Lost in Transition? The Returns to Education Acquired Under Communism 15 Years after the Fall of the Berlin Wall

Abstract

Using data for 23 economies in Eastern and Western Europe, we find evidence that having studied under communism is relatively penalized in the economies of the late 2000s. This evidence, however, is limited to males and to primary and secondary education, and holds for eight CEE economies but not for the East Germans who have studied in the former German Democratic Republic. We also find that post-secondary education acquired under communism yields higher, not lower, payoffs than similar education in Western Europe.

The effect of different types of education on the likelihood of employment in 29 post-communist countries of Eastern Europe and the former Soviet Union

“…Such findings suggest a lack of opportunities for those in the older age groups to update human capital. Consequently, policy makers, education administrators and international donors should focus on developing continuing education and lifelong learning programs in these countries (Habibov, 2010b; Brunello et al , 2010).…”

“…During the pre-transition period, the administratively commanded economies of the former Soviet Union and its satellites channeled the vast majority of their investments into the development of heavier industries and the military industrial complex at the expense of light industries and services (Brunello et al , 2010). Labor markets in these communist countries were characterized by high levels of job security since the authorities claimed that they had achieved nearly full employment.…”

“…For ideological reasons and to create a more egalitarian society, a rigid wage grid was instituted to minimize differences in income between less educated and less skilled workers and more educated and more skilled workers (Geishecker and Haisken-DeNew, 2002; Munich et al , 2005; Muravyev, 2008). Jobs were more plentiful, and salaries were higher for workers in heavy industries and the military industrial complex, even if their workers’ educational achievements were lower (Brunello et al , 2010). Low-skilled blue-collar jobs were further rewarded with manual and technical training through well-developed systems of vocational education (Filer et al , 1999).…”

“…To produce smooth school to work transitions, many vocational faculties were directly associated with specific enterprises and provided students “with what was in effect merely firm-specific human capital for a local enterprise” (Micklewright, 1999). Furthermore, access to higher education was rationed in order to encourage students to select vocational curricula directly after graduation from high school (Brunello et al , 2010). As a result, most students had to continue their education in vocational schools (Flanagan, 1998).…”

“…Age appears to be another factor that can influence the effect of education on employment. From the employer’s perspective, hiring younger people was considered advantageous since they were less subject to the process of depreciation of human capital during the transition period since the skills and knowledge that older workers had obtained from communist era educational systems were considered less suitable for the new market economy (Brunello et al , 2010). Employers typically favored hiring relatively younger people since they had completed their education more recently, and because of the increased likelihood that they had studied an updated curriculum, were more likely to speak useful foreign languages and be more confident using computers, the internet and other IT technologies (Lohmann and Seibert, 2003; Bardasi and Monfardini, 2009).…”