Income Inequality and the Great Recession in Central and Eastern Europe

Abstract

This paper uses the European Union Statistics on Income and Living Conditions (EU-SILC) data to study the changes in income inequality in Central and Eastern Europe during the Great Recession (2008-2012) and its determinants. Inequality changes are decomposed using an Oa-xaca-Blinder-like decomposition analysis based on the Recentered Influence Function (RIF) methodology, which allows to split the overall change in inequality into endowment effects associated with changes in the distribution of inequality covariates and coefficient effects, which are related to the changing returns to these covariates. Our results show that the Gini for disposable incomes has increased over 2008-2012 in a statistically significant way for Bulgaria, Estonia, Hungary and Slovenia. For most of the countries with significant inequality increases, falling full-time employment rate played the biggest role in explaining changes in inequality. It accounted for about 50-60% of the Gini change for disposable incomes and for about 60-80% of the Gini change for market incomes. The fall in full-time employment rate had a smaller inequality-increasing effect for disposable incomes in Hungary (about 15% of the Gini in-crease). Increased part-time employment during the recession had either no impact on inequal-ity or was rather inequality-decreasing. We did not find evidence that changes in the incidence of temporary jobs had any impact on income inequality.

Keywords: income inequality, decomposition, RIF regression, Great Recession, Central and Eastern Europe

JEL Classification: D63, E32, G01, P24, P36