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Returns to Human Capital under the Communist Wage Grid and During the Transition to a Market Economy

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  • Daniel Munich
  • Jan Svejnar
  • Daniel Munich

Abstract

Under communism, workers had their wages set according to a centrally-determined wage grid. In this paper we use new micro data on men to estimate returns to human capital under the communist wage grid and during the transition to a market economy. We use data from the Czech Republic because it is a leading transition economy in which the communist grid remained intact until the very end of the communist regime. We demonstrate that for decades the communist wage grid maintained extremely low rate of return on education, but that the return increased dramatically and equally in all ownership categories of firms during the transition. Our estimates also indicate that men's wage-experience profile was concave in both regimes and on average it did not change from the communist to the transition period. However, the de novo private firms display a more concave profile than SOEs and public administration. Contrary to earlier studies, we show that men's inter-industry wage structure changed substantially between 1989 and 1996.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 272.

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Length: pages
Date of creation: 01 Oct 1999
Date of revision:
Handle: RePEc:wdi:papers:1999-272

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  1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  2. Alan Krueger & Jorn-Steffen Pischke, 1992. "A Comparative Analysis of East and West German Labor Markets: Before and After Unification," Working Papers 686, Princeton University, Department of Economics, Industrial Relations Section..
  3. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
  4. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September.
  5. Layard, Richard & Psacharopoulos, George, 1974. "The Screening Hypothesis and the Returns to Education," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 985-98, Sept./Oct.
  6. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship," NBER Working Papers 5274, National Bureau of Economic Research, Inc.
  7. Mincer, Jacob & Polachek, Solomon, 1974. "Family Investment in Human Capital: Earnings of Women," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages S76-S108, Part II, .
  8. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence," NBER Working Papers 5288, National Bureau of Economic Research, Inc.
  9. Edward J. Bird & Johannes Schwarze & Gert Wagner, 1994. "Wage effects of the move toward free markets in East Germany," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(3), pages 390-400, April.
  10. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-77, February.
  11. Jacob Mincer & Haim Ofek, 1982. "Interrupted Work Careers: Depreciation and Restoration of Human Capital," Journal of Human Resources, University of Wisconsin Press, vol. 17(1), pages 3-24.
  12. Orazem, Peter F. & Vodopivec, Milan, 1997. "Value of human capital in transition to market: Evidence from Slovenia," European Economic Review, Elsevier, vol. 41(3-5), pages 893-903, April.
  13. Robert J. Flanagan, 1995. "Wage Structure in the Transition of the Czech Economy," IMF Working Papers 95/36, International Monetary Fund.
  14. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
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