The natural logarithm of the average total monthly labor income (in thousands of Manats<sup>4</sup> ) is the dependent variable of our Mincerian earnings equations.<sup>5</sup> The weekly hours worked are used as an independent variable, rather than as the denominator of monthly wages, in order to control for gender differences in the number of hours worked. In addition, hourly wage rates are not widely used in Azerbaijan, especially among young people. The survey provides two types of information regarding the hours worked: the normal contractual hours and the actual hours during the reference week. Estimates are often presented with both types of hours of work. Table A1 and Table A2 in the Annex report descriptive statistics for young workers in wage employment and non-employment, respectively. Figure 1 suggests a wage distribution that becomes more widely distributed as age increases.

Based on characteristics of the Azerbaijan educational system,<sup>6</sup> the years of education have been computed as follows: The uneducated are assigned 0 years of education. The respondents holding a primary school diploma are considered to have had 4 years of education (from age 6 to 10 years). Those holding a diploma of general (low secondary) education are assigned 5 more years of education after primary education (from age 11 to 15 years). Those holding vocational diplomas are attributed 3 more years of education after primary education (from age 11 to 13 years). Those with a general high secondary education degree are assigned 2 more years of education after general education (from 16 to 17 years). Those with a specialized secondary education degree are assigned 3 more years of education after general education (from age 16 to 18 years). Those holding tertiary education diplomas (university or in 2 cases also graduate courses) are assigned 4 more years of education after general high secondary education (from age 19 to 22 years). Those holding a master’s degree (in 2 cases only) are assigned 2 more years of education after tertiary education (from age 23 to 24 years).

Actual work experience was computed by imposing two main corrections to potential work experience. The latter has been computed in the usual way as the difference between current age of the respondent, years of education completed, and the age when primary education starts, which, in the case of Azerbaijan is 6 years. The first correction subtracts the time that the respondents declare to have spent to find his/her current job. Question 57 in the survey asks for how long the individual has been seeking a job, answers are constrained within given intervals of time; the average value within the interval has been transformed into fractions of a year and subtracted from the person’s

> 4 At the time of the survey, namely in August 2005, the exchange rate was: US$ 1 = AZM 4908, which means also a US$ / AZM exchange rate of 0.00024. Note that the exchange rate now reported is based on the old Manat, not the new one (AZN).

> 5 It is not clear from the wording of the questionnaire whether this is the gross wage or the wage net of taxes. In the other SWT surveys, wages referred to net monthly wage.

> 6 For a general description of the educational system of Azerbaijan, please see the following: http://www.classbase.com/Countries/Azerbaijan/Education-System.

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