Household incomes in the Czech and Slovak market economies

Under the Soviet-based system, countries in Central and Eastern Europe were among those with the most equal distributions of income in the world. A greater income inequality was therefore an expected outcome of a transition to a market economy. After 5-7 years of observations on the transition, two models of the process have emerged within the former Soviet bloc: one in Russia and other newly independent states, and another in the Central and East European countries. Russia and the newly independent states have suffered profound and continuous declines in gross domestic product as the centrally planned system disintegrated, government tax revenues plummeted, and weak social safety nets were instituted. In contrast, the Central and East European economies experienced only a brief period of economic decline, followed by growth within a newly introduced market system. Moreover, some governments, including the Czech and Slovak Republics, established relatively strong social safety nets. Data from the Family Budget Surveys of the Czech and Slovak Republics show that inequality, based on adult equivalent household income, did not change appreciably in the Slovak Republic from 1989, when the two republics operated as one country (before the “Velvet Revolution”) to 1993, the first In 1991, a single minimum wage was established for the two republics. In October 1993, the Slovak government raised its minimum wage to 47 percent of the average economywide net wage, a level higher than that in the Czech Republic. (See table 1.) The minimum wage increase in the Slovak Republic may have mitigated the increase of wage inequality brought about by market forces there, relative to the Czech Republic where the minimum wage was not increased.