Economic crisis and wage divergence: Empirical evidence from Romania

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 first stage of recovery as well. This finding provides support to Barro and Sala-i-Martin’s theory on the temporary divergence effect induced by economic shocks.