Earnings, Schooling, and Economic Reform: Econometric Evidence From Hungary (1986 2004)

How does the relationship between earnings and schooling changewith the introduction of comprehensive economic reform? Thisarticle sheds light on this question using a unique data setand procedure to reduce sample-selection bias. The evidenceis from consistently coded, nonretrospective data for about4 million Hungarian wage earners. Returns to skill increased75 percent from 1986 to 2004 (that is, during the period stretchingfrom communism to full membership in the European Union). Thewinners were those with a college or university education andthose employed in the services sector (which here excludes thosein public services). The reform losers were those in constructionand agriculture, those with only a primary or vocational education(who experienced a decline in returns to their education), andyounger workers who acquired most of their education after themain reforms were in place.