The ongoing discussion in Poland regarding the high variation in wages and income inequality focuses on the way in which added value generated in the economy is distributed between employees (wages), employers (profits) and the government (taxes).

This misses a key point: a large variation in productivity in the economy. In Poland, the effort of many people working in inefficient entities is ineffective, which translates into their low wages and small contributions to economic growth.

Thanks to the pro-market reforms started in 1989, Poland became the fastest growing country in our region. The development of private entrepreneurship, openness to the world, foreign investments, and the privatization of state-owned enterprises have facilitated a rapid increase in work efficiency in private enterprises.

As a result, domestic and foreign companies employing ten and more people accounted for at least two-thirds of economic growth after 1995.

Despite the success of the last 28 years, apart from modern enterprises competing in international markets, there are more small enterprises of very low productivity in Poland than in developed countries. FOR estimates that half of Polish GDP is produced by at most 5.6 million people working primarily in limited companies (i.e. enterprises with legal personality).

The persistence of large differences in productivity, combined with low labor force participation negatively distinguishes Poland from the countries of Western Europe.

While in Poland half of the value added is generated by a very limited group, accounting for only 26% of the population aged 20-64, in the countries such as Germany, the Netherlands, Sweden, or Denmark, this rate ranges between 38% and 42%.

In the case of Poland, which is trying to catch up with the West and join the most prosperous countries, it is a mistake to focus the debate on the “redistribution” of our added value which is still smaller than in the West.

Increasing tax and regulatory burdens for the small group of those working in the most efficient enterprises will only make it difficult to develop these companies and will freeze the current structure of the economy. Instead of imposing an additional burden on the creation of high-productivity jobs, the focus should be on how to increase their accessibility for people in the low-productive parts of the economy, living in smaller towns without access to broad labor markets or those economically inactive.

Their currently inefficiently used effort is a valuable reserve, that, if used better, could contribute to faster economic growth, while at the same time provide them with higher wages.

The article is a summary of the FOR analysis (in Polish)