Returns to Education in the Albanian Labor Market

Juna Miluka


The issue of private returns to education has received much attention in the
literature and there are many studies on the issue. Nonetheless, less is known of the
issue in developing countries, and these studies are missing for Albania, where little
is known regarding private returns to education. A major characteristic of labor
market in Albania is the disparity between males and females in terms of labor
market indicators such as labor force participation, employment, unemployment,
inactivity rates, economic activity, and wages (Miluka 2013; INSTAT 2013, 2014).
Understanding returns to education by sex, region and sector in Albania would
help answer questions regarding parents decisions on childrens education as well
as the allocation of the workforce in different sectors of the economy by gender and
regionally. This paper estimates returns to education by sex, region, and sector in
Albania using the 2012 Living Standard Measurement Survey Data. The econometric
model used in this paper to estimate private returns to education is based on Mincers
(1974) human capital earning function. To correct for self-selection bias a twostep
estimation following Casero and Seshan (2006) is estimated for each sector.
The study shows that there are clear pay offs to female education namely, results
show that females have higher returns to education overall and across regions and
sectors. Returns to education for females are higher in the private sector compared
to the public sector. Furthermore, the highest returns to education for females are
in the service sector. Higher returns to education for women may improve their
position in the labor market and should serve as incentives for increased labor force
participation and paid employment, especially for women in the rural areas. It
also shows that investing in education by the government is a worthy investment
that brings back rewards. Consequently, investment in womens education should 

continue and it should be increased providing more and better quality education.
Promoting womens entry into the private sector is important given womens already
high participation in the public sector, and the generally limited capacity of the
sector to absorb a large number of workers. The higher returns of education for
women in the private sector should also serve as a policy incentive to direct womens
participation in the private sector as to reap the rewards to education that this sector
JEL Classification: I26, J3
Keywords: Returns to education, Gender, Albania, Labor market. 

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