How Estonia's Economic Transition Affected Employment and Wages (1989-95)

34 Pages Posted: 20 Apr 2016

See all articles by Rivo Noorkôiv

Rivo Noorkôiv

Estonian Interuniversity Population Research Center

Peter F. Orazem

Iowa State University and IZA; IZA Institute of Labor Economics

Allan Puur

Estonian Interuniversity Population Research Center

Milan Vodopivec

World Bank - Human Development Network; IZA Institute of Labor Economics

Date Written: June 1997

Abstract

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 Labor Market Adjustment in Estonia (RPO 679-71).

Keywords: Returns to Human Capital, Earnings, Employment, Gender, Ethnicity, Estonia

JEL Classification: J31, P5

Suggested Citation

Noorkôiv, Rivo and Orazem, Peter Francis and Puur, Allan and Vodopivec, Milan, How Estonia's Economic Transition Affected Employment and Wages (1989-95) (June 1997). World Bank Policy Research Working Paper No. 1837, Available at SSRN: https://ssrn.com/abstract=620517

Rivo Noorkôiv

Estonian Interuniversity Population Research Center

Estonia

Peter Francis Orazem (Contact Author)

Iowa State University and IZA ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-8656/515-294-7740 (Phone)
515-294-0221 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Allan Puur

Estonian Interuniversity Population Research Center

Estonia

Milan Vodopivec

World Bank - Human Development Network ( email )

1818 H Street, NW
Washington, DC 20433
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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