This study investigates nominal wage convergence on the county level in Poland from 2005 till 2017, while accounting for the structural heterogenity of the units and common time shocks. Results reveal that wage levels converge to their own steady-state with the speed of 7.6% of the imbalance per year. When time fixed effects are accounted for, this speed becomes higher and has a value of 34.5%. Common time effects, such as economic cycle considerably contribute to the convergence speed. The exclusion of time effects tends to bias downward the estimated convergence rate. With regard to σ-convergence, wage inequalities across the counties decreased over the years 2005–2010 with their levels moving toward the national average. However, as of 2010 this process, if any, is very slow.
Wage convergence and trade