The Role of Labor Market Rigidities During the Transition: Lessons From Poland


Thierry Pujol

Publication Date:

July 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate


The transition to a market economy has been analyzed primarily from a stabilization prospective. To complement that approach, we focus on a pure relative price shock and subsequent price adjustments. A model of monopolistic competition with costly labor adjustment indicates that relative price shocks can induce overall output decline because rigid sectoral real wages do not adjust to offset sectoral price changes, and firms that benefit from the price shock engage in monopolistic behavior. In Poland, empirical evidence suggests that relative wage rigidity contributed to lower employment and output, but there is no strong evidence that competition was important.


Working Paper No. 1996/077



Publication Date:

July 1, 1996



Stock No:




Please address any questions about this title to