This paper is a study on the returns to education in Lao PDR, a country which has been largely neglected by the literature. Conducting an empirical research using LECS 3, we found the significant private-public sector wage differentials. The wage premium is particularly pronounced for workers with a tertiary level education. The private rates of returns to education rose significantly with the economic transition. Particularly, returns for young workers are considerably higher than for older workers. Moreover, average private rate of return to primary education is the highest at 34% among educational attainments. The research findings have important implications for public sector salaries and the financing of education in Lao PDR.