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The Distribution of Nonagricultural Labor Incomes in Communist and Capitalist Nations

Published online by Cambridge University Press:  27 January 2017

Frederic L. Pryor
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Extract

In the economic literature one finds a plethora of propositions about the macro-economic determinants of the distribution of labor incomes. One of the theories is that as the level of economic development rises, labor incomes are bound to become more equalized. Another view is that the larger the nation, the greater will be the separation of labor markets and the greater the inequality of labor income. Unfortunately there is relatively little speculation in the West about the impact of the economic system on the distribution of labor incomes, and those propositions that can be found are quite contradictory. Some have argued that labor incomes should become more equal under socialism because of the more equal distribution of education and because the government is able to reduce the power of noncompeting labor groups to raise their incomes far above those of the average workers. Others have suggested that the government's power to manipulate wages between industrial sectors and branches in order to attract workers to priority sectors could lead to greater inequalities in labor incomes. Since all of these arguments are based on what a socialist government “could” or “should” do, rather than what they actually are doing, their validity can be established only through empirical investigation.

Type
Notes and Comment
Information
Slavic Review , Volume 31 , Issue 3 , September 1972 , pp. 639 - 650
Copyright
Copyright © Association for Slavic, East European, and Eurasian Studies. 1972

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References

1. These ideas were suggested by Bergson, Abram, The Structure of Soviet Wages (Cambridge, Mass., 1944)Google Scholar, who then empirically showed size distributions of Soviet wages in the 1920s and 1930s.

2. Galenson, Walter and Fox, Alan, “Earnings and Employment in Eastern Europe, 1957 to 1963,” Quarterly Journal of Economics, 81 (May 1967) : 220–40CrossRefGoogle Scholar. Most of the literature about wages and salaries in socialist systems has focused on the Soviet Unionalone. See, for example, Bergson, Structure of Soviet Wages, or Rudolf, Becker, Sowjetische Lohnpolitik zwischen Ideologic und Wirtschaftsgesetz (West Berlin, 1965)Google Scholar.

3. Quantitative estimates of the impact of these factors have been made by Morgan, James N. et al., Income and Welfare in the United States (New York, 1962)Google Scholar, chap. 20

4. The concordance coefficient is a measure of pattern of rank orderings and is analyzed by Kendall, Maurice G., Rank Correlation Methods, 3rd ed. (New York, 1962)Google Scholar. When all of the rank orderings are the same, the concordance coefficient is 1.00; when the rank orderings form a completely random pattern, the coefficient is 0.00. The greater similarity of wage structures in the East seems to be due to the deliberate imitation of the Soviet Union by the other nations. For an interesting study of this process in China see Schran, Peter, “Unity and Diversity of Russian and Chinese Industrial Wage Policies,” Journal of Asian Studies, 23 (February 1964) : 245–51CrossRefGoogle Scholar.

5. See, for example, Hoffman, Walther G., Die branchenmässige Lohnstruktur der Industrie : Ein intertemporaler und internationaler Vergleich (Tubingen, 1961)Google Scholar; United Nations, Economic Commission for Europe, Incomes in Postwar Europe (Geneva, 1967)Google Scholar; Dunlop, John T. and Rothbaum, Melvin, “International Comparison of Wage Structures,” International Labour Review, 71 (April 1955) : 347–63Google Scholar; or D. E., Cullen, “The Interindustry Wage Structure, 1899-1950,” American Economic Review, 46 (June 1956) : 353–70.Google Scholar

6. Yugoslavia is omitted from the regression because of uncertainties regarding the handling of profit redistributions among the workers. The per capita GNP in dollars comes from series described by Pryor, Frederic L., Public Expenditures in Communist and Capitalist Nations (Homewood, III., 1968)Google Scholar, appendix B-3. The results were roughly the same when either weighted or unweighted coefficients of variation were employed. Standard errors are placed under the coefficients.

7. Aside from the pioneering study by Bergson, Structure of Soviet Wages, and a study by M. Gardner Clark of wages in the steel industry of a number of nations (“Comparative Wage Structure in the Steel Industry of the Soviet Union and Western Countries, “ I.R.R.A., Proceedings, 13 [December I960] : 366-88), little empirical comparative work has been done until very recently.

8. Lydall, Harold, The Structure of Earnings (Oxford : Clarendon Press, 1968).Google Scholar

9. One other difficulty with the Soviet data must be mentioned. I chose 1959, a year for which certain key wage-distribution data are available. But this year was in the middle of a ten-year period in which wage differentials were being considerably narrowed. Thus wage inequality in 1959 was considerably greater than in 1966, a fact that must be borne in mind in generalizing about inequality in Eastern Europe at present from the results in table 2.

10. Indeed, one reason why the distributions of labor earnings in Eastern Europe follow a log-normal rather than Pareto curve may be because such bonuses—which are given to the top labor-income receivers—are omitted. Additional doubts about the handling of bonuses are raised by Lydall’s observation that relative incomes of white-collar workers compared with blue-collar workers in Eastern Europe are much lower (Structure of Earnings, pp. 150-51).

11. The regression equations for the pooled sample are given in the statistical appendix. Tests were carried out to see whether it was statistically legitimate to pool the data from the East and the West, and in each case it was. The regressions are calculated in logarithms in order to minimize the influence of extreme points; other forms of the regression were also calculated and, surprisingly, showed roughly the same results. Other variables were also added to the regressions, such as growth of GNP, but these did not prove statistically significant determinants. (It can be argued that the demand for skilled workers in preference to unskilled workers changes if the economy is expanding rapidly and that this would affect wage differentials, other things being equal.)

12. The Gini coefficients were calculated in two steps. First, wage differentials for two other percentiles (the twentieth and the ninety-fifth) were estimated, and regressions similar to those discussed in note 11 were calculated. Second, I assumed that for nations percentile were 16.7 percent higher than the labor earnings of those in the fifth percentile, and that the average earnings of all those below the ninety-fifth percentile were 10 percent below the earnings of those in the ninety-fifth percentile.

13. Lydall, Structure of Earnings, pp. 150-51.

14. My results are qualitatively consistent with the scattered data on income distribution in the various East European nations (discussed in United Nations, Incomes in Postwar Europe, or presented in the various national statistical yearbooks of these nations), which I have not used in these comparisons because the manner in which they were calculated is not specified and because they may be considerably less comparable with the Western data than the wage information.

15. Pryor, Public Expenditures, chap. 4.