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Contents | | Executive summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise chapter 1 of the Economic survey of Poland published on 11 June 2008.
Contents
Strong growth has pushed income levels closer to the EU average
During the past two years, Poland has recorded its best economic performance since the late 1990s, with growth exceeding 6%. This was also the second best performance among OECD countries, allowing for a significant narrowing of the income gaps vis à vis the average EU and OECD levels. Since Poland joined the European Union in 2004, GDP per capita has moved from 44 to 48% of the pre 2004 enlargement EU average. Furthermore, after nearly a decade of relative stagnation, employment has finally begun to contribute markedly to gains in living standards, rising by some 3% per year. Meanwhile, labour supply has shrunk, despite a still expanding working age population. This further decline in labour force participation rates, to especially low levels for older workers and the least skilled, is of great concern. The result has been a spectacular decline in the unemployment rate, from nearly 18% in 2005 to 8½ per cent in the fourth quarter of 2007. At the same time, productivity gains have slowed from the growth rates recorded in the early 2000s.
But it has led to rising pressures on capacity
The flip side of this strong performance has been increasing demand pressures, further abetted by the ongoing global food and energy price shocks, with all the risks that this pernicious combination entails in terms of a wage price spiral, asset price bubbles and a hard landing further down the road. Thus far, these risks have not materialised to a significant degree, and the spill over effects from the economic slowdown abroad may offset them. An easing in export market growth should lead to a modest slowdown in real GDP growth to near 6.0% this year and 5.0% in 2009. Nevertheless, headline price inflation has already surged far past the 2.5% official target, and labour shortages have emerged in many sectors, causing real wage increases to outpace productivity gains throughout 2007. Meanwhile, a risk could arise that firms’ capacity to absorb rising unit labour costs by squeezing margins approaches its limit implying upward pressures on prices. The public sector is also feeling the pinch, as wage demands by various groups have come to the fore, while administered prices are being raised substantially.
Macro policies should focus on stabilising the economy and structural policies on raising labour supply
In this context, the best way for macro policies to help steer the economy to a soft landing is by taking appropriate action to ensure they are on track to achieve their medium term objectives. In the case of monetary policy, this means bringing inflation down to its target with an appropriate tightening of monetary conditions. For fiscal policy, this implies providing a credible plan for a sustainable reduction in the general government cyclically adjusted deficit to reach the 1% of GDP official target in 2011. As regards structural policies, the fact that excess demand pressures have arisen in a context of still relatively high unemployment and stubbornly low participation rates for many groups is a symptom that the functioning of the labour market is being hindered by significant barriers. One of the key priorities is therefore to lift these barriers in order to fully exploit the substantial scope for boosting employment rates so as to sustain strong potential growth despite the imminent demographic reversal. Two policy areas deserve particular attention in this regard. One is the design of the tax and benefit systems: the high tax wedge on low wage workers prices some of them out of the labour market and leaves others with too few incentives to seek registered employment. And on the benefit side, a substantial share of older workers can withdraw from the labour force on favourable conditions well before statutory retirement age.
The second area concerns policies that impinge on labour mobility within Poland. In spite of widening discrepancies in economic activity across regions, there is little tendency for workers to migrate from high unemployment areas to those with many unfilled jobs (in major cities). The result is a high dispersion of employment rates, both across and within regions. Yet, the fact that a large number of Poles are prepared to move abroad to take job opportunities suggests that the low mobility observed inside the country is not so much a cultural phenomenon, but the result of specific hurdles. Indeed, access to affordable housing in fast growing urban areas is limited. Housing policies may thus play a key role, not least as regards the persistent under development of the private rental market. Another contributing factor is the lack of sufficient transport infrastructure, which makes commuting even over relatively short distances difficult.
Labour force participation rates for 55 64 year olds
As a percentage of age group
Source: OECD, Employment Outlook database.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Poland 2008 is available from:
Additional information
For further information please contact the Poland Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Alain de Serres and Rafal Kierzenkowski under the supervision of Peter Jarrett. Research assistance was provided by Sylvie Foucher-Hantala.
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