Institutions, markets and men's and women's wage inequality: Evidence from Ukraine

This paper determines the extent to which the introduction of markets and new institutions determine changes in men's and women's wage inequality between 1986 and 2003, using Lemieux's decomposition method [Lemieux, Thomas, 2002. Decomposing changes in wage distributions: A unified approach. Canadian Journal of Economics 35, 646-688] and micro data from the Ukrainian Longitudinal Monitoring Survey (ULMS). The rise in inequality is driven by changes in wage premiums, especially in inter-industry differentials, and unobservable characteristics. Changes in the composition of the labor force contribute to a reduction in overall wage inequality of men; but to an increase in inequality in the top half of women's wage distribution. We attribute this to the larger exodus of low skilled workers. The institution of the minimum wage plays an important role in lowering the growth in inequality, more for women than for men. Going forward, if the government wants to ameliorate the effects of market forces on wage inequality, it should recognize the importance of maintaining the value of, and compliance with, the minimum wage. Journal of Comparative Economics34 (2) (2006) 200-227.