The Evolution of Productivity - Wage Gaps Following the Transition in Hungary – Evidence from Linked Employer - Employee Data

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. The authors would like to thank John Earle, Álmos Telegdy, Bruno Van der Linden, János Köllő, Gábor Antal, Shelly Lundberg, Dick Startz, Vincent Vandenberghe, and participants of seminars at the CEU, IE-HAS, and the UCL Doctoral Workshop for valuable comments and ideas. Funding for this research was provided by the GDN CERGE-EI Regional Research Competition 2009 Grant. The harmonized dataset was provided by the Institute of Economics of the Hungarian Academy of Sciences, and further data cleaning was done by the CEU Labor Project.