Returns for education in Kosovo: Estimates of wage and employment premia

Abstract

This paper provides an analysis of the returns for education in Kosovo using data from a Household and Labour Force Survey. We argue that given the high unemployment rate in Kosovo, employed individuals may not be randomly selected from the labour force. Therefore, the estimates of the rates of returns for education based on the standard Mincerian earnings function may be biased downwards. Hence, the Heckman sample selection model is implemented, which adjusts the estimates of the wage equation for the self-selection of individuals into employment. We estimate the rate of returns for level of education and for years of education. We find relatively low rates of returns for education in terms of wage premia and argue that in countries with chronic labour market disequilibria (such as in Kosovo), the returns for education may be in terms of employment premia. To our knowledge, this is the first systematic study of these issues in this post-socialist and post-conflict economy.