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2001:05 Distribution of Earnings and Income in Transitional Czech Republic |
Jiří Večerník |
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In the first part, wage and income surveys covering the period 1989-1999 are used to display changes in the inequality of earnings and the main factors of disparities in the Czech Republic. First, increasing differences and the decreasing weight of demographic characteristics in wage structure are observed. Second, available evidence in a cross-national comparison is gathered in order to demonstrate the increasing similarity of the Czech wage structure with that in Western countries. The introduction of a market economy has led to an increase in earnings disparities more similar to those in the West; the 'communist' demographic determination of earnings is being replaced to a great extent by 'capitalist' market characteristics; and ownership disparities, instead of political privileges, have come to the fore. Thus, the overall earnings structure underwent systemic changes and is approaching the Western pattern.
In the second part, statistical income surveys are used to document systemic changes in the distribution of household income and its determinants over the period 1988-1996. First, the growing difficulties facing income surveys under the democratic regime are considered. Second, the substantive meaning of various income indicators and their relation to the social and economic situation is discussed. Next, growing disparities in income after 1989 and the shift away from demographic factors (numbers of active earners and children, age) to socio-economic factors (education, branch, occupation) are displayed. The final part compares the Czech case with Western countries in order to evaluate the extent to which income distribution has adjusted to the market economy.
In the third part, we show changes in redistribution on the level of individual households. First, statistical income surveys are used to document systemic changes in the redistribution of household income and its determinants in the period 1988-1996. Second, the context of social structure has evolved and the attitudes of people towards taxation and social benefits have been drawn, showing the low - but apparently growing - tax awareness of Czechs. Third, a comparison with other OECD countries serves to locate the extent as well as the perception of the Czech distributional system within a broader context. We also indicate the methodological problems of income indicators and note the limits of disposable data sources, and thus also the traps of analysis we encounter in the study of income distribution and redistributional flows.
SUMMARY
Using three large statistical surveys of household income and completing them by various wage and sociological survey, we offer a picture of post-1989 changes in the Czech Republic regarding wage structure, distribution of household income and redistribution through taxes and transfers. Our ambition is to survey not only changes in disparities, but also to study qualitative changes in the income structure and system. We reflect on the methodological difficulties of income surveys and we investigate to what degree income indicators reflect the character of the political regime and economic system. Using comparative data from Western countries, we show the extent to which Czech income structure has adjusted to the market system.
Pre-1989 Czechoslovakia was characterized by a considerable equalization of wages and, within remaining disparities, by a predominance of the demographic features of individuals (gender and age) over their market characteristics (skills and occupation) in determination of earnings. Alongside this, some industries (mining, metallurgy, heavy machinery) were favored, and selected categories of workers (top state and party bureaucracy, army and police officers) privileged. Since 1989, the transformation process has reversed all those tendencies and started to change the established earnings structure. The overall range of inequality in wages has increased, as have returns to education, while the gender gap has somewhat attenuated and the age profile of earnings has became considerably flatter. In the division according to industry, the former administrative "tariff grid" was replaced by market differences to a considerable, though not a complete degree.
After 1989, also the range of inequality in household income increased considerably. The income hierarchy remained fixed at the bottom, and opened up, reducing income share of middle categories. Household income is much less determined by demographic variables today and the importance of labor market characteristics of adult family members increased. The position of non-manual and educated workers improved while that of manual and less skilled people worsened. The changing income structure represents part of the general trend that is reintroducing the Czech Republic to the family of standard market countries. In income per household, disparities are still higher in the Czech Republic than in West European countries. In contrast, the disparity of per capita income reached the level of socially generous Western countries (Belgium and Sweden).
With regard to income redistribution, the state takes more from and gives less to households. Number of children is no longer the prominent factor of both taxes and transfers as it was in the communist regime. Instead, household income has become the dominant determinant of taxes, and also a more important determinant of social transfer. At the same time, flows of redistribution strengthened, be it in connection with tax reform (more progression) or social reform (more targeting). The equalizing intervention of the state in favor of the poor and near-poor (and to the detriment of the middle classes) appears to be very high in comparison with even the most redistributive Western countries. Despite a step-by-step adjustment of the income structure, the current system is thus a mixture of previous features, transitory characteristics and a targeted system.
(See full English version of first two sections in Working Papers series of The William Davidson Institute University Michigan No. 370 a 373 and also published in Prague Economic Papers 10(3) 2001:201-222 and European Societies 3(2) 2001:191-212 respectively).
KEYWORDS
earnings disparities, household income, returns to education, taxes and benefits, market adjustment in the Czech Republic.
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Mzdová a příjmová diferenciace v České republice v transformačním období |
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