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Public-Sector Wage Premium in Poland

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Gabriela Grotkowska

This book assesses the size, structure and evolution of the public-private wage gap in Poland – a country frequently regarded as an example of a successful transition from a centrally planned economy to a market economy. The author extensively elaborates on the issue of the selection of employment, and reviews the available studies concerning the public-private wage gap in developed and developing countries, with a particular attention to the evolution of methodology. Furthermore, the author examines recent empirical studies on the public-sector wage premium. Contrary to former research, they have provided positive estimates of the average public-sector wage premium, with significant differences in terms of employee characteristics and local labour market conditions.

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Introduction

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1

The share of the public sector in Poland regarding Gross Domestic Product (GDP) and employment is systematically degrading, however, its role in the Polish economy remains considerably more significant than in the case of fully-fledged market-oriented economies. In Poland, almost one in three employees work for the government or at a public company, while almost one-quarter of the total remuneration of employees receives salary directly from the central or local government. The government plays an even larger, even predominant role in the demand of many labour markets, such as the sector of schoolteachers or health workers.

The substantial role played by the public sector in the national economy is due to the fact that gross value added generated by the public sector represents more than one-sixth of Polish GDP, however, it also results from a considerable spillover into other sectors of the economy (Central Statistical Office, CSO 2015). The public sector is responsible for setting rules and regulations, designed to guarantee freedom of economic activity and of contracts. It also provides public goods, redistributes income and stabilizes the economy. Many public services are crucial for the effectiveness of economic activity. The functioning of the public sector, in particular, the ratio of productivity to its costs, affects the efficiency of the entire economy, growth rate and social welfare.

The mechanism of wage setting is one of the channels of public-sector spillovers into other parts of the economy. For institutional (the bargaining process and wage-setting...

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