Structural Roots of Changes in Polish Income Inequality: 1989-2012

Abstract

This paper considers whether massive changes to Poland’s industrial structure and to economic institutions and policies can explain trends in its pay inequality. Using a rich, continuous data set on pay differences across economic sectors and regions, this paper investigates the role of the following structural shifts: a dramatic growth in private industry, accompanied by an expansion of the financial sector; expansion of the public sector (likely surrounding EU accession); growth in the education sector; rapid non-agricultural development in rural areas; and reduction in the supply of labor to agriculture. The analysis shows that trends in inequality between regions and industries are consistent with those predicted by these explanations. Given Poland’s conservative management of the financial sector, the sector’s contribution to inequality did not change significantly in the wake of the 2008/9 financial crisis. The implication is that inequality must be understood in the context of broader structural and institutional changes, and that a narrow focus on redistributive policy may be too limited to address it.