This paper examines the extent to which human capital theory can explain observed wage differentials in the Russian Federation. Wage and income dispersion have increased markedly in Russia in the six years since the transition began. Some studies conclude that this is an indicator that Russian labour markets are becoming more competitive. In this paper, this conclusion is scrutinised from the perspective of human capital theory. Human capital theory predicts that, in unregulated labour markets, workers' remuneration depends on their individual productivity, which is itself a function of experience, education and skill levels, and occupation type. According to this theory, the deregulation of Russian labour markets in the transition to a market economy should make observed wages more dependent on these factors. The extent to which human capital factors influence wages can be viewed as an indicator that labour markets are beginning to 'work'. We use cross-sectional data from the Goskomstat "Russian Longitudinal Monitoring Survey" to characterise wage dispersion in the Russian labour market in 1994. The results suggest that human capital variables explain only a small portion of Russian wage differentials. Much more of Russian wage dispersion can be explained by regional and gender-based wage differentials. Labour markets are effectively segregated by region. This analysis concludes that increased Russian wage dispersion does not indicate that the Russian labour market is becoming more competitive.<BR><BR> Theme: Transitions in the Labour Market in Eastern Europe<BR>
