Studies in Economic Transition General Editors: J ens Hölscher, Professor of Economics, Bournemouth University, and Horst Tomann , Professor of Economics, Free University Berlin This series has been established in response to a growing demand for a greater understanding of the transformation of economic systems. It brings together theoretical and empirical studies on economic transition and economic devel- opment. The post-communist transition from planned to market economies is one of the main areas of applied theory because in this field the most dramatic examples of change and economic dynamics can be found. The series aims to contribute to the understanding of specific major economic changes as well as to advance the theory of economic development. The implications of economic policy will be a major point of focus. Titles include : Cristiano Perugini and Fabrizio Pompei (e ditors ) INEQUALITIES DURING AND AFTER TRANSITION IN CENTRAL AND EASTERN EUROPE Jens Hölscher POLAND AND THE EUROZONE Laurissa Mühlich ADVANCING REGIONAL MONETARY COOPERATION Arkadiusz Mironko DETERMINANT OF FDI FLOWS WITHIN EMERGING ECONOMIES A Case Study of Poland Johannes Stephan (e ditor ) THE TECHNOLOGICAL ROLE OF INWARD FOREIGN DIRECT INVESTMENT IN CENTRAL EAST EUROPE Vera Trappmann FALLEN HEROES IN GLOBAL CAPITALISM Workers and the Restructuring of the Polish Steel Industry Christopher Hartwell INSTITUTIONAL BARRIERS IN THE TRANSITION TO MARKET Examining Performance and Divergence in Transition Economies Will Bartlett, Sanja Maleković and Vassilis Monastiriotis ( editors ) DECENTRALISATION AND LOCAL DEVELOPMENT IN SOUTH-EAST EUROPE Sönke Maatsch CENTRAL AND EAST EUROPEAN MIGRANTS’ CONTRIBUTIONS TO SOCIAL PROTECTION Tilman Bruk and Hartmut Lehmann ( editors ) IN THE GRIP OF TRANSITION Economic and Social Consequences of Restructuring in Russia and Ukraine Björn Jindra INTERNATIONALISATION THEORY AND TECHNOLOGICAL ACCUMULATION An Investigation of Multinational Affiliates in East Germany Pasquale Tridico INSTITUTIONS, HUMAN DEVELOPMENT AND ECONOMOC GROWTH IN TRANSITION ECONOMIES Daniela Gabor CENTRAL BANKING AND FINANCIALIZATION A Romanian Account of How Eastern Europe Became Subprime Tomasz Mickiewicz ECONOMICS OF INSTITUTIONAL CHANGE Central and Eastern Europe Revisited Milica Uvalic SERBIA’S TRANSITION Towards a Better Future Enrico Marelli and Marcello Signorelli ( editors ) ECONOMIC GROWTH AND STRUCTURAL FEATURES OF TRANSITION Jens Lowitzsch FINANCIAL PARTICIPATION OF EMPLOYEES IN THE EU-27 Hans van Zon RUSSIA’S DEVELOPMENT PROBLEM The Cult of Power Horst Tomann MONETARY INTEGRATION IN EUROPE Iraj Hoshi, Paul J.J. Welfens and Anna Wziatek-Kubiak ( editors ) INDUSTRIAL COMPETITIVENESS AND RESTRUCTURING IN ENLARGED EUROPE How Accession Countries Catch Up and Integrate in the European Union David Lane ( editor ) THE TRANSFORMATION OF STATE SOCIALISM System Change, Capitalism, or Something Else? Studies in Economic Transition Series Standing Order ISBN 978 0–333–73353–0 ( outside North America only ) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Inequalities During and After Transition in Central and Eastern Europe Edited by Cristiano Perugini University of Perugia, Italy and Fabrizio Pompei University of Perugia, Italy Introduction, editorial matter and selection © Cristiano Perugini and Fabrizio Pompei 2015 Individual chapters © Contributors 2015 Foreword © Jens Hölscher 2015 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–1–137–46097–4 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Inequalities during and after transition in Central and Eastern Europe / [edited by] Cristiano Perugini and Fabrizio Pompei. pages cm Includes bibliographical references. ISBN 978–1–137–46097–4 1. Equality – Central Europe. 2. Equality – Europe, Eastern. 3. Post- communism – Central Europe. 4. Post-communism – Europe, Eastern. I. Perugini, Cristiano. II. Pompei, Fabrizio. HM821.I5335 2015 305.80093—dc23 2015013140 Contents List of Figures v ii List of Tables i x Foreword x ii Jens Hölscher Notes on Contributors x iii Introduction 1 Cristiano Perugini and Fabrizio Pompei 1 I ncome Distribution During and After Transition: A Conceptual Framework 1 2 C ristiano Perugini and Fabrizio Pompei Part I Personal and Functional Income Distribution Patterns During Transition 2 T he Drivers of Personal Income Inequality in Transition, and the Role of Reform Approaches 4 1 D avid Aristei and Cristiano Perugini 3 F unctional Income Distribution in European Transition Countries 5 9 A na Rincon-Aznar, Michela Vecchi and Francesco Venturini 4 E migration, Employment and Inequality in Post-communist Countries 9 3 C ristiano Perugini and Fabrizio Pompei Part II Microeconomic Analysis of Income Distributions and the Role of Institutional Settings 5 I ncome Mobility in the New EU Member States 1 19 D avid Aristei and Cristiano Perugini 6 E arnings Inequality and Job Positions across Post-communist European Economies 1 44 C ristiano Perugini and Fabrizio Pompei v vi Contents 7 W age Inequality between and within Education Levels in Transition Countries 1 70 C ristiano Perugini and Fabrizio Pompei 8 G ender Earnings Inequality in the New EU Member States 198 C ristiano Perugini and Ekaterina Selezneva 9 G ender Wage Inequality in the Western Balkans 222 M arko Vladisavljević, Sonja Avlijaš and Sunčica Vujić Part III Redistributive Preferences and Arrangements 10 T he Solidarity Principle in the New EU Member States 247 V alentina Colcelli 11 S ocial Preferences for Redistribution in Central Eastern Europe and in the Baltic Countries 2 65 D avid Aristei and Cristiano Perugini 12 W elfare and Redistribution in Post-communist Countries 284 M artin Myant and Jan Drahokoupil Index 3 07 List of Figures 1.1 I ncome inequality in transition countries: a conceptual framework 1 5 2.1 T ransition speed and sequencing models: EBRD scores since the outset of transition 4 5 2.2 P atterns of transition and inequality: preliminary evidence 46 3.1 L abour share dynamics in transition economies (1990–2010) 60 3.2 R eal capital/GDP (1990–2010) 6 7 3.3 R elative TFP (1990–2010) 68 3.4 I nternational trade in transition economies 69 3.5 B usiness freedom, transition countries (1990 and 2010) 70 3.6 L abour market freedom, transition countries (1990 and 2010) 71 3.7 C redit market freedom, transition countries (1990 and 2010) 72 3.8 L abour shares dynamics by industry (1995–2007) (cross-country average) 84 4.1 E migration in NEUMs (thousands) 9 7 4.2 E migration and employment rates in the NEUMs 101 4.3 E migration and employment rates by education in the NEUMs 1 04 4 .4 E ducation composition of employment and population (2007 and 2011) 1 07 4.5 O verall hourly wages inequality in the NEUMs (percentile ratios) 1 08 4.6 E migration and inequality 1 09 4.7 H ourly wages inequality in the NEUMs, workers with primary education (percentile ratios) 111 4.8 H ourly wages inequality within and between education groups (Theil index) 1 12 5.1 ( a, b) Fields and Ok (1999) mobility index in European countries 1 26 5.2 ( a, b) Income mobility and inequality 128 6.1 H ourly wages gap between permanent and temporary workers and overall inequality among employees in NEUMs (2007 and 2011) 155 6.2 C omponents of the hourly earnings gap between permanent and temporary workers 1 59 vii viii List of Figures 6.A1 C omponents of the hourly earnings gap between permanent and temporary workers, Western EU countries 166 7.1 T heil index decomposition of hourly wage inequality by education groups, NEUMs (2007 and 2011) 178 7.A1 T heil index decomposition of hourly wage inequality by education groups, Western EU countries (2007 and 2011) 194 8.1 M ale/female hourly earnings in NEUMs by employment status (2007 and 2009) (2005 euro PPP) 203 8.2 A djusted gender earnings gap in 2007 and 2009, by quantiles 2 05 8.3 G ender earning gap in new EU Member States and additional effects of labour market institutions (pooled sample, 2007 and 2009) 211 9.1 M ale unadjusted and adjusted gender wage gaps 229 9.2 U nadjusted gender wage gap and labour market deregulation in post-communist countries (2008) 231 9.3 U nadjusted and adjusted wage gaps within public (a) and private sectors (b) 2 33 11.1 ( a, b) Inequality aversion and “objective” inequality in Central Eastern European and Baltic countries 2 74 11.2 H eterogeneity in inequality aversion across Central and Eastern European and Baltic countries 2 75 11.3 ( a, b) Income inequality in Central and Eastern European and in Baltic countries: heterogeneous versus homogeneous inequality aversion 2 78 12.1 S ocial- and health-related government outlays as a percentage of GDP (2006) 2 89 12.2 L abour market protection expenditure and unemployment rate, 2011 2 93 List of Tables 2.1 C orrelation between EBRD reform indicators (25 countries, 1989–2009) 4 3 2.2 I mpacts of transition reforms on inequality (dynamic models, GMM-SYS) 5 1 3.1 A verage labour shares in transition economies and in the EU-15 (1990–2010) 66 3.2 F raser economic freedom indicators (unweighted cross-country mean) 72 3.3 L abour share and economic determinants: ECM specification with interactions (1990–2010) (long-run coefficients) 7 6 3.4 T he impact of trade openness on labour shares: ECM specification with interactions (1990–2010) (long-run coefficients) 7 9 3.5 L abour share and economic determinants: assessing the impact of institutional factors. ECM specification with interactions (1990–2010) (long-run coefficients) 81 3.6 L abour shares dynamics at industry level. Summary statistics (1995–2007) 83 3.7 L abour shares, technological factors and market freedom: industry evidence. 2SLS-GMM estimator (1995–2007) 85 4.1 C rude rate of emigration (selected years) 98 4.2 C rude rate of net migration plus statistical adjustments (selected years) 9 9 4.3 E mployment rates (selected years) 102 4.4 E ducation mismatch index 106 4.5 R eal hourly wages by educational attainment (medians, euro PPP) 1 10 5.1 T he drivers of income mobility in Eastern and Western Europe (2004–2007) 130 5.2 T he drivers of income mobility in Eastern and Western Europe (2008–2011) 134 5.A1 S ample and descriptive statistics 139 5.A2 I ncome mobility measures (years 2004–2007 and 2008–2011) 1 40 ix