The evolution of wage inequality in post communist Romania

This study analyzes the evolution of wage inequality in Romania over the period 1950-2000. During the 1960’s there is a significant increase in inequality, mainly the result of industrialization policies which relied on wage differentials to induce labor reallocation. However, at the beginning of the 1970’s the inequality measures drop, and for the next twenty years they stabilize at these low levels. The next big increase in inequality is brought by the wage and price liberalization at the beginning of the transition, specifically in 1991 and 1992. Although inequality subsided afterwards, in 1996-1997, a period that coincides with the actual commencement of reforms in Romania, inequality measures went up by almost 20%. Afterwards, the trend slowly reverses so that by 2000 inequality measures were lower than in 1994. During this period, I find that the evolution of wage inequality was largely driven by changes at the upper end of the wage distribution. The decomposition of wage inequality by sub-groups shows that inequality was higher among men, private sector workers and college graduates with more years of experience.