Returns on education in Russia: students looking to earn higher income should choose engineering, law or economics departments

The dramatic changes in the Russian labor market in recent years are related not only to the transition from the planned to the market economy, but also to attempts to bridge the technological gap, which calls for new knowledge and skills. The transition to the market brings growing uncertainty about the results of reform and future labor demand. How have returns on various specializations changed in Russia? Are new diplomas rewarded more than old ones?
Drawing on the data of the Russian Longitudinal Monitoring Survey, we assess the returns on the following specializations in secondary vocational and higher education: teaching, engineering, law, economics, the humanities and medicine.

We find that the modern labor market favors vocational technical education (for both men and women) and vocational education in law and economics for women. Higher education in engineering, law and economics also carry a "bonus" in terms of higher future income, the bonus being larger for women. At the same time, the year a diploma was obtained is insignificant, i.e. new diplomas are no better than old ones.

People with degrees in engineering, law, economics and the humanities are more likely to agree to low-skilled jobs than trained teachers and doctors. Perhaps teachers and doctors are less "flexible" and dislike change. Or perhaps it is easier for them to find employment in the field of their specialization, which, coupled with the widespread practice of informal payments, makes their work attractive. Surprisingly, women less often agree to unskilled jobs.

The holders of engineering diplomas gained in secondary vocational institutions, as well as holders of higher education diplomas in education, law, economics, engineering and medicine are less likely to be unemployed compared to holders of degrees in the humanities.

How does one account for the differences in the returns on educational specialization?

The higher return on a certain type of education may mean a bonus for specialized skills acquired in the process of learning a particular trade. This interpretation is justified at the intuitive level when applied to legal and economics knowledge, but less so as applied to engineering areas of expertise. Although these areas contribute most to downward mobility, their professional mobility characteristics are totally different: a lot of jobs for lawyers and economists with secondary vocational education and far fewer jobs for engineers. Thus, the labor market apparently does not reward specialized knowledge acquired by engineers during their training — instead, it may reward the significant general education component in an engineering diploma.
Perhaps the economic, legal and engineering areas of expertise have been acquired by people with higher abilities and consequently greater productivity. In that case the market rewards the higher abilities signaled by the diploma. This explanation looks plausible considering the traditionally tough competition for admission to economics and law schools, and the typically more complicated curricula at engineering schools. Then the difference between education in economics and engineering boils down to the fact that in economics selection occurs at the very beginning while in engineering selection takes place further down the road.

All the explanations agree on one main thing: higher productivity is rewarded by higher wages and the difference lies in the sources of productivity —accumulated human capital, whether it is general or specialized.

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