Tor V. Eriksson, Ph.D., Department of Economics, Aarhus School of Business, Aarhus University, Prismet, Silkeborgvej 2, Aarhus, DK-8000, Denmark, Mariola Pytlikova, Ph.D., Department of Economics, Aarhsu School of Business, Aarhus University, Prismet, Silkeborgvej 2, Aarhus, DK-8000, Denmark, and Frederic Warzynski, Ph.D., Department of Economics, Aarhus School of Business, Aarhus University, Prismet, Silkeborgvej 2, Aarhus, DK-8000, Denmark.
The Role of Transition, Increased Competition and Decentralized Wage Setting in Changing the Czech Wage Structure: Evidence from Linked Employer-Employee Data*
Abstract
In this paper, we look at the evolution of the Czech labor market, and its wage structure in particular, using a linked employer-employee dataset covering a large and representative fraction of the Czech labor market over the years 1998-2006. Estimating conventional earnings equations we find evidence of (slightly) diminishing gender inequality, increased returns to human capital, and especially to education. Moreover, exploiting the linked employer-employee character of the data set, we document a strong increase in within-firm wage dispersion and short-term variations around a constant level of between-firm dispersion. Next, we investigate various hypotheses related to transition towards a market economy, increased domestic and international competition and an increasingly decentralized wage bargaining to explain these patterns. We find some support for that the three mechanisms – increased international competition, further marketisation and decentralised wage setting – all have contributed to changes in the Czech wage structure.