Housing and Labor Market Distortions in Poland: Linkages and Policy Implications

Abstract

During its period as a centrally planned economy, Poland′s housing and macroeconomic policies restricted investments in housing and urban infrastructure to a level well below that of other European countries. This resulted in a shortage of housing typified by 15- to 20-year waits for government-subsidized housing and a stock of housing that fell short of the number of Polish households by about 20%. Shortages of this magnitude are likely to cause distortions that extend far beyond the housing sector, with impacts on patterns of savings and consumption, the price level, and on the functioning of labor markets - all of which have potentially major macroeconomic implications. This paper focuses particularly on how housing market distortions have been transmitted to labor markets, with impacts on rates of migration, relative wage levels among different regions, and, by implication, on the productivity of the Polish work force. The basic thesis of the paper is that if housing markets are prevented from reaching their competitive equilibrium, labor markets will similarly be prevented. The paper examines evidence on the extent of housing and labor market disequilibria during the 1980s, and estimates econometric models that relate internal migration and relative wages to alternative measures of housing market disequilibria. From these analyses it is concluded that labor markets were in fact distorted by housing market distortions, with potentially major macroeconomic costs. While the empirical results have direct relevance to Poland, it is likely that the thesis of the paper has relevance in other economies where government housing market interventions such as rent control or restrictive land use and building regulations prevent housing markets from reaching a competitive equilibrium.