Economic Transition and Regional Wages: The Evidence from Poland

The paper studies regional wage differences across 16 NUTS-2 regions in Poland during 1994-2007. The analysis is based on data of individual workers from the Polish Labor Force Survey, which includes about 8,000-15,000 full-time workers each year. In the first part of the analysis, the microdata are used to estimate regional wage measures while controlling for differences in observed worker characteristics across regions. Although adjusting for worker heterogeneity reduces regional wage differences, regional disparities still exist. In the second part of the analysis, the relative regional wage measures (in both nominal and real terms) are regressed on a set of regional macro variables. The results show that regional differentials are correlated with historical patterns of agglomeration, market access, regional amenities as well as internal and external migration. Furthermore, higher regional wage differentials are, in part, compensation for a higher regional cost of living.