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Self-selection and wages during volatile transition

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  • Dimova, Ralitza
  • Gang, Ira N.

Abstract

Using data for 1995, 1997 and 2001 and a sophisticated selectivity correction econometric methodology, this paper explores human capital allocation and returns in four labor market sectors in Bulgaria. Our results indicate that while in the aftermath of structural reform highly productive laborers undertook self-employment, the private sector failed to develop along the high skill and high return fringes of the economy. Our results raise questions about the success of structural reform, and stress the need to adequately account for the impact of self-selection based on both observed and unobserved skills in the assessment of returns to human capital.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 35 (2007)
Issue (Month): 3 (September)
Pages: 612-629

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Handle: RePEc:eee:jcecon:v:35:y:2007:i:3:p:612-629

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Web page: http://www.elsevier.com/locate/inca/622864

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References

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  1. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
  2. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  3. Münich, Daniel & Svejnar, Jan & Terrell, Katherine, 1999. "Returns to Human Capital Under the Communist Wage Grid and During the Transition to a Market Economy," CEPR Discussion Papers 2332, C.E.P.R. Discussion Papers.
  4. François Bourguignon & Martin Fournier & Marc Gurgand, 2002. "Selection Bias Correction Based on the Multinomial Logit Model," Working Papers 2002-04, Centre de Recherche en Economie et Statistique.
  5. François Bourguignon & Martin Fournier & Marc Gurgand, 2004. "Selection Bias Corrections Based on the Multinomial Logit Model: Monte-Carlo Comparisons," DELTA Working Papers 2004-20, DELTA (Ecole normale supérieure).
  6. Falaris, Evangelos M., 2004. "Private and public sector wages in Bulgaria," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 56-72, March.
  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  8. Rutkowski, Jan, 2003. "Why is unemployment so high in Bulgaria?," Policy Research Working Paper Series 3017, The World Bank.
  9. Gang, Ira N. & Stuart, Robert C., 1997. "What difference does a country make? Earnings by Soviets in the Soviet Union and in the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(Supplemen), pages 345-360.
  10. Hunt, Jennifer, 1998. "The Transition in East Germany: When is a Ten Point Fall in the Gender Wage Gap Bad News?," CEPR Discussion Papers 1805, C.E.P.R. Discussion Papers.
  11. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc.
  12. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  13. Catherine Y. Co & Ira N. Gang & Myeong-Su Yun, 2005. "Self-Employment and Wage Earning in Hungary," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 150-165, 05.
  14. Ellen Rissman, 2003. "Self-employment as an alternative to unemployment," Working Paper Series WP-03-34, Federal Reserve Bank of Chicago.
  15. Robert S. Chase, 1998. "Markets for communist human capital: Returns to education and experience in the Czech republic and Slovakia," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(3), pages 401-423, April.
  16. Fleisher, Belton M., 2005. "Returns to schooling in transition: The Chinese, European, and Russian experiences," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 223-226, June.
  17. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  18. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
  19. Rutkowski, Jan J., 1999. "Labor markets and poverty in Bulgaria," Social Protection Discussion Papers 20817, The World Bank.
  20. Michael Landesmann & Robert Stehrer, 2002. "Trade Structures, Quality Differentiation and Technical Barriers in CEE-EU Trade," wiiw Research Reports 282, The Vienna Institute for International Economic Studies, wiiw.
  21. Tito Boeri & Katherine Terrell, 2001. "Institutional Determinants of Labor Reallocation in Transition," William Davidson Institute Working Papers Series 384, William Davidson Institute at the University of Michigan.
  22. V. Kerry Smith & Mary F. Evans & Hyun Kim & Donald H. Taylor, 2004. "Do the Near-Elderly Value Mortality Risks Differently?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 423-429, February.
  23. Jeffrey B. Miller & Stefan Petranov, 2000. "The First Wave of Mass Privatization in Bulgaria and its Immediate Aftermath," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 225-250, March.
  24. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
  25. Dimova, Ralitza & Gang, Ira N. & Landon-Lane, John, 2005. "The Informal Sector During Crisis and Transition," Working Paper Series RP2005/18, World Institute for Development Economic Research (UNU-WIDER).
  26. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
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Cited by:
  1. Atamanov, Aziz & Berg, Marrit van den, 2011. "International migration and local employment: analysis of self-selection and earnings in Tajikistan," MERIT Working Papers 047, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Dimova, Ralitza & Nordman, Christophe Jalil & Roubaud, François, 2008. "Allocation of Labour in Urban West Africa: Implication for Development Policies," IZA Discussion Papers 3558, Institute for the Study of Labor (IZA).

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