Abstract
During the Soviet period. the structure of wages in all of the Soviet republics was compressed. A central question for the transition in Estonia is whether wage differentials will begin to reflect real differences in human capital and sectorial shifts in production. Thus, wage determinants in Estonia are examined during the early stages of its transition toward a market economy. In addition, wage determinants are tested to determine if there are any differences between the state and non-state sectors as well as whether wages are higher in the non-state sector even after controlling for selection bias.The findings are that while being male positively affects wages in both sectors, being Russian positively affects wages only in the private sector. Higher education has a greater positive impact on wages in the non-state sector. There is a positive return for working in the non-state sector, and it actually increases—from 20 to 28 percent—when controlling for selection.
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