The sources and structure of wage inequality changes in the selected Central-Eastern European Countries

Abstract

We study the determinants of wage inequality and its fluctuations in six Central-Eastern European nations using European Union Statistics on Income and Living Conditions microdata from 2010 to 2019. Wage disparity in these countries changed in distinct ways. Inequality in Czechia and Romania is generally steady, has fallen consistently in Poland and Slovakia, and has increased in Bulgaria. Inequality has been steadily reducing in Hungary but has recently increased significantly. Therefore, this paper questions these countries' primary causes of wage inequality changes. In addition to providing a detailed description of inequality trends in these countries, we focus on examining the demographic and micro-level determinants alongside the minimum wage changes. We estimate these effects using RIF regression and RIF decompositions for various inequality measures. The changes in wage inequality in these countries were driven mainly by wage structure effects regardless of the increase or decrease in wage inequality. Changes in the returns to education and returns to permanent employment contracts are crucial in explaining decreased wage inequality. The increases in wage inequality in Hungary and Bulgaria are defined mainly by the changes in the estimated constants instead of micro-level determinants. The changes in the minimum wage explain most of the unknown factors in Bulgaria, and the spillover effects of the minimum wage may explain most of the unknown factors in Hungary. Our results can support the skill-biased technological change hypothesis in the case of Slovakia, Romania, Czechia, and Bulgaria.