Returns to human capital during the economic transition

During a significant part of the 20th century, over one-third of the world' s population lived under the communism. A large proportion of those who wer e in the labor force had their wages set according to a centrally determine d wage grid. There is a general perception that earnings structures in cent rally planned economies were highly compressed and that, therefore, one sho uld observe major changes in the wage structure in the transition to a free -market system. The authors use new micro data on labor to estimate returns to human capita l under the communist wage grid and during the transition to a market econo my. We demonstrate that far decades the communist wage grid maintained an e xtremely low rate of return on education, but that the return increased dra matically during the transition. Our estimates also indicate that men's wag e-experience profile was concave in both regimes and, on average, it did no t change from the communist to the transition period. However, the de novo private firms display a more concave profile than SOEs and public administr ation. Contrary to earlier studies, the paper shows that men's inter-indust ry wage structure changed substantially between 1989 and 1996.