Labor Market Efficiency in Poland : A Stochastic Wage Frontier Analysis

In this paper, we apply a stochastic frontier approach in order to analyze labor market efficiency in Poland – a transition economy and a new entrant to the European Union. Wage efficiency is defined as the ratio of a worker's actual and potential (maximum) wage, given his or her demographic and socio-economic characteristics. Our findings indicate that, on average, in 2001 the full-time hired Polish workers realized 86 percent of their potential earnings. It implies inefficiency in acquiring and processing job market information. At the same time, an international comparison shows that the degree of wage efficiency in Poland was similar to or higher than that in other developed countries. Our attempt to identify the determinants of wage efficiency in Poland produced mixed results. However, in sum, worker performance in the Polish labor market seems to be rewarded appropriately, with some typical-for-Europe degrees of inefficiency in acquiring information, by a standard of wage efficiency and proximity to the wage frontier