as it induces skilled-biased technological change (Acemoglu 2003). Although the skill premia are determined by technological change and the relative supply of skills, there was no data available on technological progress for transition countries before the collapse of the Soviet Union in the early 1990s. We decided to use trade as a percentage of GDP as it represents a trade openness index that measures the importance of trade in the domestic economic output of a country.

The polity index comes from the database of the Polity 5 Project of the Center for Systemic Peace which assesses the concomitant democratic and autocratic characteristics of the governments of 167 independent states around the world since 1946 <u>(https://www.systemicpeace.org/inscrdata.html). The polity index is a compound index of the</u> democracy and autocracy indexes; thus, it captures the nuances of democracy and autocracy that coexist within each independent state. The autocracy index measures the level of autocracy prevailing in a country using a scale that goes from 0 to 10, where 0 is no autocracy traits at all and 10 is the highest level of autocracy (e.g., hereditary monarchy). The democracy index employs the same scale to assess the democracy level that characterized each government and assigns a value of 0 to those countries whose governments exhibit no traits of democracy and a value of 10 to the countries with the highest level of democracy (i.e., consolidated democracy). The polity index results from subtracting the autocracy index from the democracy index of each state so its scale ranges from -10 to 10, where -10 is a perfect autocracy and 10 is a perfect democracy. Therefore, the polity index can be used as a measure of how far each country is from perfect democracy. Democracy can be used to assess the strength of the transition (World Bank 2002).

The polity index database contains information for most of the countries and years included in the study. This database has no information on Iceland at all and misses information for Bosnia and Herzegovina, Cyprus, Czechia, Hungary, Kosovo, Montenegro, Serbia, and the Slovak Republic for only one year in most cases. As in the case of returns to education, we use the 5-year average of the polity index to make it congruent with our schooling data.

It is important to note that we identified in the polity database those countries that emerged from countries that disintegrated during our period of study and assigned to them the polity rate of their origin country before their formal constitution as an independent state. The countries that dissolved during the period of study are the Soviet Union, Yugoslavia, and Czechoslovakia, giving way to the constitution of 24 independent states included in our sample. These countries are shown in Annex 3. Using this strategy, we were able to identify 231 data points included in the analysis.

To include trade openness in our analysis, we analyze trade as a percentage of GDP to account for the influence of trade on economic growth, which in turn can lead to labor market changes that affect wages (Calderon and Cantu 2019; Kapsos 2005; Majid 2004). This quantifies trade as the sum of exports and imports of goods and services measured as a share of GDP. To ensure data comparability, this trade information was obtained from the World Bank, which has been collecting information on this topic since 1960. Again, this was included in the database of analysis using its 5-year average, which provided information for 214 data points.

Using our unbalanced panel data of 48 countries in Europe and Central Asia (28 transition and 20 non-transition) we estimate the determinants of returns to schooling, which are defined as the 5