This study attempts to explain why the transition to a market economy is skill-biased. It shows unequivocal evidence on increased skill wage premium and supply of skills in transition economies. It examines whether similar skill–favoring shifts in the Russian and U.S. economies are driven by the same set of factors. Our analysis elaborates on the model of alternative theories of the increased wage skill premium and then evaluates three main hypotheses: skill-biased technological change, the market adjustment hypothesis, and the institutional factor hypothesis. To test these hypotheses, the study uses unique linked employer-employee data that spans the 16 years of the Soviet and transition periods in Russia (1985-2000), with a special emphasis on data quality, measurement errors, and retrospective biases. The main conclusion is that there is no uni-causal and time-invariant explanation for skill-biased changes in wages and employment in the Russian economy. The increased skill wage premium has been driven mainly by institutional factors during the early period and by productivity and technological change during the late transition period, and reinforced by market adjustment of wage ratio to the true differences in labor productivity.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
893.
Find related papers by JEL classification: J2 - Labor and Demographic Economics - - Demand and Supply of Labor J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs O3 - Economic Development, Technological Change, and Growth - - Technological Change O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries P2 - Economic Systems - - Socialist Systems and Transition Economies P3 - Economic Systems - - Socialist Institutions and Their Transitions
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