Pawel BilinskiPoverty in Poland1
The poverty problem in Poland and it's development in course of transformation reforms of the 90's.
This essay aims at presenting the problem of poverty in Poland after the transformation of the economy from a centrally-governed market to capitalistic market. It is based mainly on various resources of Internet as well as the excerpts from the World Bank’s Poverty Assessment, and the OECD’s 1997 Economic Survey. Most changes in poverty levels occurred in the beginning of the transformation process, so all data which was gathered in the above mentioned documents is still applicable today.
Poland can be considered as a pattern for analysing the poverty problem in other transition economies in Central and Eastern Europe because it is the only one which has noticed a stable growth in past years of 90's thus can bring answer if economic growth can diminish the poverty of the transition economies.
Brief History.
In the beginning it's necessary to highlight the situation in Poland before 1989, year when the major shift in Polish economic and political situation occurred. After the second world war Poland entered the Soviet Union sphere of influence thus had to subdue to political and economic ideology stemming from the Marks and Lenin doctrine. The base for it was the equality of all people in society, no matter where their origins were or the work exercised. Thus the whole population was given basic level of health and social care paid from the state funds. Although there were not any unbiased statistics as to the level of poverty, which still existed among some members of society, the principle was to diminish the differences and care equally about the society as a whole. During the 1980s the poverty rate in Poland oscillated between 5 and 10 per cent[1]. But poverty was not so visible in the streets as it is now, as the state was obliged to care for handicapped and poor.
The situation changed with the collapse of the communist state and much overblown social care in 1989. Traditionally poverty levels in Poland had been highest among pensioners (which for Polish conditions is over 65 for man and 60 for woman[2]) and lowest among worker-farmers (having a job outside the agricultural sector as main source of income), which can always contribute to household budget with the gains from the field. Another typical stratification is based on education level which means lower poverty level among educated people compared with not-skilled workers for whom it is very difficult to find a job and between household size, bigger households have larger resources to which they can turn to when needed.
The Polish economy suffered a severe decline between 1989 and 1991, which led to an immediate fall in wages by 15%[3]. Pensions fell by 8%, but were soon adjusted to compensate[4]. Agricultural sector bore the brunt of the impact, with incomes cut by half[5]. Overall the poverty rate doubled to around 15%, with the traditionally poor, which is the pensioners and farm workers being hardest hit[6]. This recession was comparable to that of 1978-82, where the financial crisis in Poland occurred due to the need to pay off big lumps of credit draw by government in previous years. The new government which came to force in 1970 wanted to please the nation which suffered sever lack of goods on the market and to give more support to the poorest. Later thought it was necessary to pay the bill which caused sudden drop in level of life followed by unrest. So for us it was not a new experience. Although the earlier recession had seen riots, strikes against the drop of living standard and peoples strong opposition to government policy, this recession was widely expected and seen as the bill nation had to pay for past years of socialist, state governed, market policy. Fortunately the recession of 90's was rapidly followed by stabilisation and gradual recovery due to stabilisation package introduced by Vice Prime Minister professor Leszek Balcerowicz. Poland was the first country of all post socialist states that managed to regain the GDP level from before the transformation.
Although the statistical decline in incomes was stabilised at the end of 1991, this was because of the rapid growth in the incomes of senior managers and professionals in the public and especially the private sectors, caused by the employment of these groups by foreign companies investing in Poland since 1989 which were looking for skilled workforce[7]. This statistically compensated for the continued decline in incomes of the low skilled labour, especially stemming from the heavy industry. The heave industry faced a substantial drop in orders and overall work load which caused mass layoffs and bankruptcy of some of companies. The workers from the factories, which used to work in there throughout their lives could not find any other employment. They were supported by the unemployment insurance only during a limited period of time. The heavy industry in Poland having to compete in free economy underwent a strong restructure program which caused further major reductions in employment and wages. This is reflected in rapidly rising inequality, with the Gini coefficient peaking at 30 in 1994, having been between 23 and 25 from 1989 to the first half of 1993, falling back slightly to 29.4 in 1995[8]. Incomes began to recover at the same time, reaching 90% of the 1987 base level by the end of 1995.[9] The situation faced by the heave industry was similar in many other branches of the economy which caused the overall substantial drop in level of livelihood.
Additionally the government ceased to control the prices of food and regalement them equally to the publics by way of using the "coupons" which legitimated to buy certain amount of food at better prices. Thus in many cases the shops were full but people were not able to buy anything due to lover income levels. In the past the Poles were used not to being able to purchase the goods at shop due to low supply of products to the market, now they were unable to purchase most of the goods as they were too expensive for them.
All most sever changes and drops in income levels took place between 1989 and 1991, which means that the sever changes were introduced in very short time.
Table 1 shows the outcome of falling incomes and increasing inequality on poverty levels according to various measures, most of which use the income and expenditure derived from the state statistical service (GUS) household survey[10].
Table 1: Various Poverty Estimates, Poland
1990 / 1991 / 1992 / 1993 / 1994 / 1995Expenditure Measures
50% of average equivalent expenditure of households (GUS estimates) / 12 / 8 / 8 / 12 / 14 / 13
60% of average equivalent expenditure of households (GUS) / 23 / 24 / 23
Income Measures
Minimum sustainable household income (Institute of Labour and Social Studies) / 34 / 32 / 40 / 46 / 49 / 49
Social minimum per head (Warsaw School of Economics) / 37 / 36 / 45 / 51 / 52 / 53
Minimum retirement pension (GUS) / 16 / 19
Subsistence minimum (GUS) / 6
1990 PPP$ 120 per month (Milanovic) / 19
Leiden measure, fourth quarter (GUS) / 40 / 33 / 31
Source:OECD Economic Survey Poland 1997
The expenditure measures reflect inequality rather than poverty. Thus the poverty rate was stable on these measures over 1991–1992 as the expenditure of poor families fell in line with the fall in average expenditure following the sharp fall in incomes in 1990[11]. The rapid increase in the poverty rate in 1993 is similarly a reflection of the sharp increase in inequality, despite the stabilisation of incomes, and the slight fall in poverty rates in 1995 on these measures reflects the small reduction in inequality[12].
Despite the fact that average incomes have begun to rise due to adaptation of the workforce and companies to changing market situation, the poverty rates have continued to rise as a result of structural changes in the distribution of income. The gap between the poor and rich started to widen dramatically. While farmers recovered their position slightly over 1994-5, which was a year of better prices for agricultural products in market, pensioners and workers didn't do as well.
The World Bank poverty assessment was based on the household budget surveys for the first six months of 1993. The assessment was based on expenditure data, including the monetary value of domestic production and of goods and services provided to the household free of charge[13]. The assessment used the minimum pension, defined in Polish law as 35% of the average wage, as the poverty line per equivalent adult (with a second adult counting 0.7, children counting 0.5). In June 1993 this was $PPP140 per month, $PPP4 per day per equivalent adult or $PPP3 per person. Using the minimum pension as the measure, 5.5 million people, 14.4% of the population, were poor in the first half of 1993. Because of the character of the income distribution a poverty line only 25% higher would almost double the number of poor, while taking the social minimum, at that time $PPP10 pp per day, as the poverty line gives a poverty rate of 51% for 1993.
The income and consumption poverty has increased sharply, but other poverty indicators have not deteriorated to the same extent[14]. The health indicators show a steady improvement in expenditure on health in real and money terms. However, the state role as major financing body of the health service has gone, and hospitals started charging patients for various forms of medical treatment. Thus part of the burden of financing health care has been passed from the state to the individual in need of health care[15].
Another visible aspect was that the poor spend far more of their income (62.3% as against 39.3%) on food, and consume substantially less meat, fruit and vegetables other than potatoes[16]. The long-term poor have worse housing conditions than the not poor, with 2.1 people per room, against 1.2 for the non-poor, 80% have running water against 94% of the not poor and 59% have a toilet against 85% of the not poor (but part of this is a difference between rural and urban housing conditions, with much higher poverty rates in the countryside)[17]. There is not much difference in the proportion of the poor or the not poor who own consumer durables, apart from a car, except in the case of the more modern durables (colour television, automatic washing machine, freezer). This is an indication that poverty was a recent experience for the majority of the poor.
According to the data of panel studies in 1987 and 1989 around half the poor had been in poverty for at least two consecutive years, a figure which had fallen to 40% by 1995, with only just over half the poor in 1994 having been in poverty for one year[18]. The poverty appears to be about as stable as it was in the 1980s and there are many people who are in long-term poverty[19].
Poverty is not a problem of old age in Poland because of the relatively high level of income-related pensions and many people have been able to retire early with little loss of income, so poverty rates decline equally with age[20]. There is a strong relationship between household size and number of members of family and poverty rates because social benefits were not sufficient to keep children, the sick and disabled or mothers caring for children out of poverty (child benefits were heavily eroded by inflation between 1990 and 1995)[21]. Thus only 5% of the poor are elderly, while one-third of all children are living in poverty. Poverty rates increase dramatically for families with more than two children although the families with more children appear to have fewer psychological problems connected with poverty. The educated part of society, principally those living in big cities managed to recover from loss of income fast, suffering less both economically and psychologically.
Causes of poverty
Low wages
The principal cause of poverty in Poland is low wages. Many households in poverty have working members who simply cannot earn enough to support themselves as well as children and other members of their families, especially with increasing cost of living due to adjustment of prices of media like water, electricity to free market levels. People earning low wages have usually lower level of education and are less skilled, they work in shops, administration and do the manual jobs. They work particularly in industries which underwent sever blow in beginning of transition period and above all in agriculture. Apart from that there are strong regional differences in country, especially between big cities and country side and West and East of Poland. Past German lands of West Poland usually have better economic development than East part which was in past under Russian occupation. The differences have certainly not declined since 1993. The gap is widening due to growth driven by investments oriented to exporting to the EU in West part of Poland. In future the regional differences are expected to intensify, although regional differences in unemployment rates have been very stable since 1992 (the highest difference between capital - Warsaw 5.3% and Slupsk - 28.6%)[22].
Wage differences increased not only between industries but also among different occupations, with managers and professionals having fast salary growth, particularly in the private sector. Wage difference were substantially higher in the private sector than in the state sector because private enterprises paid higher wages to managers at the top and lower wages to line workers at the bottom than state enterprises and organisations. The sharp rise of managerial and professional salaries meant that education has become a prime determinant of income inequality and of poverty In 1988 a family of a basic vocational school graduate was 2.7 times more likely to fall into poverty than that of a university graduate; in 1992, 8.9 times[23]. Hence better education of workforce in future and better possibility of children to gain access to higher education (e.g. by state grants) may lover the level of poverty in future.
Another problem is the inequality of status between woman and men. Women have lower wages than men and are more likely to be unemployed, or be unemployed for longer and are more likely to be in poverty. At the same time the number of municipal creches fell by 32% and factory ones fell from 236 to 14, while 20% of all kindergartens closed between 1990 and 1992 as fewer women could afford the escalating fees[24]. The result was that more and more children were being cared for by grandparents. Women had to confront conflict between child care and work responsibilities, especially as they were pressed by society to be first mother and put the burden of supporting the family on the father.
Unemployment
The one-third of households are in poverty because of the unemployment of one or more household members. In 1989 Poland introduced a generous unemployment benefit program which paid 70% of previous earnings for the first three months, 50% for the next six months and then 40% for rest[25]. The idea was to ease the transition by helping the unemployed to cope with new situation. The rapid fall in wages in 1990 with the generous unemployment help scheme meant that many of the unemployed were better off than those in work. The outcome was that unemployment rose much more rapidly and wages fell by much less in Poland than in most other transition countries[26]. After some time the limit of twelve months was set as the duration of benefit and the benefit was no longer earnings-related and was substantially reduced. As a result the proportion of registered unemployed receiving benefit fell from 75% at the end of 1991 to 50% at the end of 1994, increasing once more to 60% in mid-1996, reflecting the more rapid turnover of the unemployed[27]. The registered unemployed who could not receive the benefit after 12 months were still capable of receiving free medical treatment and the period of registration as unemployed was qualifying for their pensions. Until March 1996 unemployment benefit was set at 36% of the average wage, but the minimum wage was already not much more than the level of unemployment benefit so many low-paid workers had little incentive to work. As a result, the link with wages was finally broken and benefit was fixed at the March 1996 level, index-linked to inflation. New entrants to the labour market qualify for benefit only at a much reduced rate and only if they are involved in active labour market schemes[28].
The unemployed typically had lower skills and education with people with higher education being three times as likely to leave unemployment as those with elementary education[29]. Almost half the unemployed poor were under 35 year-old and 80% had no more than basic education. More women than men were unemployed and they had longer unemployment duration. Another aspect is high proportion of young unemployed, primarily due to their lack of working experience and often low skills, especially knowledge of foreign languages.
Poverty and economic growth
From the point of view of economic growth Poland is a success story among those countries which followed the liberal path of reforms in 90's. Unemployment began to fall from the middle of 1994 primarily because of people leaving the unemployment register, particularly when they had not right for the unemployment benefit. Registered unemployment had fallen to 14.3% by the middle of 1996, with a small fall in the average duration of unemployment and the proportion of long-term unemployed: about 40% of the total had been unemployed for over a year, with about half of them unemployed for over two years[30].