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Wage and Investment Behavior in Transition: Evidence from a Polish Panel Data Set

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.