An Estimation of the Productivity-Wage Gap in Hungary 1986-2005 (original) (raw)
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Who Earns Their Keep? An Estimation of the Productivity-Wage Gap in Hungary 1986-2005
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In this paper we seek to provide new empirical evidence on the relative productivities and wages of various worker groups (by gender, age, and education), based on longitudinal matched employer-employee data from Hungary covering 1986-2005. We estimate the productivity and wage gaps from firm-level production functions and wage equations, using firm-level data on productive inputs and output, wage costs, and
We explore the relative productivities and wages of worker groups over a 20 year period following the transition in Hungary. Due to the economic transition, firms may have become more efficient in terms of setting wages, relative productivities and wages would converge over time. The linked employer-employee dataset allows us to control for selection bias at the occupation, firm, region, and industry level, and to assess long-term trends. The results do not suggest that firm wage setting became more efficient: we find a persistent gap between the relative wages and productivities of both the high-skilled and older workers. Firms who entered the market after the transition set wages more efficiently than older firms.
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The overall gender wage gap fell from .31 to .15 between 1986 and 2003 following the transition to a free market in Hungary. During the same time period, firms faced increased competition from both new domestic and foreign firms due to the rapid liberalization measures implemented by the government. Becker's (1957) model of employer taste discrimination implies that employers that discriminate against women may be forced out of the market by competition in the long run, leading to a fall in the gender wage gap. I test this implication using data from the Hungarian Wage and Earnings Survey covering 1986-2003. I estimate the effect of variation in various measures of product market competition, including trade variables, on the within-firm endowment-adjusted gender wage gap, making use of the fact that I am able to follow firms over time. The estimates show a significant negative relationship between product market competition and the within-firm gender wage gap.
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Transition from socialist to capitalist economy led to enormous changes in earnings and employment. In our study a long-horizon descriptive analysis is presented about the major trends, including the last fifteen years of socialism. Education, gender, calendar time, age and vintage effects are separately analyzed. Aggregate (quasi-) panel analysis is used to assess the role of labor demand and labor supply, concluding that exogenous supply factors explained most of what happened before the transition, while the transition itself was dominated by large labor demand shocks. These demand shocks are in large part structural, as opposed to cyclical, and are highly correlated with vintage, gender and education. The main results are summarized in a list of stylized facts.
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The paper analyses changes in the demand for unskilled, young skilled, and older skilled workers during the post-communist transition in Hungary. Systems of cost share equations derived from the translog cost function are estimated for cross-sections of large firms observed in the period 1992-99. Following the 'transformational recession' the own-price elasticities of labour and capital were stabilized at levels observed in several developed market economies. Unskilled and skilled labour are estimated to be p-complements, and younger and older skilled workers p-substitutes. Capital and labour appear to be p-substitutes with unskilled labour having the highest elasticity of substitution. Further results hint at the existence of nonnegligible scale effects and the non-neutrality of technical change. The estimated wage elasticities give us the opportunity to evaluate consequences of some governmental policies. As minimum wage was doubled in nominal terms between 1999 and 2002 i...
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Hungary has been a front-runner in the transition to capitalism. It has also experienced exceptionally radical changes in employment and relative wages. One main feature of these changes is an enormous increase in the returns to skill. This paper argues that it is instructive to divide the process into two periods, divided by around the year 1995. The first period experienced major destruction of low-skilled jobs and large inter-sectoral reallocation, partly toward skill-intensive industries. Employment started to rebound in the second period, which has also seen a pervasive skill upgrade in all sectors. The skill premium in earnings started to grow even faster in the second stage because increasing demand for skill met a more and more inelastic supply in the short run. Long-run supply effects have been, however, strong as college enrollment rates soared. Introduction of new (foreign) capital seems to be a major factor behind increasing demand for skill. Foreign direct investment into Hungary was by far the largest among the transition countries until the late 1990's, but other Central-Eastern European countries started to catch up since. This suggests that the Hungarian experience might be helpful to predict labor market trends in other transition economies, especially those that attract significant foreign capital.
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