High skills pay off: the changing wage structure during economic transition in Poland

Abstract

Abstract Economic transition turns the inherited wage structure upside down. Changes are rapid and dramatic. The Polish example shows that even in the first year of market‐oriented reforms, there was a marked increase in earnings inequality, a dramatic rise in the wage premium for white‐collar skills, and a significant jump in the returns to education. In contrast, skills acquired under the old system lost their value. It is younger workers who are rewarded with higher wages. The changes are spearheaded by the private sector, where inequalities and the educational premium are higher than in the public sector. Privatization, thus, has its social aspects in that it strengthens the incentive for human capital investment. This paper documents these changes and sets out possible explanations.

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