Modelling Public Sector Wage-Employment Behaviour: Evidence From Transitioning Economies by Dr. Jelena Lausev, LSE

This lecture seemed at first very complex and difficult to understand, however as the lecture progressed these confusing ideas became very simple and easy to understand. Dr. Lausev effectively portrayed the problem of the economies in Eastern Europe that have in the last twenty years emerged from being satellite states under the Soviet Union. The significant problem that is actually becoming more prominent is the wage inequality of men and women in these countries.

During the lecture there were many models and formulas shown that are used to calculate and predict the wage inequalities, they were very complex and had many different parts to it. However, even with these complexities, these formulas are very useful in explaining the phenomena that is: why does wage inequality continue to increase, especially in countries in Eastern Europe? Dr. Lausev described these countries as ‘transitioning’ economies. This term means that these economies are transitioning from the Communist regime, which would have most likely imposed a Centrally planned economy to a market based economy where prices are determined by market signals and they follow the theory of Adam Smith, the ‘Invisible Hand’.

The problem of wage inequality was emphasised heavily in Dr. Lausev’s lecture, however this problem seems to occur primarily in the public sector. The lecture was also accompanied with many tables and figures that demonstrate this peculiar problem.

Dr. Lausev made a comparison between the private sector and the public sector and a possible reason for why wage inequality was increasing. She mentioned Elasticity of substitution between skilled and unskilled workers. Furthermore, the elasticity of skilled workers is higher than the elasticity of unskilled workers, as it is cheaper to transfer skilled workers than unskilled workers, which explains why their elasticity is lower. In addition, public sector workers now have a private sector worker alternative that would have a lower elasticity. Finally this all links back the original problem, because the transition of these economies means a decline in the public sector monopsony power, which means a market situation in which there is only one buyer and many sellers.

In conclusion, Dr. Lausev’s talk was very interesting and at times quite complex and difficult to comprehend. However, these advanced formulae and theories were described effectively and successfully.