Returns to Education and Labor Market Sorting in Transition Economies: The Case of Slovenia, 1993-2007

Britni L. Adams, University of California, Irvine
Andrew Penner, University of California, Irvine
Nina Bandelj, University of California, Irvine
Aleksandra Kanjuo Mrcela, University of Ljubljana

As the first study to use employer-employee matched data to investigate the returns to educational sorting in the labor market, we examine the returns to education across a fifteen-year period as Slovenia transitioned from a planned to a market-based economy. Using fixed-effects models, we evaluate the degree to which the returns to education result from sorting into different establishments, occupations, and occupation-establishments, and the amount due to within-job inequality. We show that the wage premia associated with college and academically oriented education increasingly operates through sorting people into jobs. However, for vocational education, within-job inequality is increasingly important throughout the period. We conclude that 1) while the returns to education operate primarily through sorting, this does not hold for all types of education and 2) both the returns to education and the way that the returns are generated change across education level as a nation transforms into a capitalist system.