Wage determination under plan and early transition: Bulgarian evidence using matched employer-employee data

Using a matched employer-employee panel data set, we find non-competitive forces dominate wage determination under the planning regime in Bulgaria. During the early transition, the process becomes more market-driven, although a significant role remains for other factors. The preferred specifications are not baseline models restricted to conventional dimensions of human capital; rather, they always include firm and person fixed effects along with other firm and individual attributes. Depending on the particular specification, returns to education at least double during the transition. Although the significance of human capital variables is insensitive to the inclusion of firm effects, the findings for other variables are sensitive to the inclusion of fixed effects. (c) 2005 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.