In Europe and Central Asia, the poor face three problems: (1) the education system as a whole does not work well, and hence fails to meet their needs; (2) the private cost of education has risen, so that "education," as a commodity, competes with other consumption goods in shrinking household budgets; and (3) the perceived benefits of education (in terms of higher wage earnings) are still low, thereby undermining long-term incentives to invest in education. This paper shows the discrepancy between Central European and former Soviet Union countries in the contribution of "education" in explaining wage earnings inequality. The discrepancy can be explained by factors such as the degree of private sector development and the flexibility of the labor market. Although there remains a"taste" for education in Europe and Central Asia, there is also a risk that low-income groups drop out of the education system and irreversibly fall into poverty. (Contains 27 notes, 7 figures, 9 tables, 4 annexes, and 82 references.) (Author/BT)