Economic Crisis and Wage Divergence: Empirical Evidence from Romania

Abstract

Abstract:This paper addresses the question of convergence in real wages across Romanian counties, while putting a spotlight on the recent economic crisis, which has hit hard the entire economy. Following the main methodological trends in the literature, convergence methods were applied using the traditional cross-section approach. The empirical analysis covering a 21-year period provided clear evidence in favour of β-convergence, but indicated σ-divergence (Galton's fallacy). Wages' dispersion seems to rise during the economic crises and persists in the fi rst stage of recovery as well. This fi nding provides support to Barro and Sala-i-Martin's theory on the temporary divergence effect induced by economic shocks.

Housing privatization in Romania

“…Not surprisingly, there is no simple robust theory of how such a system would work (see Duranton and Puga, ). Nevertheless, two general perspectives have been used to characterize the way growth is affected by the way individuals and firms react to spatial incentives: a neoclassical framework, or an endogenous growth perspective (see Goschin, ; Munteanu, ; Zaman and Goschin, for applications to Romania)…”

“…In contrast, according to endogenous growth theory, increases in productivity, and, hence disparities in local wages, may occur because of externalities of human capital, or higher yields on physical capital. The evidence for Romania is that conditional on locational characteristics, wages converge across counties even if the dispersion of wages across counties does not (see Zaman and Goschin, ). The latter result is consistent with the endogenous growth perspective, but it is inconsistent with an unconditional neoclassical framework, as shown by Munteanu () and Goschin (2014)…”

“…Not surprisingly, there is no simple robust theory of how such a system would work (see Duranton and Puga, 2000). Nevertheless, two general perspectives have been used to characterize the way growth is affected by the way individuals and firms react to spatial incentives: a neoclassical framework, or an endogenous growth perspective (see Goschin, 2015;Munteanu, 2015;Zaman and Goschin, 2014 for applications to Romania). 17 The former implies that wage discrepancies will lead people to vote with their feet to move to locations with higher income and productivity until they are indifferent between locations.…”

“…A secondary purpose of the paper to suggest that the housing Anti‐commons problem in Romania may well affect the country's economic growth rate through its effects on the lack of regional income or wage convergence described by Goschin () and Zaman and Goschin (). Both studies argue that the pattern of earnings behaviour across regions in Romania may have important growth implications.…”

“…Government-sponsored studies to investigate housing market contractual problems have so far focused on the contracting difficulties involved in transactions governing individual dwelling units rather than those governing buildings. 7 A secondary purpose of the paper to suggest that the housing Anti-commons problem in Romania may well affect the country's economic growth rate through its effects on the lack of regional income or wage convergence described by Goschin (2015) and Zaman and Goschin (2014). Both studies argue that the pattern of earnings behaviour across regions in Romania may have important growth implications.…”