Earnings inequality in transition economies of Central Europetrends and patterns during the 1990s

This paper documents trends in earnings distribution during the transition in Central Europe, and examines changes in relative wages that have underlined the rise in earnings inequality. The paper finds that the widening of earnings distribution was concentrated in the early phase of transition, and the trend towards greater inequality in most countries tapered off during the late 1990s. This suggests that a new equilibrium has been reached, or at least approached. This equilibrium is characterized by high but not exorbitant earnings dispersion. In most transitional economies of Central Europe earnings inequality is in the upper part of the OECD range, rarely beyond that range. The widening of earnings distribution has occurred at its both ends. The relative position of low-paid workers has deteriorated while the position of top paid workers has improved. At the same time the incidence of both low- and high-pay has considerably increased. High earnings dispersion is particularly pronounced in the private sector. The main observable factor behind the increase in earnings inequality during the transition has been the increase in the premium to university education. Education is currently the single most important variable explaining the attained level of inequality, whereas inter-industry wage differentials are second in importance. The contribution of other factors, such as gender, labor market experience, location, is small or insignificant.