Returns to Education in the Baltic Countries

New SSE Riga/BICEPS research paper by Mihails Hazans (BICEPS, University of Latvia).


What are the returns to education in Estonia, Latvia and Lithuania? The author estimates skills wage differentials in Estonia, Latvia and Lithuania and compares the results with evidence from other countries. Major findings are:

  • the stock of human capital in Baltic states is rather high
  • employees with higher education earned on average 69 to 80% more than those with basic or less education in 2000
  • most of this differential is due to the premium paid for higher versus secondary education, the lowest return in Latvia and the highest in Lithuania
  • the premium associated with secondary relative to basic education is much smaller, ranging from 13–14% for Latvia and Lithuania to 19% for Estonia
  • in all three countries, but especially in Latvia, returns to education are larger for women than for men
  • after controlling for occupation in Estonia and Lithuania the extra benefit of higher education for women comes via access to higher positions rather than via larger wage premiums within occupational groups
  • the above is true for secondary education in all three countries
  • returns to secondary education in the Baltics are much lower than in the developed market economies and other Central European countries
  • by contrast, returns to higher education in the Baltic countries (especially in Lithuania) seem to be high by international standards
  • disaggregating by gender, the standard finding of larger returns for women compared to men is more pronounced in Estonia and Latvia than in the Czech Republic and Hungary; the gender difference is less pronounced in Lithuania
  • minority employees gain from higher education much less than ethnic Estonians, while in Latvia and Lithuania the ethnic gap in returns to higher education is small and statistically not significant
  • wages in Estonian rural areas are uniformly lower than in cities, while in Latvia and Lithuania wages of well educated employees are relatively less affected by rural-urban disparities.

To sum up, Baltic countries feature a combination of unusually low returns to secondary education with rather high marginal payoff to higher education. Positive female-male differences in returns to higher education and negative minority-majority differences suggest that education is more likely to be effective in reducing consequences of gender segregation than ethnic segregation. The gender gap in returns is the largest in Latvia, while the ethnic gap is significant only in Estonia.