Inequality and Income Mobility in Hungary, 1993–1998

Abstract

STUDIES ANALYSING THE INCOME and expenditure patterns of Eastern and Central European households in the early 1990s revealed that inequality had increased while mobility of income and expenditure had also grown.' Changes in income inequality in itself are not enough to give a real picture of relative income changes: increasing inequality coupled with increasing mobility can be a more positive path for a society than increasing inequality coupled with decreasing mobility. In this study income mobility means the size of the changes in relative income positions of people from year to year. At the beginning of the transition the economic changes and reforms created new opportunities and increased the ability of people to change their position on the income ladder. This article analyses the development of inequality and income mobility after the initial period of transition in Hungary. We concentrate on investigating income and expenditure inequalities and mobility together, focusing on the period after the transitional recession in Hungary. For this investigation we use household panel data. While concentrating on Hungary, we do not totally ignore related international research which covers income and expenditure inequalities and mobility together.2 Little is known on expenditure inequality in Hungary but this is definitely not the case for other East European countries in the region.3 People find it hard to get over a situation in which they perceive that their neighbours are overtaking them in the income, and even more so in the consumption, hierarchy. In an expanding economy, where growth in income is an accessible aim for most households, the problem arises more bluntly. However, in an economy shrinking for a longer period, growth, even if ever so small, becomes a sensitive issue and may be the source of social tensions. Relative mobility was made particularly acute in Hungary in the 1990s by the fact that the average household saw its real income decline significantly. As the 1995 stabilisation programme took place in the middle of the period under review, we aimed to create a set of tools to describe the impact of this short-term but drastic and complex phenomenon. To analyse mobility we use an innovative method similar to the traditional transition matrices.