Analysis 8/2018: Just 5.6 million people produce half of Polish GDP
• The ongoing discussion in Poland regarding the high variation in wages and income inequality focuses on the way in which added value generated in the economy is distributed between employees (wages), employers (profits) and the state (taxes). This misses a key point: a large variation in productivity in the economy. In Poland, the effort of many people working in inefficient entities is ineffective, which translates into their low wages and small contributions to economic growth.
• Thanks to the decisive market reforms started in 1989, Poland became the fastest growing country in our region. The development of private entrepreneurship, openness to the world, foreign investments and the privatization of state-owned enterprises have facilitated a rapid increase in work efficiency in private enterprises. As a result, domestic and foreign companies employing ten people and more accounted for at least two-thirds of economic growth after 1995.
• Despite the success of the last 28 years in Poland, apart from modern enterprises competing in international markets, there are much more small enterprises of very low productivity than in developed countries. We estimate that half of Polish GDP is produced by at most 5.6 million people working primarily in capital companies (i.e. enterprises with legal personality).
• The persistence of large differences in productivity, combined with low professional activity negatively distinguishes Poland from the countries of Western Europe. While in Poland half of the value added is generated by a very limited group, accounting for only 26% of the population aged 20-64, in countries such as Germany, the Netherlands, Sweden or Denmark, this rate ranges between 38% and 42%.
• In the case of Poland, which is trying to catch up with the West and join the wealthiest countries, it is a mistake to focus the debate on the "redistribution" of our added value which is still smaller than in the West. Increasing tax and regulatory burdens for the small group of those working in the most efficient enterprises will only make it difficult to develop these companies and will freeze the current structure of the economy. Instead of imposing an additional burden on the creation of high-productivity jobs, we should focus on how to increase their accessibility for people in the low-productive parts of the economy, living in smaller towns without access to broad labor markets or those economically inactive. Their currently wasted energy is a valuable reserve, that, if used better, can contribute to faster economic growth, while at the same time provide them with higher wages.
Authors:
Aleksander Łaszek
aleksander.laszek@for.org.pl
Rafał Trzeciakowski
rafal.trzeciakowski@for.org.pl
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