We analyse the ethnical wage gap in Estonia, a former Soviet republic and current EU member, which hosts a substantial Russianspeaking minority. The analysis covers a long time period from the last years of Soviet Union till the first years of EU membership. We document the rise of a substantial wage gap for males in favour of the Estonian-speaking population. This result is robust with respect to controls for language skills, education, industry and occupation. The main factors, causing the unexplained wage gap, are different ethnicity-specific returns to education and to working in the capital city, and different intercepts. The gap for young and established workers is of equal size.
We argue that the most plausible explanations are establishment level segregation, possibly related with sorting and screening discrimination. Unobserved human capital, related to segregated school system, may play a certain role too.