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Abstract
We analyze the household income and housing endowment during the economic reforms in Slovakia. We compare households that entered the labor market before and after the economic reforms in 1990. On the one hand, the returns to education are significantly different for both labor market cohorts according to household consumption surveys. On the other hand, we analyze the determinants of housing wealth and their resulting impact on consumption. The results imply that old cohorts are characterized by lower returns to schooling, but higher housing wealth. As a result, we cannot identify a clear pattern of winners and losers in the transition.
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1. Introduction
Human capital endowment is among the most important determinants of growth (Barro, 1991; Levine and Renelt, 1992). However, centrally planned countries in Eastern Europe had contradictory attitudes with respect to the importance of human capital. While Eastern European countries focused on technical education (Fischer et al., 1997), human and social sciences were generally underdeveloped. Likewise, high-quality research was often focused on top-priority secret military projects with low spillovers to other sectors. The economic reforms have not only brought the market economy, but they have also significantly changed the structure and orientation of education at all levels. Therefore, we study the returns to education for cohorts that finished their education before and after 1989 in the first part of the paper. Using a unique detailed data set on Slovak households, we show that education acquired before 1990 yields lower returns than recent education offered to students after the beginning of the eco- nomic reforms. Holding all other factors constant, income for households which com- pleted education before 1990 is lower by about seven percentage points.
Does this mean that the early cohorts are worse off than the younger cohorts? We argue that this is not necessarily the case. In the second part of the paper we look at the composition of household wealth. The socialist system provided some impor- tant benefits to the population. While the majority of these benefits were short lived, they included easy and cheap access to housing with positive long-run impacts on household welfare effects. Moreover, the easy access to housing before the beginning of economic reforms was further strengthened by the...