The article describes the evolution of the measured total factor productivity (TFP) in the context of labour market changes in Poland by identifying the unobserved worker effort on the basis of a structural model. The measured TFP growth in Poland slowed from around 4% in the second half of the 1990s to 2% a decade later. This reduction in the growth rate of the Solow residual is argued to reﬂect the evolution of worker effort and, indirectly, of the labour market within the period. The unobserved worker effort is identiﬁed within a structural efficiency wage model with shirking, which refers to the shirking efficiency wage theory of Shapiro and Stiglitz (1984).
A system of two equations derived from the model which relates the real labour cost and the reservation wage to the relevant labour market variables is estimated with Bayesian methods. The statistical inference informs about the relative importance of different mechanisms embedded in the theoretical model in the Polish economy.
The model is tailored to incorporate data on the transition probabilities between labour market states and temporary migration. The dataset used in the paper offers a more detailed insight into labour market dynamics and increases the empirical identification of the model parameters.
The main findings of the paper are as follows:
a reduction in the generosity of the unemployment beneﬁt system and the stabilization of the job destruction rate before 2000 reinforced worker motivation
a steep increase in worker effort before 2000 temporarily boosted the measured TFP growth
around 15% of the estimated decline in GDP tied to an increase in emigration after 2004 can be attributed to negative changes in worker discipline