Competitiveness in Transition Economies: What Scope for Real Appreciation?

We estimate equilibrium dollar wages for 15 transition economies of Central and Eastern Europe (CEE) and the former Soviet Union. Equilibrium dollar wages are interpreted as full employment wages consistent with a country's physical and human capital endowment, and estimated by regressing actual dollar wages on productivity and human capital proxies in a short (1990-95) panel of 85 countries. The main results are: (1) equilibrium dollar wages have appreciated steadily in the Baltic countries and fast-reforming CEE transition economies, but have been flat in most CIS countries; and (2) 1996 actual dollar wages remain below estimated equilibrium dollar wages for most but not all transition countries covered.