Wage determination in late socialism: The case of Poland

Abstract

Does economic transition necessitate a profound change in the inter-industry wage structure? This paper argues that principles of wage determination in centrally planned economies were not basically different from those prevailing in market economies. Even if the center became involved in wage setting, reward for human capital and the compensating differential had to be taken into consideration. Moreover, market power led to rent-sharing via wage bargaining and efficiency wages. Hence, this paper claims that wages in socialist economies were determined by similar factors to those in market economies. This is supported by comparison of inter-industry wage structures between socialist and capitalist countries and by results of the estimation of the wage equation for Poland. There is a noticeable degree of similarity in wage structures generated by both systems.