Estonia, which adopted relatively free labor market policies early in its transition, experienced rapid increases in returns to human capital Ñ rising returns to education and rising relative wages for younger educated workers, but declining returns to experience for older workers with little or no education.
Noorkoiv, Orazem, Puur, and Vodopivec use a retrospective survey of 9,608 individuals, aged 16 to 75, to monitor the effects of Estonia's economic transition on wages and employment. Estonia is an interesting case because of its early adoption of relatively free labor market policies.
Estonia's transition led to rapid increases in returns to human capital. Relative wages for the most educated workers rose for all age groups. There were also rapid increases in returns to job experience, especially for younger workers, but declining returns to experience for older workers with little education.
Wage dispersion increased across groups categorized for human capital, but narrowed within those groups (consistent with the predicted effect of labor mobility on wages for comparably skilled workers).
Women lost relative share of employment in most sectors but experienced increasing relative wages. Immigrants lost in both employment share and relative wages.
Relative wages rose in sectors that gained relative employment and fell in shrinking sectors. Those results were consistent with mobile labor responses to demand shocks, suggesting that mechanisms for equilibrating the labor market developed very rapidly in Estonia.
This paper—a product of the Development Research Group—is part of a larger effort in the group to investigate employment and wages in transition economies. The study was funded by the Bank's Research Support Budget under the research project ÒLabor Market Adjustment in EstoniaÓ (RPO 679-71). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Sheila Fallon, room N8-030, telephone 202-473-8009, fax 202-522-1153, Internet address sfallon@worldbank.org. (33 pages)
The full report is available in PDF format.