The wage effects of schooling under socialism and in transition: evidence from Romania, 1950-2000

We estimate the impact of schooling on monthly earnings from 1950 to 2000 in Romania. Nearly constant at about 3 to 4% during the socialist period, the coefficient on years of schooling in a conventional earnings regression rises steadily during the 1990s, reaching 8.5% by 2000. Our analysis finds little evidence for the standard explanations of the increased return to schooling in the West, such as labor supply movements, product demand shifts, and technical change. Nor is the increase fully explained by the transition-specific accounts sometimes offered, including wage liberalization, border opening, and increased quality of education. However, we find some support for institutional and organizational explanations, particularly the high productivity of education in restructuring and entrepreneurial activities in a disequilibrium environment.