Wage and pension pressure on the Polish budget

de Crombrugghe, Alain

Wage and pension pressure on the Polish budget

No 1793, Policy Research Working Paper Series from The World Bank

Abstract: After Poland's remarkable stabilization and liberalization in 1990, the economy faced three related problems: high wage and pension claims, a rising number of pensioners and unemployed workers, and a budget crisis, especially in 1991 and 1992. The author studies the role that wage and pension pressures played in this crisis. He also explains the persistence of the high tax wedge that later helped overcome the budget crisis. The positive effect on revenues of higher wages and higher tax rates could not compensate for both the inevitable loss in profit taxes and the excessive growth of spending on replacement income. Counterfactuals constructed for revenue and spending show the rising number of social benefit earners (pensions, unemployment) to be responsible for much of the budgetary burden. But they also show that the better protection of social income (over other income) explains part of the burden. Part of the employment loss and social spending can be ascribed to the excessive wage recovery of late 1990 and 1991. Insiders set wages ignoring the unemployed and exploiting the pension system in a context of uncertainty about profits and productivity, at a time when there was strong popular support for the protection of replacement income. The author recommends pension reform and caution about wages: the current economic recovery should create jobs, not raise wages, he says; and ensuring equitable opportunities for all requires moderating the income claims of the best-protected groups.

Keywords: Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research; Municipal Financial Management; Labor Policies; Environmental Economics&Policies; Banks&Banking Reform; Public Sector Economics&Finance; Municipal Financial Management; Economic Theory&Research (search for similar items in EconPapers)
Date: 1997-06-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)

Related works:
Working Paper: Wage and Pension Pressure on the Polish Budget (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:1793

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().