Increasing inequality in transition economies : is there more to come?
This paper decomposes changes in inequality, which has in general been increasing in the transition economies of Eastern Europe and the former Soviet Union, both by income source and socio-economic group, with a view to understanding the determinants of inequality and assessing how it might evolve in the future. The empirical analysis relies on a set of inequality statistics that, unlike"official data", are consistent and comparable across countries and are based on primary records from household surveys recently put together for the World Bank study"Growth, Poverty and Inequality in Eastern Europe and the Former Soviet Union: 1998-2003"[World Bank (2005b)]. The increase in inequality in transition, as predicted by a number of theoretical models, in practice differed substantially across countries, with the size and speed of its evolution depending on the relative importance of its key determinants, viz., changes in the wage distribution, employment, entrepreneurial incomes and social safety nets. Its evolution was also influenced by policy. This diversity of outcomes is exemplified on the one hand for Central Europe by Poland, where the increase in inequality has been steady but gradual and reflects, inter alia, larger changes in employment and compensating adjustments in social safety nets and, on the other for the Commonwealth of Independent States by Russia, where an explosive overshooting of inequality peaked in the mid-1990s before being moderated through the extinguishing of wage arrears during its post-1998 recovery. The paper argues that the process of transition to a market economy is not complete and that further evolution of inequality will depend both on (i) transition-related factors, such as the evolution of the education premium, a bias in the investment climate against new private sector firms which are important vehicles of job creation and regional impediments to mobility of goods and labor, as well as increasingly (ii) other factors, such as technological change and globalization. The paper also contrasts key features of inequality in Russia in the context of other transition economies with trends in inequality observed in China where rapid economic growth has been accompanied by a steep increase in inequality. It argues that the latter's experience is, to a large extent, a developmental, rather than a transition-related phenomenonderiving from the rural-urban divide and is, therefore, of limited relevance for predicting changes in inequality in Russia.
|Date of creation:||01 Sep 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roland Bénabou, 1996.
"Inequality and Growth,"
in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92
National Bureau of Economic Research, Inc.
- Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers.
- Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
- Benabou, R., 1996. "Inequality and Growth," Working Papers 96-22, C.V. Starr Center for Applied Economics, New York University.
- Hartmut Lehmann & Jonathan Wadsworth, 2002.
"Wage Arrears and the Distribution of Earnings in Russia,"
CERT Discussion Papers
0202, Centre for Economic Reform and Transformation, Heriot Watt University.
- Hartmut Lehmann & Jonathan Wadsworth, 2001. "Wage Arrears and the Distribution of Earnings in Russia," William Davidson Institute Working Papers Series 421, William Davidson Institute at the University of Michigan.
- Lehmann, Hartmut & Wadsworth, Jonathan, 2001. "Wage Arrears and the Distribution of Earnings in Russia," IZA Discussion Papers 410, Institute for the Study of Labor (IZA).
- Belton M. Fleisher & Klara Sabirianova Peter & Xiaojun Wang, 2004.
"Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia,"
William Davidson Institute Working Papers Series
2004-703, William Davidson Institute at the University of Michigan.
- Fleisher, Belton M. & Sabirianova, Klara & Wang, Xiaojun, 2005. "Returns to skills and the speed of reforms: Evidence from Central and Eastern Europe, China, and Russia," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 351-370, June.
- Fleisher, Belton M. & Peter, Klara Sabirianova & Wang, Xiaojun, 2004. "Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia," IZA Discussion Papers 1182, Institute for the Study of Labor (IZA).
- Frank Cowell, 1998.
"Measurement of inequality,"
LSE Research Online Documents on Economics
2084, London School of Economics and Political Science, LSE Library.
- Krueger, Dirk & Perri, Fabrizio, 2002. "Does Income Inequality Lead to Consumption Inequality?," CEPR Discussion Papers 3583, C.E.P.R. Discussion Papers.
- Milanovic, Branko, 1998. "Explaining the increase in inequality during the transition," Policy Research Working Paper Series 1935, The World Bank.
- Wu, Ximing & Perloff, Jeffrey M., 2004.
"China's Income Distribution Over Time: Reasons for Rising Inequality,"
Institute for Research on Labor and Employment, Working Paper Series
qt9jw2v939, Institute of Industrial Relations, UC Berkeley.
- Wu, Ximing & Perloff, Jeffrey M, 2004. "China's income distribution over time: reasons for rising inequality," CUDARE Working Paper Series 0977, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Wu, Ximing & Perloff, Jeffrey M., 2004. "China's Income Distribution over Time: Reasons for Rising Inequality," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt166747gz, Department of Agricultural & Resource Economics, UC Berkeley.
- Wu, Ximing & Perloff, Jeffrey M., 2004. "China'S Income Distribution Over Time: Reasons For Rising Inequality," 2004 Annual meeting, August 1-4, Denver, CO 20061, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- World Bank, 2005. "Russia : Reducing Poverty through Growth and Social Policy Reform," World Bank Other Operational Studies 8523, The World Bank.
- Kanbur, Ravi & Tuomala, Matti, 2002. "Understanding The Evolution Of Inequality During Transition: The Optimal Income Taxation," Working Papers 7240, Cornell University, Department of Applied Economics and Management.
- Newell, Andrew T., 2001. "The Distribution of Wages in Transition Countries," IZA Discussion Papers 267, Institute for the Study of Labor (IZA).
- John Flemming & John Micklewright, 1999.
"Income Distribution, Economic Systems and Transition,"
Innocenti Occasional Papers, Economic Policy Series
iopeps99/69, UNICEF Innocenti Research Centre.
- Flemming, J.S. & Micklewright, John, 2000. "Income distribution, economic systems and transition," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 14, pages 843-918 Elsevier.
- Ravallion, Martin, 2001.
Policy Research Working Paper Series
2645, The World Bank.
- Kanbur, Ravi & Zhang, Xiaobo, 2001.
"Fifty Years Of Regional Inequality In China: A Journey Through Revolution, Reform And Openness,"
7236, Cornell University, Department of Applied Economics and Management.
- Kanbur, Ravi & Zhang, Xiaobo, 2001. "Fifty Years of Regional Inequality in China: A Journey through Revolution, Reform and Openness," CEPR Discussion Papers 2887, C.E.P.R. Discussion Papers.
- John Haltiwanger & Hartmut Lehmann & Katherine Terrell, 2003. "Job Creation and Job Destruction in Transition Countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(2), pages 205-219, June.
- Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
- Simon Commander & Andrei Tolstopiantenko & Ruslan Yemtsov, 1997.
"Channels of Redistribution: Inequality and Poverty in the Russian Transition,"
William Davidson Institute Working Papers Series
42, William Davidson Institute at the University of Michigan.
- Simon Commander & Andrei Tolstopiatenko & Ruslan Yemtsov, 1999. "Channels of redistribution: Inequality and poverty in the Russian transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 411-447, July.
- Theo S Eicher & Cecilia Garcia Penalosa, .
"Inequality and Growth,"
0083, University of Washington, Department of Economics.
- Theo S Eicher & Cecilia Garcia Penalosa, . "Inequality and Growth," Discussion Papers in Economics at the University of Washington 0083, Department of Economics at the University of Washington.
- Gustafsson, Bjorn & Shi, Li, 2001. "The Anatomy of Rising Earnings Inequality in Urban China," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 118-135, March.
- Gustafsson, Bjorn & Nivorozhkina, Ludmila, 2005. "How and why transition made income inequality increase in urban Russia: A local study," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 772-787, December.
- Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, vol. 105(429), pages 421-30, March.
- Yemtsov, Ruslan, 2003. "Quo Vadis? Inequality and Poverty Dynamics across Russian Regions," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.