Returns to schooling in Russia and Ukraine: A semiparametric approach to cross-country comparative analysis

Measuring the returns to schooling over an extended period in Russia and Ukraine from 1985 to 2002, we find an increase in both countries but the increase is much bigger in Russia than in Ukraine. To investigate why returns to schooling in Russia and Ukraine diverged over the transition period while the skill composition of employment did not, we compare the Mincerian earnings functions between the two countries and then employ decomposition techniques. Using semiparametric methods, we construct counterfactual wage distributions for university and secondary school graduates in Ukraine using the distributions of Russian characteristics, returns to characteristics, and unobservables. Therefore, we can decompose differences in returns to schooling between the two countries due to differences in the labor market returns, differences in unobservables and differences in labor force composition. We conclude that the price effect is the dominant reason for the observed differences in returns to schooling between these two countries. Journal of Comparative Economics33 (2) (2005) 324-350.