In this paper we estimate the impact of transition on earnings inequality using data across
Polish regions 1994-1997. Our central result is that earnings inequality is higher in regions
that are more advanced in restructuring (higher labour productivity/job reallocation rates),
controlling for unobservable regional fixed effects. At the national level rapid growth does not
seem to be associated with earnings inequality. This aggregate relationship is shown to be
misleading. The positive relationship between earnings inequality and the stage of transition
across regions remains when we apply an infrastructure-deficit based instrumental variable
approach to allow for reverse causality.
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