Institutions, markets and men's and women's wage inequality

"Ukraine, the second largest country in the former Soviet bloc, is facing the challenge of rallying popular support for major structural reforms. As in most developing economies, the "Orange Revolution" government's success will depend on its ability to keep income distribution within an acceptable range. This paper is the first to make use of recent methodological developments in Lemieux's (2002) decomposition method to advance our understanding of the determinants of wage inequality in developing and transition economies. With an eye toward future policy, we apply this approach to the first large longitudinal micro data set for Ukraine -- the Ukrainian Longitudinal Monitoring Survey (ULMS) -- to determine the extent to which the introduction of markets and new institutions affected men's and women's wage inequality between 1986 and 2003. We find that wage inequality rises substantially for both men and women. Applying the Lemieux method, we show that market forces drive the increase in inequality through changes in wage premiums, but the changes in the composition of the labor force (selection) generally contribute to a reduction in wage inequality; the exception is that changes