The Role of Labor Market Rigidities During the Transition: Lessons From Poland

Thierry Pujol

No 1996/077, IMF Working Papers from International Monetary Fund

Abstract: The transition to a market economy has been analyzed primarily from a stabilization prospective. To complement that approach, we focus on a pure relative price shock and subsequent price adjustments. A model of monopolistic competition with costly labor adjustment indicates that relative price shocks can induce overall output decline because rigid sectoral real wages do not adjust to offset sectoral price changes, and firms that benefit from the price shock engage in monopolistic behavior. In Poland, empirical evidence suggests that relative wage rigidity contributed to lower employment and output, but there is no strong evidence that competition was important.

Keywords: WP; total factor productivity; wage bargaining; credit crunch; labor force; wage inequality; wage differentiation; wage control; wage growth; wage dispersion; rigidity in Poland; wage cut; wage cost; Wages; Real wages; Wage adjustments; Employment; Eastern Europe (search for similar items in EconPapers)
Pages: 30
Date: 1996-07-01
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