Working Paper: CEPR ID: DP1726
Authors: Irena Grosfeld; Jean-François Nivet
Abstract: This paper looks at the behaviour of large industrial firms in Poland in 1988?94. Using a longitudinal enterprise-level data set, we are able to test systematically various hypotheses concerning firms? reactions to the change in their environment. The results confirm a structural break after the introduction of the package of reforms in 1990. Labour market conditions and product market competition exert important downward pressure on wages. After 1993, however, this initially strong response is weakened. Comparison of wage-setting behaviour across different types of firms confirms important differences in wage negotiation. In state-owned enterprises (SOEs) insiders capture an important part of productivity increases, while in privatized firms there is no positive relationship between firms? ability to pay and wage increases. Privatization appears important for the strategic dimension of enterprise restructuring. Privatized firms invest more and have greater capacity to ensure higher output growth.
Keywords: transition; enterprise behaviour; insider effects; privatization; panel data
JEL Codes: C23; D21; P21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural reforms initiated in 1990 (E69) | significant change in wage-setting behavior (J29) |
| increased market competition (L13) | significant change in wage-setting behavior (J29) |
| changing labor market conditions (J29) | significant change in wage-setting behavior (J29) |
| labor market conditions (J29) | downward pressure on wages (F66) |
| product market competition (L13) | downward pressure on wages (F66) |
| labor shedding (J63) | productivity growth (O49) |
| productivity growth (O49) | subsequent wage increases (J38) |
| privatization process (L33) | enhanced firms' investment behavior (G31) |
| privatization process (L33) | capacity for output growth (E23) |
| privatized firms (L33) | different strategic restructuring compared to SOEs (L33) |
| privatization and hardening of budget constraints (L33) | aggressive restructuring efforts among lossmaking firms (G33) |
| privatization and hardening of budget constraints (L33) | relative passivity in profitable firms (L21) |
| changes in behavior (D91) | broader shift in expectations about market reforms (E69) |