Are inequalities growing in Poland? | Business | Economic and financial news from a German perspective | DW

“According to the Gini index, which determines the level of social differences, Poland occupies one of the best places in Europe,” said the leader of the ruling Law and Justice (PiS) party, Jaroslaw Kaczynski, in a statement. interview with the right. -wing every day Gazeta Poland on November 26, 2019.

Prime Minister Mateusz Morawiecki said a week earlier than in Poland “the level of inequality is the same as in Denmark, and below the EU average”.

Since coming to power in 2015, the PiS has implemented various social transfer policies, its flagship being “500+”, which gives 500 zlotys (€110) a month to families with two or more children. Its early 2022 tax reform has also been touted as redistributive, though it’s far from clear if that’s the case.

But a recent study shows that official figures have tended to understate inequality in Poland, casting doubt on the PiS claims.

Research by Polish economists Michal Brzezinski, Michal Myck and Mateusz Najsztub, in their article “Sharing the Gains of Transition”, indicates that Poland has one of the highest inequality rates in the EU and that it is also widening.

Miscalculated wealth?

They argue that official data on inequality in Poland, published by the Central Statistical Office and Eurostat, is based on household surveys, which do not give a full picture of inequality, because the wealthiest households do not generally do not participate in surveys or if they do, they tend to underestimate their wealth.

Using combined survey and tax return data, the authors say their study is a more accurate indicator of inequality than those using other methodologies.

They find that those with the highest incomes have benefited the most from the post-communist transformation: the annual income growth rate of the richest 5% of the population has exceeded 3.5%, while the median income has increased on average by about 2.5% per year.

“We show that each percentile of the disposable income distribution in Poland saw its income increase in absolute terms between 1994 and 2015,” Brzezinski told DW.

This implies that on average the incomes of all social groups increased during the transition to the market economy. However, these gains were not shared equitably.

“According to our adjusted estimates, the cumulative real income growth over the period 1994-2015 for the top 1% of Poles reached 122%-167%, while for the bottom 10% the corresponding figure is at more than 57%,” he continued. say.

“We’ve had a very fast growing economy and over the past two decades most have gone to the top earners,” Brzezinski said.

“There is a strong correlation between higher incomes and those engaged in export sectors. In addition, we have had very regressive tax and transfer regimes. There is much lower redistribution than in the western countries. Welfare transfers have changed a bit with the 500+ scheme, but not much. Another reason is the underlying inequality in worker productivity. “Some work in foreign companies but a large group of people at low productivity, 10%, do not, for example, in agriculture,” Brzezinski noted.

Political choice or inevitable march of progress?

Researchers suggest that the original causes of this lie in the basic premises of the initial shock therapy economic reforms of the early 1990s and the tax reform of 2004, which created a 19% flat tax and was introduced by a theoretically left-wing government. The reforms allowed top earners to reduce the top tax threshold from 40% to 19%.

The Balcerowicz plan of 1990 was based on profound and sudden economic changes: the commodification of prices, the closing of public enterprises and mass privatization.

“When Poland was undergoing a political transformation in 1989, there was little public debate about what model of capitalism to introduce – it looks different in Scandinavia than in Anglo-Saxon countries. When the transformation of the system took place in Poland, neoliberal doctrine triumphed in the West,” said Elzbieta Maczynska, professor of economics at the Warsaw School of Economics.

The dependent market economy model

“After years of exclusion of foreign capital flows and exhaustion of internal sources of finance, Poland has focused its energy on attracting foreign direct investment (FDI) in complex industries in order to integrate the economy in global value chains and grow domestic businesses through positive spillovers,” Nina Lopez-Uroz, a researcher at the European University Institute, told DW.

Poland’s transitional growth model is thus sometimes referred to as the “dependent market economy” (DME) model. The comparative advantage of EMRs lies in assembly platforms and medium-skilled segments of complex manufacturing industries (medium-grade cars, machinery, electronics, electrical products).

Lopez-Uroz argues that to maintain this comparative advantage, EMRs must keep labor costs low.

She noted that real wages have not kept pace with productivity growth: between 2000 and 2016, labor productivity increased by 51% while compensation per worker increased by 31%, a- she said, citing figures from the World Bank.

In 2014, the proportion of low-income employees in Poland was one of the highest in Europe (23.6%), with an EU average of 17.2% and was even higher for workers under temporary contract.

Produce workers

A study by Elizabeth Dunn, based on ethnographic research in a Polish food-processing factory in the early 1990s, shows how class formation – deliberate efforts to create a managerial class and a working class – is not something that happened after 1989.

‘The new order needed workers to know their place and a new management language needs to be imported, mainly English,’ she told DW.

This process has in fact divided post-communist society into winners and losers, she added, which, in turn, has made it easier to suppress potential labor disputes and control labor costs.

Legitimate versus illegitimate inequality

Economist and former Polish Deputy Finance Minister Stanislaw Gomulka said that “a significant level of income and wealth inequality can have a positive impact on the pace of economic growth”.

Anthony Levitas of Brown University asks whether the relative change in Poland’s standing compared to others – – from poor performance on inequality to poor performance – is driven by the methodology employed or by poorer performance.

“After all, to the extent that the standard methodology is based on household surveys, one would expect the wealthy to underreport everywhere,” he told DW.

Edited by: Hardy Graupner

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