Returns to education in the economic transition: A systematic assessment using comparable data

This paper studies a sample of economies in transition to verify the assertion that returns to schooling increase as an economy transitions to a market environment. This claim has been difficult to assess in the past as the empirical evidence so far has covered only a few countries over short time periods. A number of studies find that returns to education increased from the "pre-transition" period to the "early transition" period; it is not clear what has happened to the skills premium through the late 1990s, or the period thereafter. We implement a more systematic analysis using data comparable across countries and over time to estimate returns to schooling in eight transition economies (Bulgaria, Czech Republic, Hungary, Latvia, Poland, Russia, Slovak Republic and Slovenia). The analysis covers the early transition period up to 2002; in the case of Hungary, we capture the transition process more fully, beginning in the late 1980s. Compared to the existing literature, we also implement more comprehensive robustness checks on the estimated returns, although at best we offer only an incomplete solution to the problem of endogeneity. We find that the evidence of a rising trend in returns to schooling over the transition period is weak. There are, however, significant differences in returns across countries. These differentials have remained roughly constant over the last 15 years. We speculate on the likely institutional and structural factors underpinning these results.