Hours or Heads? Demand Shocks and Labour Market Adjustments in Poland

Lukasz Postek and Małgorzata Walerych

No 389, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper investigates the role of demand shocks in driving labour market dynamics in Poland, an economy that transitioned from very high to low and stable unemployment despite repeated adverse shocks. Our contribution is threefold. First, we propose two complementary sign-restricted Bayesian VAR models that distinguish between labour-extensive and labour-intensive aggregate demand shocks, where the former operate primarily through changes in employment, while the latter mainly affect workers’ effort and hours per worker. Despite different specifications, both models yield highly consistent results. Second, we find that labour-extensive demand shocks are a key driver of unemployment, labour-intensive demand shocks primarily affect output, prices, and productivity, whereas both shocks are similarly important for hours per worker. Third, we document that the relative importance of these shocks changes over time, suggesting that the dominant margin of labour market adjustment may depend on economic conditions and the policy environment.

Keywords: demand shocks; labour market; Bayesian VAR; sign restrictions; intensive margin; extensive margin (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 J23 (search for similar items in EconPapers)
Pages: 41
Date: 2026
New Economics Papers: this item is included in nep-lma
Note: The authors are grateful to Paweł Kopiec and the anonymous referee for their valuable comments and suggestions. The views in this paper are those of the authors and do not necessarily reflect the views of Narodowy Bank Polski.
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:389

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