Working Paper: CEPR ID: DP2332
Authors: Daniel Mnich; Jan Svejnar; Katherine Terrell
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 an 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.
Keywords: human capital; transition; communism; wages; labour
JEL Codes: J24; J31; O15; P20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Communist wage grid (P22) | low rate of return on education (I26) |
| Transition to market economy (P23) | dramatic increase in returns to education (I26) |
| Transition to market economy (P23) | significant increase in wage differentials associated with education (J31) |
| Privatized and de novo firms (L26) | higher returns to experience compared to state-owned enterprises (P31) |
| Inter-industry wage structure change (L16) | significant shifts in wage premiums across different sectors (J31) |