order to read and understand the statistics properly healso provides us with the definition of unemployment and describes its impact on the level ofunemployment.

Ⅰ Macroeconomic changes and problems of unemployment

The process of transition is composed of three elements: stabilisation, liberalisation andrestructuring. Those three elements are mutually interrelated. In particular, attainment of macro-economic stability constitutes a premise for restructuring of the economic system. Theoretically, aradical policy of stabilisation and liberalisation would guarantee prompt restoration of macro-economic equilibrium and initialisation of profound restructuring. However, such a policy may beaccompanied by various negative socio-economic phenomena, such as mass scale bankruptcies,unemployment, recessions, etc.

Each country of Central and Eastern Europe selected a different policy. Hungary, where theeconomic reform was implemented step-by-step within the former socialist economic system, chosegradualism. Czechoslovakia, where there was no significant macro-economic disproportions, choseliberalism, though not a shock therapy.Poland selected shock therapy for several reasons. Firstly, the economic disproportions wereextremely large and the immediate regaining of macro-economic equilibrium was given priority ineconomic policy (Table 1). Theoretically, there was an option of gradualism, but the governmentconsidered gradualism to be a prolongation of "pain" and postponement of the solution into the future.Secondly, only Balcerowicz could prepare a realistic plan in a short time since he had compiled such aplan in the early 1980s. It is the so-called "Report of the Balcerowicz Group" and provides for aradical and total transformation. Thirdly, at the beginning of transition, the people demanded thefastest possible departure from the old system, and politicians tended to avoid such policies whichwould be reminiscent of the old method typical of socialism. Therefore, they avoided industrial policyand presented a radical reform. Fourthly, without shock therapy it would be difficult to gain activesupport of the IMF and the World Bank. Gradualists frequently claim that the deep recession in Poland was a negative consequenceof shock therapy. Though profound recession was also experienced by Hungary, Czechoslovakia andother countries (Figure 1). Its causes lie not only in the radical character of the reform. One may quotea multitude of various factors which caused the so-called transitional recession.

3

Table 1 Initial conditionsPoland1989

Hungary1990

Czechoslovakia1990

Romania1990

Bulgaria1990

Macroeconomic balanceInflation－Consumer

Price Index(%)640 35 16 8 88

M2/GDP Dec. (%) 30 42 64 46 84

Decreasing pressurefor higher wages

1987～Reform(%)a) Rate of wage

raise : Wageraise corrected byinflation minuschange of GDP

b) Wage raisecorrected byinflation minuscorrectedconsumption

20.4

21.4

0.6

5.8

－9.1

－13.5

20.3

－4.8

21.6

8.6

Current account/GDP(%)

－1.7 1.2 －2.9 －8.5 －3.7

Budget deficit(surplus) / GDP(%)

－7.4 0.5 －0.4 1.2 －8.5

net externaldebt/GDP

(%)

44 61 16 2 63

Black market rate ofhard currency/

official rate

severalhundred %

30% 250% n.d. severalhundred %

Structural characteristics

Industry/GDP1988～(%)

52 36 57 61 58

Exp. to COMECON1988～(%)

43 45 51 61 25

EstimateCOMECON shock

as GDP reduction(％)

a) Bruno, 1993**b) Rodnik,

1993***c) Rosati,

1993****

－4－3.5

3.5 bil. dol. = －5

－8－7.8

3.3 bil. dol. = －10

－9－7.5

2.8 bil.dol. = －6

－10 －16

5.3 bil. dol. =－21*

Systemic characteristics

Price liberalizationbefore the introduc-tion of the reform

Limitedwithout somefoods’ prices.Partly libera-lized in 1989.

85% of priceswere libera-lized in 1990under the still

distortedmarket.

None NoneNone without

liberalization of15% of foods’

prices

Institutional reformbefore the introduc-tion of the reform

Limited.“Market

socialism”after 1981.

Advanced.“Market

socialism”type reformafter 1968.

No reform No reform No reform

Others

Political power oftrade unions

Very strongtrade unionsand councils

of self--governments

Weak Weak

Very strongtrade unions,especially inmining and

heavyindustry

Relativelystrong trade

unions, whichhelped political

change

4

* GDP=24 billion (am.) dollars.

** Bruno, M., Blejer, M., Calvo, G., Coricelli, F., Gelb, A. H. (1993) Eastern Europe in Transition:

From Recession to Growth? Proceedings of a Conference on the Macroeconomic Aspects of Adjustment, World

Bank Discussion Paper,

no 196., Washington.

*** Rodrik (1993), D. Making Sense of the Soviet Trade Shock in Eastern Europe: A framework for some estimates,

Harvard University,

mimeo.

**** Rosati, D. K. (1993) The Impact of the Soviet Trade Shock on Output Levels in Central and East European Economies,

Report at

conference: Output Decline in Eastern Europe. Austria.

Source: Balcerowicz, L. Socjalizm, Kapitalizm, Transformacja. Warszawa: PWN, 1997, p.244-255.

　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　

1. As a result of monetary restraint and price liberalisation the economy characterised by insufficient

supply changed into the economy characterised by insufficient demand. Notwithstanding the recession

the government let this problem to be solved by the market mechanism and continued the monetary

restraint policy.

2. The collapse of the socialist system ended "bureaucratic coordination", though "market coordination"

was not formed overnight. Hence the initiation of undertakings based on market mechanism was

delayed.

Source: Rocznik statystyczny 1996. Warszawa: GUS, 1996, p.666.

3. The collapse of COMECON badly hit the industries and agriculture, which were directed mainly

towards that area.

Figure 1 The evolution of GDP (Value in the previous year = 100)

-20

-15

-10

-5

0

5

10

1989 1990 1991 1992 1993

(%)

Poland Hungary Czechoslovakia Romania Bulgaria

5

4. So-called soft financial constraints were replaced by hard financial constraints. State enterprises were

faced with the problem of arrears in payments due, and for newly started businesses credit was hard to

get.

As has been mentioned earlier the factors causing transformational recession are not typical

exclusively of those countries which had chosen shock therapy. If so, what has caused the difference

between the scale of unemployment in Poland (16.0% in 1994) and the Czech Republic (3.2% in 1994)?

In Czechoslovakia enterprise management was not radically rationalised. A relatively small

decline of employment in state-owned enterprises was on the other hand accompanied by a fast growth of

employment in the private sector. Secondly, wage elasticity relative to employment was rather high in

Czechoslovakia. Thirdly, the rate of labor outflow from the job market was high. Those factors contributed

to keeping the rate of unemployment at the law level.

Contrary to Czechoslovakia, the rate of labor outflow from the job market and the rate of

outflows from unemployment to employment are low in Poland. One of the main reasons for this state of

affairs is the fact that it is easy to get registered and obtain unemployment benefits in local labor offices.

High unemployment benefits contributed to people's retaining the unemployed status. This system was

shaped against the background of profound recession and restructuring, as well as growing social

dissatisfaction and pressure.

Ⅱ Basic unemployment data

1. Definition of "unemployment"Unemployment statistics are carried out in two categories:

1. Data under the Law on employment and counteracting unemployment - so-called registered

unemployment.

2. Data under the standard international category.

Both categories are presented in the Annex. Certain differences between the tow categories may

be observed, such as e.g. differences in the age of the surveyed, though the biggest problem lies not in

categories and classification of the unemployed but in the applications of those categories in practice and in

the data collection methodologies.

2. Sources of information on unemploymentThere are different sources of unemployment statistics in Poland.

1. Information provided by the Central Statistical Office (GUS) refers the unemployed according to the

definition compatible with the existing Law on employment and counteracting unemployment. In

practice those are people registered at the regional labor offices (see point 3). At the same time, there is

information on the state of unemployment derived from the Polish Labor Force Survey (BAEL). This

information is published in Statistical Yearbooks, Statistical Bulletins and other GUS publications. The

definition of unemployment has been changes several times in consecutive Laws and in this sense those

data are not strictly comparable over time.

2. Information on the state of unemployment compiled on the basis of labor market reports prepared by the

Ministry of Labor and Social Policy. Those data are published i.a. in Rynek Pracy (a monthly bulletin of

the National Labor Office).

3. Information derived from the Polish Labor Force Survey (BAEL), which records people actually

remaining jobless (even seasonal or part-time jobs) regardless of whether they are registered as

unemployed or not. The survey has been continuing since May 1992 and is carried out quarterly.

Information is compiled on the basis of a representative survey and refers to people at the age of over

6

15 years who are considered unemployed. The definition of unemployment and the data collection

methodology are consistent with the recommendations of the International Labor Organisation.

4. The population census carried out according to the standard international methodology. It covers a wide

scope of information which is fully comparable with data from other countries.

5. Independent research and so-called follow-up surveys developed by various institutions or individual

scholars.

3. Actual situationAccording to BAEL unemployment is generally smaller than that indicated by the data provided

by labor offices. The difference in data is dependent on the difference of definitions and survey

methodologies. According to BAEL the unemployed are those people who within the week under survey

were not working, were actively looking for a job and were ready to accept it. On the other hand, registered

unemployment covers all registered people, not only those that have been laid off, but also those who have

been previously occupationally passive. This phenomenon arose due to the easiness of getting registered

and the relatively high unemployment benefits as compared with other social benefits such as e.g. child

upbringing allowances. As a matter of fact more or less one-fourth of the unemployed are not looking for a

job and are merely registered at labor offices (1). In this way the rate of unemployment established on the

basis of registration is overstated.

On the other hand there is concealed unemployment. There are some 400 regional labor offices

in Poland. Some of them have branch offices. If the people want to register themselves as unemployed they

have to travel to a labor office. In the country the offices are frequently situated at a considerable distance

and some people give up registration because of the time wasted for travelling and the cost.

At the same time, there is a problem of the grey area of the economy. The grey area provides jobs for such

groups as retirees and pensioners, students, women flexibly dividing their time between home making and

work in the grey area (additional occupational activation of women), additional jobs for people officially

employed in state enterprises, illegal employment for foreign immigrants as well as the registered

unemployed and for those who make up concealed unemployment in agriculture. According to GUS, in

1996 2.4 million people worked illegally, for merely 180 thousand that being permanent employment, and

for 220 thousand seasonal. Others worked illegally only for several days a year. Those are people who have

no other jobs outside the grey area or people having permanent jobs elsewhere and undertaking additional

jobs (e.g. small farmers). Within the first eight months of 1995 some 14% (200 thousand) of the total

number of the unemployed took up jobs without registering (2).

The amount of registered unemployment should be increased by concealed unemployment; also taken into

account should be those who are not actively seeking a job and those who work in the grey area.

Ⅲ　Unemployment in Poland

Unemploynment in Poland is characterised by six main features. These are (1) High rate of

unemployment, (2) Territorial diversity, (3) Unemployment among young people, (4) Unemployment

among unskilled workers, (6) Long-term unemployment.

1. High rate of unemployment Unemployment had risen significantly after the political change in 1989. The increase in

unemployment between 1 quarter 1990 and 4 quarter 1996 in shown in Figure 2 and in Annex. By 1 quarter

1994, the unemployment rate had risen to 16.7%. It slightly fell in 1995 and 1996, mostly due to economic

recovery.

Unemployment of Poland is definitively higher than other Central and East European countries

in transition. The unemployment rate in Poland is 16.0% in 1994, whereas in Czech Republic it is 3.2%,

7

Hungary – 10.9%.

Source: Data based on Labour Force Survey in Poland. November 1996. Warszawa: GUS,

1997, p. XXI.

2. Territorial diversity Table 2 presents territorial diversity of unemployment. The unemployment rates in the main

cities (Warszawa, Krakow, Poznzn, Katowice) remained very low, with exception of Lodz, traditional

textile industry was collapsed. The unemployment is higher in the rural areas, especially in the region

where there are large state farms (Slupsk, Suwalki, Koszalin, Olsztyn, Walbrzych). There has been little

Table 2 Regions with the Lowest and Highest Unemployment (End of 1993 and 1994) 　　　　　　　　　　　　　　　　　　　Unemployment rate = %

1993 1994Poland -- Total 15.7 16.0A. Region (voivodship) withlowest unemployment rate1. Warszawa

7.2 7.5

2. Krakow 7.7

8.5

3. Poznzn 8.2

8.8

4. Katowice 9.7

10.1

5. Bielsko-Biala 11.1

11.5

Average (unweighted) 8.8

9.3

B. Region (voivodship) withhighest unemployment rate1. Slupsk

28.7 30.5

2. Suwalki 28.6

29.1

Figure 2 Registered Unemployment in Poland (1990-1996)

0

500

1000

1500

2000

2500

3000

350090

.1 2 3 4

91.1 2 3 4

92.1 2 3 4

93.1 2 3 4

94.1 2 3 4

95.1 2 3 4

96.1 2 3 4

Year/Quarter

Une

mpl

oym

ent (

in th

ous.

)

8

3. Koszalin 27.8

28.0

4. Olsztyn 26.8

28.2

5. Walbrzych 24.5

27.1

Average (unweighted) 27.3

28.6

Source: Mieczyslaw Kabaj. Programmes and Strategies for Counteracting Unemployment and the Promotion of Productive Employment in Poland. ILO-CEET Report No.15,

　　　　　　　Budapest, 1996, p.12.

change in recent years in the regional diversity of unemployment. “Selected data on unemployment by

region” (Annex) shows that the structural problem of regional diversity is still unchanged.

3. Unemployment among young peopleIn 1994, 34.6% of the unemployed are below 24 years old, and 62.0% are below 34 years old.

Table 3 Unemployment by age 　 in thousands

Total up to 24years

25 - 34 35-44 45-54 55 years andover

1992 2509.3 867,7 746.1 620.3 231.6 43.61993 2889.6 995.0 824.7 729.1 284.2 56.61994 2838.0 981.5 777.7 718.3 302.4 58.11995 2628.8 909.0 708.1 660.5 298.0 53.21996 2359.5 734.5

645.3608.6 313.5 57.6

Source: Bezrobocie rejestrowane w Polsce I kwartal 1997. Warszawa: GUS, 1997, p.13.

4. Unemployment among unskilled workersAs shown in Table 4, unemployment is much higher in the group of unskilled workers. In 1994,

71.4% of unemployed has educational attainment under secondary school.

Table 4 Unemployment by educational attainment in thousands

Total University Secondaryvocational

Generalsecondary

Basicvocational

Primaryand lower

1992 2509.3 56.6 527.9 177.9 964.6 782.41993 2889.6 52.1 581.5 193.2 1131.2 931.51994 2838.0 47.6 570.2 194.4 1118.3 907.51995 2628.8 38.9 531.6 188.2 1025.0 845.01996 2359.5 31.4 471.0 151.7 907.7 797.6

Source: Bezrobocie rejestrowane w Polsce I kwartal 1997. Warszawa: GUS, 1997, p.13.

(5) Long-term unemployment

9

One of the important feature of unemployment in Poland is the chronic unemployment. In 1994,

44.2% of unemployed are looking for a job for more than 12 months. It mees that they lost the right to

unemployment benefits.

Table 5 Duration of unemployment spell in thousands

Total Up to 1month

1 - 3 3 - 6 6 - 12 12 - 24 24 monthsand more

1992 2509.3 118.1 312.9 393.2 551.0 1134.11993 2889.6 138.3 368.8 454.1 633.8 1294.71994 2838.0 159.6 354.4 428.3 640.4 687.7 567.51995 2628.8 170.7 382.7 451.2 642.0 493.8 465.61996 2359.5 189.1 333.0 365.0 503.7 520.1 448.6

Source: Bezrobocie rejestrowane w Polsce I kwartal 1997. Warszawa: GUS, 1997, p.14.

Concluding remarks1. In Poland unemployment statistics are carried out by several institutions. The data are not fully

compatible owing to the differences in definitions and survey methodologies. That information is

supplemented through various separate follow-up surveys.

2. The high rate of unemployment in Poland is not exclusively due to the application of the shock therapy.

The main causative factor of this phenomenon is rather the easiness of getting registered as unemployed

at labor offices as well as high unemployment benefits. Such a system offers even disincentives for

getting a job.

3. Unemployment in Poland is characterised by a high unemployment rate, long-term unemployment, a

high unemployment rate among youth and unskilled people, as well as geographical diversification.

Since 1994 unemployment in Poland has been declining, though the above structure continues to be in

place.

Notes(1) Marek Gora. ‘Instytucjonalne zrodla bezrobocia w Polsce.’ In Polski rynek pracy w latach 1990-1996.

Wybrane zagadnienia. Warszawa: ISP, 1997, p.11.

(2) Ibid., p.12.

AnnexThe Law of 14 December 1994 on employment and counteracting unemployment. Dziennik UstawRzeczpospolitej Polskiej. Warsaw, 23 April 1996. No 47.

Article 2

Wherever the Law mentions:

(...)

2) the unemployed - it means a person referred to in Article 1 Section 2 point 1 and 2 (*1), not employed

and having no other gainful occupation, subject to Article 26 Section 1 (*2), capable of working and

ready to take up full-time employment for the worktime binding for a given occupation or service,

10

subject to letter g), not being schooled under the day-time system, and registered at the labor office at

the place of (permanent or temporary) residence providing:

a) he or she is over 18, with the exception of underage graduates,

b) the woman is under 60 and the man under 65,

c) has not acquired entitlement to old-age or disability pension, or after the cease of employment does

not receive a rehabilitation benefit, sickness, maternity or child upbringing allowance,

d) is not an owner or holder (free or tenant) of an agricultural property, as specified by the provisions of

the Civil Code, having farmland area over 2 standard hectares, or a farm constituting a special area

of farm production within the meaning of tax regulations, unless the income from special production

areas calculated for the purposes of personal income tax exceeds the average amount of income from

work in private agriculture as per 2 standard hectares, specified by the Minister of Labor and Social

Policy under the agricultural tax regulations,

e) is not covered by old-age and disability pension insurance by virtue of permanent work as a

household member in a farm having a farmland area over 2 standard hectares or constituting a

special area of farm production, from which the income calculated for the personal income tax

purposes exceeds the income from 2 standard hectares referred to in latter d),

f) has not undertaken non-agricultural business activity since the date indicated in the registration entry

until the date of striking that activity off the register, or is not subject - under separate regulations -

to mandatory social security or pension insurance,

g) is an able-bodied person, whose health condition allows for undertaking employment for at least half

of the worktime binding for a given occupation or service,

h) is not temporarily arrested or serving a term in prison.

(*1) Polish citizens residing in Poland seeking and undertaking employment or other gainful occupations in

the territory of the Republic of Poland and employment abroad with foreign employers, as well as

foreigners staying in the territory of the Republic of Poland who are holders of residence cards or who have

been granted the refugee status in the Republic of Poland seeking and undertaking employment or other

gainful occupations in the territory of the Republic of Poland.

(*2) The status of the unemployed and the right to the unemployment benefit shall be retained by the

unemployed who undertook a job or any other gainful occupation after at least 30 days from the date if

registration at the labor office and receives pay or income in the amount lower than one-half of the lowest

wage.

11

Unemployed in Poland (BAEL: 1992-1996) 　 in thousands

1992.5 22548 2437

11 23941993.2 2467

5 23718 2274

11 25951994.2 2719

5 23918 2409

11 23751995.2 2491

5 21568 2227

11 22331996.2 2349

5 21038 2018

11 1961

Source: Labour Force Survey in Poland. November 1996. Warszawa: GUS, 1997, p. XXI.

12

Registered unemployed in Poland (1990-1996)Number ofregistered

unemployed(in thous.)

Rate ofunemployment

(%)

Job advertisements

(in thous.)1990.1 266.6 1.5 24.1

2 568.2 3.2 42.53 926.4 5.2 61.04 1126.4 6.3 54.1

1991.1 1322.1 7.3 45.82 1574.1 8.6 47.43 1970.9 10.7 48.04 2155.6 11.8 29.1

1992.1 2216.4 12.1 26.82 2296.7 12.6 31.73 2498.5 13.6 40.54 2509.3 13.6 22.9

1993.1 2648.7 14.4 27.22 2701.8 14.8 37.03 2830.0 15.4 41.84 2889.6 15.7 21.7

1994.1 2950.1 16.7 33.42 2933.0 16.6 45.43 2915.7 16.5 52.34 2838.0 16.0 25.2

1995.1 2753.8 15.5 38.92 2694.0 15.2 45.93 2657.2 15.0 50.04 2628.8 14.9 20.5

1996.1 2726.0 15.4 30.42 2508.3 14.3 35.83 2341.0 13.5 36.24 2359.5 13.6 13.8

Source: Data Based on Biuletyn Statystyczny. Warszawa: GUS, 1990-1997.

13

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