Trade integration and the skill premium: Evidence from a transition economy

► We document the evolution of skill premium in the transition economies in Europe. ► We examine the impact of trade integration on the skill premium decline in Slovenia. ► Trade liberalization leads to a fall in the skill premium of roughly up to 4.5%. ► Our model accounts for 46% of the actual decrease in the skill premium in Slovenia. ► Our trade-based explanation is more robust than productivity-based explanation.