Understanding the Polish labor market

Poland is one of the more successful cases of transition from a centrally planned to a market economy. Despite its relative success, it has one of the highest unemployment rates in Central and Eastern Europe. One factor contributing to the high rate of unemployment is Poland\u27s minimum wage. Prior to reform, the minimum wage was used to determine salary scales and social benefits. During the early part of transition its function became less administrative and focused more on poverty-prevention. Poland\u27s minimum wage system differs from those of other economies in several ways: (1) it is based on monthly remuneration, rather than hourly, (2) it covers all employed labor, (3) it has been continually revised throughout the transition period, and (4) it is almost equivalent to unemployment benefits. The theoretical and empirical implications of these unusual features are investigated. Because it is unique, Poland\u27s minimum wage may serve as an example from which to draw lessons for other economies.Aggregate data is used to determine the effect of the minimum wage on unemployment, employment, and labor force participation. These issues are examined on both a regional and national level. Estimates indicate that the elasticity of employment with respect to the minimum wage is negative and significant. Investigation of labor force survey data shows that when minimum wages are monthly, rather than hourly, individuals earning a low income may rationally choose to collect unemployment benefits rather than be employed. Furthermore, low income earners who do not qualify for benefits may suffer a loss of utility when the minimum wage is increased. Finally, because of employer imposed constraints stemming from monthly minimum wages, a smaller proportion of individuals work on a part-time basis than is the case in developed market economies