Decomposition of Wage Differences between Regions in the Czech Republic

This diploma thesis focuses on the quantification and structural decomposition of regional wage disparities between the capital city of Prague and the other regions of the Czech Republic in 2014–2023. The analysis concentrates on employees in the private sector and draws on individual microdata from the Information System on Average Earnings. Using the Oaxaca–Blinder decomposition extended by RIF regressions, the wage distribution is analysed across quantiles, which allows for the identification of regional differences not only at the median but also at the 1st and 3rd quartiles. The results confirm that the wage gap between Prague and the other regions remains present throughout the period and is markedly differentiated across the distribution. While the relative wage differential peaks in the 3rd quartile, it is lowest in the 1st quartile. A key finding is the dominant role of the explained component in the Oaxaca–Blinder decomposition, which in most regions in 2023 accounts for approximately 50–80 % of the total wage gap at the median, and whose share increases over time. A specific result is the Central Bohemian Region, where the endowment effect exceeds the total wage gap, resulting in a negative unexplained component. This pattern is consistent with an interpretation that emphasises the role of spatial sorting of human capital and agglomeration effects in favour of the metropolitan labour market. The findings suggest that Prague’s wage premium is increasingly determined by the structure of its workforce, occupational composition and employer size, rather than by systematically different valuations of comparable characteristics across regions.