Men's wage inequality in Serbia's transition

Wage inequality is considered to have been quite compressed in socialist economies. In this paper I analyse how men's wage inequality has changed during the period of transition to a market economy in Serbia, a country which has experienced a particularly dramatic transition. Changes in the distribution of earnings are examined using the Lemieux (2002) decomposition methodology and five annual Labour Force Surveys (2001-2005). I find that the change in wage inequality is mostly driven by changes in wage premiums, while the effect of changes in the composition of the labour force is very small. Isolating the effect of the emerging private sector reveals that changes in the private sector size and wage premium account for an average 25 per cent of the changes in inequality during this period. Moreover, the minimum wage is found to exert a dampening effect on wage inequality.