published in: Journal of Comparative Economics, 2005, 33 (2), 351-370
We explore the pace of increase in returns to schooling during the transition from
planning to market over time across a number of Central and Eastern European countries,
Russia, and China. We use metadata from 33 studies of 10 transition economies covering a
period from 1975 through 2002. Our empirical model is an attempt to account for crosssection
and over-time variation in rates of return as a function of the timing, speed, and
volatility of reform processes as well as estimation methods used and sample characteristics.
Our principal aim is to investigate the relative strength of two hypotheses: (1) the speed of
economic transformation from planning to market represent the relaxation of legal, regulatory,
and institutional constraints on wage-setting behavior, leading directly to adjustment returns
to schooling to market rates; 2) the rapid increase in returns to schooling during the early
reform period reflects the ability of highly-educated individuals to respond to changing
opportunities in a disequilibrium situation. We find that both the speed of reforms and the
degree of economic disequilibrium as reflected in macroeconomic volatility help to explain
cross-country differences in the time paths of the returns to schooling. We report the
systematic effects of sample characteristics, estimation methods, and model specifications
on estimated returns to schooling.
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