Achieving faster growth in Poland through more efficient labour and product markets

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the launch of the 2014 Economic Survey of Poland


10 March 2014, Warsaw, Poland


(As prepared for delivery)

Ladies and Gentlemen,

It is a great pleasure to be back in Warsaw to launch the 2014 OECD Economic Survey of Poland. I would like to thank the Deputy Prime Minister Janusz Piechocinski for your government’s support and contributions to its production.


Following important reforms which have deeply transformed the structure of the economy, Poland’s economic performance has been impressive since the beginning of the 2000s. This is a remarkable achievement, given the weak global economic background. Although we are beginning to see bright spots in the global economy, the legacies of the crisis are still with us. This is well known in Poland, where unemployment remains very high.


Our Survey offers recommendations to build on Poland’s achievements and address remaining challenges.


Positive Growth Prospects and a Strong Macroeconomic Picture

I’ll start with the good news. Thanks to its accommodative monetary policy and the moderate impact of fiscal tightening, growth is projected to pick up and surpass its potential rate of around 3% by mid-2014.


The banking sector is also well protected from any significant rise in the rate of bankruptcies and loan defaults. This is because of prudential policies that have notably managed to curb the number of foreign-currency-denominated loans. Both household and corporate debt are relatively low, and the banking system is well capitalised and profitable, although it still has a considerable amount of foreign funding.


However, public finances remain of some concern. The government deficit widened unexpectedly in 2013, as a result of a cyclical shortfall in tax receipts, and higher social expenditures and public consumption.


This sounds like a broken record – we’ve heard this story before! Despite its strong economic performance, Poland has often missed its fiscal objectives as a member of the EU.


What can be done to stop this? Creating an independent monitoring institution and implementing multi-year budgets based on realistic economic assumptions will strengthen the fiscal framework. This will help to stabilise public finances and place Poland on a more sustainable and stable path towards long-term growth.


But to secure a truly brighter future for Poland, we must also address what is a soft spot in Poland’s track record; its employment rates are low!


Improving the Labour Market: Key to Reducing Structural Unemployment

Despite significant improvements since the mid-2000s, the unemployment rate – at over 10% – is among the highest in the OECD!


One striking feature of the Polish labour market is its deep segmentation, with its large share of temporary employment. Some work contracts provide almost no social protection, and the size of the informal economy poses serious challenges. To address this, we recommend that all contracts should be subject to the same tax and social contribution regimes. In addition, legal dismissal procedures should be streamlined, and the duration of temporary contracts should be limited.


The unemployed are also poorly activated. We welcome the government’s support for job-seeker profiling and private employment services. But public employment services need more support to improve the quality of placement services. There are also few work-availability and job-search requirements – this can be improved!


Moreover, women are “missing” from the workforce. This is partly because of the deeply rooted “traditional” family model. Only 60% of all women of working age are employed or actively searching. Many have little choice, because childcare and long-term care facilities and pre-school education are in short supply, despite recent progress. Moreover, the female retirement age is very low. Although it will increase to 67 by 2040, the pace of this change can clearly be accelerated.


Participation of older workers is another problem. Only 39% of older workers are employed; the 5th lowest employment rate in the OECD! Our recommendation is to phase out all special occupational pension regimes that allow early exit from the labour market.


Also, prohibiting the lay-off of workers during the last four years before a person’s retirement is not a good idea. Similar schemes have been tried elsewhere, and the result is that firms are discouraged from hiring workers well before they reach these last four years.


These recommendations will help to improve Poland’s labour market outcomes. But more can be done to strengthen Poland’s economic prospects – like product market reform.


Boosting Product Market Competition: Crucial for Competitiveness

Although notable progress has been made, restrictive product market regulations still hinder activity substantially. Product market reforms are needed for Poland to launch itself as an innovation–based economy. Our calculations show that these pro-competition measures could raise aggregate output by as much as 26% by 2060.


We support your efforts to deregulate a large number of professional services and your plans to streamline registration procedures and simplify the tax code in 2015. While these are positive signs, there are five specific areas that are of key concern. Let me outline them in greater detail.


  • First, entrepreneurship still faces heavy barriers. There is room to further reduce the costs of business entry and exit, such as cumbersome registration and bankruptcy procedures.

  • Second, more than 20 years after the start of the economic transition, the state remains extensively involved in the economy. We encourage Poland to pursue even more privatisation and to substantially reduce government ownership in competitive segments of the economy.

  • Third, while public procurement plays a key role in Poland, some bidding processes have favoured publicly owned firms. This needs to change. Moreover, when awarding public contracts the government should not always look for the lowest price, but for the best value for money. This will require enhancing staff skills to deal with complex criteria when selecting contractors.

  • Fourth, competition enforcement needs to be strengthened. To ensure greater independence of the competition and regulatory agencies, we recommend that their leaders be given long fixed-term non-renewable mandates during which they cannot be removed without fault.

  • Finally, competition is weak in network industries, with the exception of telecoms. In rail transportation, in particular, the manager of the infrastructure needs to be made fully independent from the operators of rail services. 


Ladies and Gentlemen:

As I stressed at the beginning of my speech, the overall performance of the Polish economy has been impressive since the beginning of the 2000s. This has allowed the country to catch up steadily with the EU15 in GDP per capita terms.


However, this success is no reason for complacency. Poland needs to keep up its reform efforts to further improve the dynamism and competitiveness of the Polish economy, especially as it will soon face important challenges due to population ageing.


The Economic Survey I have presented today reflects our shared aspirations and joint efforts to achieve this goal. So let’s keep strengthening our collaboration to further raise the living standards and well-being of all Polish citizens.

Thank you.

 

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The OECD Secretary-General in Warsaw, 10 March 2014

 

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