Institutions Effect on Wage Inequality: Empirical Findings from European Transition Countries

This book analyzes within-country causes and mechanisms which affected wage inequality in European transition economies, after the fall of the Communism. First, we find that internal factors such as small scale privatisation were the main institutional factor increasing wage inequality. Second, we find that even though of a smaller magnitude, globalisation, namely trade freedom and investment freedom affected wage inequality, the first one positively while the second negatively. Third, we find that governments were incapable or unwilling of addressing increasing wage inequality problems, as government spending is found to be insignificant while an increase in tax freedom increased wage inequality. Fourth, we find that workforce education was an additional factor increasing inequality, while economic development (GDP per capita) was found to have a negative effect on inequality, but as the countries got to be more developed this effect became positive.