The dynamics of unemployment from 1990 to 2002

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Unemployment emerged and grew rapidly in Poland as a result of the transformation of the political system in 1989, the rationalisation of the economy and the decrease in the demand for Polish products in the former Soviet countries. It developed in three phases, growing rapidly over 1990-3, then declining in 1994-9, only to rise again in 1998-2002. The registered unemployment rate was 18.1% at the end of March 2002, while the total unemployment rate stood at 20.3%. Unemployment is particularly high among the inhabitants of rural areas and young people. Hopes for improving the situation in the labour market lie with future economic growth, flexible labour laws and development of the private services sector.

Officially, unemployment did not exist in Poland before the transformation of the political system in 1989. There was, however, latent unemployment, but it is difficult to assess its size. As the previous political system was nearing its end, it became obvious that the introduction of a market economy would entail a growth in unemployment. Even before martial law was declared in 1981, Professor Czesław Bobrowski, the renowned Polish economist, predicted that the rationalisation of the economy would result in 3 million people losing their jobs. His forecasts proved correct. Table 1 below shows the level of unemployment in Poland over 1990-2002.

Source: GUS - statistical yearbooks and 'registered unemployment in the first quarter of 2002'.

The 13 years from the change of the political system in 1989 until 2002 may be divided into three periods, reflecting differences in the dynamics of unemployment.

1. Unemployment grew rapidly in 1990-3. Poland’s unemployment figures were the highest in Europe at the time (for the first two years about 1 million people, or 6% of the working-age population, were made redundant each year). It was at this time that measures to combat inflation were introduced and economic ties with the former Soviet republics weakened, resulting in the rapid decline of investment and consumer demand and an economic slowdown. Massive redundancies affected employees of state-owned enterprises, while newly established private enterprises were not able to provide sufficient employment opportunities. Since the criteria for obtaining unemployment benefits were relatively lenient (PL0210107F), the latent unemployment inherited from the authoritarian socialist system manifested itself. The government sought to alleviate the difficult situation in the labour market by creating early retirement opportunities.
2. The years 1994-7 were marked by an improvement in the economic situation and a turnaround in the labour market situation (employment increased in this period by around 1,100,000). Investment and consumer demand increased, while Gross Domestic Product (GDP) grew by 27.4% over these four years, which constituted the time of the fastest growth in the Polish economy during the 1989 to 2002 period. The growth in GDP translated into higher employment (every growth in GDP of 1% generated 41,000 new jobs). However, employment grew in the traditional branches of the economy (industry, construction, agriculture and transport), and not in the services sector. The decline in registered unemployment could also be attributed to the introduction of certain restrictions with regard to applying for unemployed status and obtaining unemployment benefits.
3. The years 1998-2002 have once again witnessed economic decline and a growth in unemployment. The number of unemployed people has increased by around 1,400,000. The registered unemployment rate was 18.1% at the end of March 2002, while the total unemployment rate reached a level of 20.3%, according to the Labour Force Survey conducted by Polish Official Statistics (Główny Urząd Statystyczny, GUS). A phenomenon different to that witnessed during the economic boom of the years 1994-7 has emerged, in that GDP growth of 14.6% over 1998-2002 has not given rise to higher employment. On the contrary, the economic growth has been accompanied by a decline in employment. This tendency can be attributed to the introduction of new technologies in industry that have made more people redundant rather than creating jobs. Also, privatisation (PL0209103F) has involved the rationalisation of employment and the dismissal of employees - according to GUS data from the end of 2001, 68% of unemployed people had worked in private enterprises before they were made redundant. At the same time, the services sector has not grown as expected, still employing a much smaller percentage of the workforce (around 45%) than in western Europe. Another factor contributing to the growth of unemployment has been a decrease in the number of small and medium-sized private enterprises (the shrinking of the SME sector first became visible in 2000). It should be noted that a reform of the pension and health insurance system in 1999 also contributed to an increase in the number of registered unemployed people. Analysts from the Institute of Labour and Social Affairs (Instytut Pracy i Spraw Socjalnych, IPiPS) believe that the reform encouraged people working in the 'grey economy' to register with labour offices in order to obtain insurance coverage.

Unemployment has remained high throughout the entire period of transformation. According to GUS, there were 2.8 million fewer jobs in Poland at the end of 2000 than at the end of the era of authoritarian socialism (12,344,000 versus 9,505,000). Some typical characteristics of Polish unemployment are described below.

Unemployment in rural areas

As much as half of all unemployed people are inhabitants of rural areas who are not farm holders and were usually previously employed in the state-owned agricultural farms (PGRs). They accounted for 45.6% of the total registered unemployed in December 1998, 43.7% in December 2000, 42.7% in December 2001 and 42.1% at the end of March 2002. By and large, this situation is a legacy from the previous system and the first stage of transformation. According to GUS, a total of 800,000 people were employed in state-owned farms in the second half of the 1980s. However, a large number of these farms went bankrupt after the political system changed at the turn of 1989 and 1990, entailing a rapid increase in interest rates on outstanding credits, the abolition of the state monopoly over the import of foodstuffs, the reduction of customs duties etc. The former employees of these farms turned out to be the most passive and helpless social group in Poland. Helping this group is one of the main challenges for social policy in Poland.

Geographical breakdown of unemployment

Unemployment among the inhabitants of rural areas who are not farm holders determines the geographical breakdown of unemployment in Poland. The highest unemployment rates are in the regions (voivodeships) and higher-level local authority areas (poviats) where the now bankrupt state-owned farm holdings operated in the past (in the northern and western parts of Poland). According to data published in March 2002, the unemployment rate was highest in the voivodeships of Warmińsko-Mazurskie (29.2%), Lubuskie (25.2%) and Zachodniopomorskie (25%). In some of the poviats situated in these voivodeships the unemployment rate is exceptionally high, eg in Gołdap it is 38.5% and in Bartoszyce 36.3%. At the other end of the spectrum are the voivodeships where unemployment is low, such as Mazowieckie (13.6%) and Małopolskie (14.3%). Unemployment is relatively low in large cities that are capitals of voivodeships, reaching a level of 5.8% in Warsaw, 6.3% in Poznan, 7.7% in Katowice, 9.3% in Gdynia, and 9.8% in Rzeszów. It should, however, be added that large cities, particularly Warsaw, have also been recently affected by the growth of unemployment in the aftermath of economic decline. Jobs became more difficult to come by in Warsaw in the early spring of 2002 – partly as a result of mergers in the banking and insurance sectors and the closing down of some brokerage houses. The peak of the wave of massive job losses is past, but employment is still on the decline in small enterprises.

Unemployment benefits and duration of unemployment

Three periods may be distinguished in analysing the financial situation of unemployed people in Poland over 1990-2002. During the initial period, lasting for two years until 1991, as many as 80% of the unemployed were entitled to unemployment benefits, while during the next period (1993-6) only half of them were eligible for such benefits, a figure that has further declined in recent years to only one-fifth of the total number of unemployed. The unemployed people who are no longer entitled to unemployment benefits receive a very low and irregular allowance from the territorial authorities (social welfare institutions) (PL0210107F).

Source: GUS yearbooks.

Long-term unemployment is increasing in Poland. According to GUS, 40.4% of those who were not employed at the end of 1998 had not worked for more than 12 months, while 23.4% had been out of work for more than 24 months. At the end of 2000, these figures were 44.7% and 24.4% respectively, while at the end of 2001 they had risen to 48.4% and 27.7%. The situation is not as dramatic as it may seem from these statistics, owing to the existence of a relatively large 'grey economy', in which approximately 800,000 persons are unofficially employed, according to GUS estimates. These illegal employees usually come from the rural areas and work in cities as construction workers. A considerable number of unemployed young people living in the rural areas and small towns work illegally in the private services sector.

Youth unemployment and methods of combating unemployment

A particularly disturbing phenomenon is the growing unemployment among young people. According to GUS, young people entered the labour market in increasingly large numbers during the three periods mentioned above (1990-3, 1994-7 and 1998-2001). These groups amounted to 443,000, 500,000 and 650,000 people respectively in thes periods. This situation has been offset by a growing number of students. The number of students grew from 405,000 in the 1990/1 school year, to as many as 1,585,000 students in the 2000/1 school year. According to GUS, the registered unemployment rate in the group aged 15-19 was 45.6% in 1999, while in the group aged 20-24 it was 29.7%. The demographic data indicate that many young people are due to enter the labour market by 2005. Unemployment is growing among the graduates of various types of schools, including higher education institutions. A total of 22.4% of basic school leavers, 22.9% of general secondary school leavers, 16.1% of vocational secondary school leavers, and 6.4% of graduates of higher education institutions were out of work at the end of 2001. The unemployment rate among the graduates of higher education institutions grew the fastest, increasing 3.2 times between 1997 and 2001, while unemployment for other school leavers increased 1.8 to 1.9 times.

In 2002, the government adopted a plan to assist young people, particularly graduates, entering the labour market for the first time (PL0208101N), but insufficient funds have been allocated for this purpose. The Ministry of Labour and Social Affairs promised that the labour offices would receive more money at the turn of September-October 2002. The current programme of assistance for graduates makes it more difficult for the government to provide help for other unemployed groups in the form of vocational training, intervention or employment in public works. Only 17,000 persons - ie around 0.5% of the total unemployed - have benefited from these forms of help.

Commentary

Combating unemployment requires undertaking various actions and establishing priorities. Three viewpoints on how to reduce unemployment have recently emerged in Poland. Each proposition stresses just one aspect of the current situation in the labour market, perceiving other matters as secondary.

The first viewpoint, subscribed to by the employers and the Ministry of Labour and Social Affairs, asserts that the priority should be to deregulate the labour market and make labour relationships more flexible. According to the adherents of the second viewpoint, a sine qua non for increasing employment is a growth in GDP of at least 5% (this factor is especially emphasised by trade unions). The third viewpoint is that, in order to increase employment, it is necessary to introduce material changes to the social and economic structures and develop the services sector, particularly private services. The adherents of this viewpoint (eg GUS experts) believe that the purchasing power of consumers and the demand for services must increase because, they say, the development of industry will not in itself provide new jobs. It is a common view that, in a situation where GDP growth is slow, the budget deficit is high and 'baby boomers' are entering the labour market, Poland will need several years to combat unemployment. While all parties recognise the importance of economic growth, they disagree on how — or if at all — the deregulation of labour relationships (meaning their deterioration for the common worker) will contribute to achieving this growth. Possible solutions such as work-sharing or shortening the working day have not been discussed in Poland. (Juliusz Gardawski, Warsaw School of Economics (Szkoła Główna Handlowa, SGH) and Institute of Public Affairs (Instytut Spraw Publicznych, ISP))