The paper tries to explain the increase in inequality that occured in all transition economies by constructing a simple model of change in composition of employment during the transition. The change consists in the "hollowing-out" of the state-sector middle class as it moves either into the...

Since the beginning of transition to market economy, inequality has increased in all transition countries. The factors driving inequality up: increasing wage inequality (as workers move from a relatively egalitarian state sector to a less equal private sector), and the rising share of income...