Applying the Multilevel Approach in Estimation of Income Population Differences

Income inequality remains one of the most burning issues discussed in the world. The difficulty of the problem arises from its multiple manifestations at regional and local levels and unique patterns within countries. This paper employs a multilevel approach to identify factors that influence income and wage inequalities at regional and municipal scales in Russia. We carried out the study on data from 2017 municipalities of 75 Russian regions from 2015 to 2019. A Hierarchical Linear Model with Cross-Classified Random Effects (HLMHCM) allowed us to establish that most of the total variances in population income and average wages accounted for the regional scale. Our analysis revealed different variances of income per capita and average wage; we disclosed the reasons for these disparities. We also found a mixed relationship between income inequality and social transfers. These variables influence income growth but change the relationship between income and labour productivity. Our study underlined that the impacts of shares of employees in agriculture and manufacturing should be considered together with labour productivity in these industries.