Expanded Summary

The study examines the failure in the Georgian labor market caused by the failure of the education system. Additionally, it conducts a comparative analysis of the Russian labor market, thereby facilitating an examination of the labor market dynamics in both countries.

The population of developing countries has observed the rapid economic growth and high standard of living in developed nations. Conversely, in economically underdeveloped countries, this indicator changes imperceptibly from generation to generation. The inability of certain countries, such as Georgia, to achieve high economic growth rates and improve the standard of living across generations prompts inquiry. One plausible explanation lies within the labor markets of these nations, specifically in its failures that contribute to an inefficient equilibrium and hinder the prevention of undesirable disequilibrium.

Education is considered to hold a pivotal role in the labor market, and a breakdown in the education system can directly translate into failures within the labor market. Countries recognize the importance of establishing robust and functional education systems due to their significance in the labor market and substantial external effects. Notably, an educated population contributes to a more competent electorate, decreased crime rates, higher wages for educated workers (Schultz, 1963), and a lower unemployment rate (Mincer, 1990). Additionally, educated individuals tend to pursue successful careers, generate innovations, occupy prestigious positions, and exhibit greater success in the marriage market, all of which are essential conditions for a flourishing society.

This study aims to examine the functionality of the education system, a fundamental component of a country's economic growth and the seamless operation of labor markets. Specifically, the objective is to discern the correlation between education and wages.

Bowman (1966) posited that education should be regarded as an investment, with the expectation that its future returns would sufficiently compensate for the costs incurred during its acquisition. He contended that an increase in the proportion of educated individuals within a society would positively impact the average income of the country, thereby benefiting a larger segment of the population. Numerous researchers have substantiated a positive correlation between education and wages.

In instances such as that of Georgia, where a substantial portion of the workforce possesses higher education, one would anticipate a corresponding increase in both individual incomes and overall living standards. However, empirical evidence contradicts this expectation, as the average wage levels and general well-being in Georgia have remained relatively stagnant for an extended period. This discrepancy challenges the long-standing theory of human capital formulated by Becker in 1962, raising doubts about whether the returns on investment in education may be negative, very low, or exhibit a declining trend.

Notably, the education system in Georgia is rooted in the educational framework inherited from the Soviet Union. This fact is intriguing, considering that many other nations also inherited similar systems following the Soviet Union's dissolution. Given these parallels, this study will extend its examination to the Russian labor market, exploring the possibility of establishing a phenomenon in the labor market characterized by a negative correlation between wages and returns to education. This investigation will consider scenarios where the latter exhibits very slowly increasing or even decreasing trends. The study of the Russian labor market will be conducted within its current context, which includes, among numerous other factors, the pervasive issue of high corruption.

The article scrutinizes the impediments preventing Georgia from achieving rapid economic development and enhancing intergenerational standards of living, in stark contrast to the successful endeavors of developed nations. A primary factor contributing to this challenge is identified within the countrys labor markets, specifically manifesting in the shortcomings of the education system. These deficiencies lead to an inefficient equilibrium within the labor market, impeding the prevention of undesirable imbalances. To substantiate these assertions, empirical analysis is conducted utilizing data sourced from the National Statistical Service of Georgia, providing a comprehensive examination of the prevailing conditions in Georgia. The study extends its investigation to the Russian labor market, utilizing data from the Russia Longitudinal Monitoring survey, RLMS-HSE. The research employs Jacob Mincer's logarithmic regression. The article presents the findings and conclusions derived from this research, offering valuable insights into the existing challenges and dynamics. Furthermore, the article proffers advice and recommendations aimed at enhancing the efficacy of Georgias education system, thereby addressing the identified impediments and fostering economic development.