The Importance of Improving Incentives and Employment Opportunities for Farm Households in Poland

Abstract

Poland is experiencing the first stages of a period where its active labour force will decline steadily over time. This has raised important concerns with how well labour markets in Poland function, especially those in rural areas where there are still large numbers of households on small farms that have only limited engagement with formal work, and whose farm income is too low to provide an acceptable family income. The result is a high level of rural under-employment that imposes a growing burden on the economy and society, both in terms of unproductive labour and in high transfer payments to these families. There is a clear understanding that reducing the number of small full-time family farms in Poland is desirable as a way to: improve household incomes, address the need for more workers in other sectors, and further enhance the competitiveness of farming. Achieving this goal has been problematic, largely because to date there have been few incentives for these farm families to alter their behaviour. Simply put, the vast majority of small farm households do not perceive that they would be better off by engaging in formal employment. This largely reflects limited job opportunities in rural areas and a significant skill mismatch in local labour markets. But, it also reflects the continued existence of a variety of Polish policies that provide considerable financial benefits to these farm households, including a highly subsidized medical and retirement plan and exemption from income taxes, that significantly reduce the incentive to change behaviour. With a shrinking work force the cost of holding these potential workers in their current situation will only increase over time, but changing these longstanding policies remains a major challenge for the government.