Self-Selection and Earnings During Volatile Transition

Using Bulgarian Integrated Household Surveys for 1995, 1997 and 2001 this paper explores determinants of labor force status – not working, public sector employment, private sector employment and self-employment – and earnings for each of the three employment sectors. We find that while skilled labor?s pattern of reallocation into the public sector remains roughly the same over time, the inflow of highly educated laborers into the private sector and selfemployment increases. These changes coincide with the erosion of the returns to observed skills in the private sector and self-employment, while the public sector continues to reward all types of education at higher than the elementary level.