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

  • Flabbi, Luca
  • Paternostro, Stefano
  • Tiongson, Erwin R.

This paper examines the assertion that returns to schooling increase as an economy transitions to a market environment. This claim has been difficult to assess as existing empirical evidence covers 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. The authors use data that are 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) from the early transition period up to 2002. In the case of Hungary, they capture the transition process more fully, beginning in the late 1980s. Compared to the existing literature, they implement a more systematic analysis and perform more comprehensive robustness checks on the estimated returns, although at best they offer only an incomplete solution to the problem of endogeneity. The authors find that the evidence of a rising trend in returns to schooling over the transition period is generally weak, except in Hungary and Russia where there have been sustained and substantial increases in returns to schooling. On average, the estimated returns in the sample are comparable to advanced economy averages. There are, however, significant differences in returns across countries and these differentials have remained roughly constant over the past 15 years. They speculate on the likely institutional and structural factors underpinning these results, including incomplete transition and significant heterogeneity and offsetting developments in returns to schooling within countries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4225.

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Date of creation: 01 May 2007
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Handle: RePEc:wbk:wbrwps:4225
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  1. Münich, Daniel & Svejnar, Jan & Terrell, Katherine, 2004. "Do Markets Favour Women's Human Capital More Than Planners?," CEPR Discussion Papers 4760, C.E.P.R. Discussion Papers.
  2. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  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. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
  5. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
  6. Eswar Prasad & Michael P. Keane, 2002. "Changes in the Structure of Earnings During the Polish Transition," IMF Working Papers 02/135, International Monetary Fund.
  7. Sofia Cheidvasser, 2000. "The Educated Russian's Curse: Returns to Education in the Russian Federation," Econometric Society World Congress 2000 Contributed Papers 0246, Econometric Society.
  8. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  9. Flabbi, Luca & Paternostro, Stefano & Tiongson, Erwin R., 2007. "Returns to education in the economic transition : a systematic assessment using comparable data," Policy Research Working Paper Series 4225, The World Bank.
  10. 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.
  11. Gabor Kertesi & Janos Kollo, 2001. "Economic transformation and the revaluation of human capital - Hungary, 1986-1999," Budapest Working Papers on the Labour Market 0104, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  12. Fleisher, Belton M. & Peter, Klara Sabirianova & Wang, Xiaojun, 2004. "Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia," IZA Discussion Papers 1182, Institute for the Study of Labor (IZA).
  13. Rutkowski, Jan J., 1999. "Labor markets and poverty in Bulgaria," Social Protection Discussion Papers 20817, The World Bank.
  14. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter.
  15. Ernesto Hernández-Catá, 1997. "Liberalization and the Behavior of Output During the Transition From Plan to Market," IMF Working Papers 97/53, International Monetary Fund.
  16. Vella, Francis & Verbeek, Marno, 1999. "Estimating and Interpreting Models with Endogenous Treatment Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 473-78, October.
  17. Victoria Vernon, 2002. "Human Capital in Transitional Russia," Labor and Demography 0204003, EconWPA.
  18. Mojmir Mrak, 2004. "Mrak, M., Rojec, M., Silva-Jáuregui, C. (eds.): Slovenia: From Yugoslavia to the European Union," Transition Studies Review, Springer, vol. 11(3), pages 269-272, December.
  19. Brainerd, Elizabeth, 1998. "Winners and Losers in Russia's Economic Transition," American Economic Review, American Economic Association, vol. 88(5), pages 1094-1116, December.
  20. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
  21. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," NBER Working Papers 7732, National Bureau of Economic Research, Inc.
  22. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  23. Campos, Nauro F & Jolliffe, Dean, 2004. "Earnings, Schooling and Economic Reform: New Econometric Evidence," CEPR Discussion Papers 4716, C.E.P.R. Discussion Papers.
  24. Hugo Benitez-Silva & Sofia Sheidvasser, 2000. "The Educated Russian's Curse: Returns to Education in the Russian Federation," Department of Economics Working Papers 00-05, Stony Brook University, Department of Economics.
  25. David Card, 2000. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," NBER Working Papers 7769, National Bureau of Economic Research, Inc.
  26. Flanagan, Robert J., 1998. "Were communists good human capitalists? The case of the Czech Republic," Labour Economics, Elsevier, vol. 5(3), pages 295-312, September.
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