The effect of educational mismatch on wages in Europe

Abstract

This paper analyzes the effect of educational mismatch on wages, using a rich panel dataset of workers in the major euro area countries from 2006 to 2009, drawn from the European Union Statistics on Income and Living Conditions (Eurostat). We use a consistent estimator to address the two econometric problems faced by the empirical literature: the omitted variable bias and measurement error. In principle, our fixed effect estimates confirm that overeducated workers suffer a wage penalty of similar magnitude to the return on each year of schooling attained. Interestingly, when we split the sample by age, we find that the wages of people aged under 35 basically depend on the level of education attained, while those of workers aged over 35 depend on job educational requirements. These results are interpreted taking into account the impact of the depreciation of skills on human capital. The main policy implication of the paper is that overeducation constitutes a waste of resources. Therefore public authorities should seek to reduce the negative impact of overeducation on the labor market. JEL classification: I21 J24 J31

Graph configuration model based evaluation of the education-occupation match

“…Working in a field that matches to the education has a positive effect on job performance and satisfaction [ 4 ]. Results of Iriondo and Pérez-Amaral indicates that overeducated workers suffer a wage penalty since earnings depend mainly on the educational requirements of jobs [ 24 ]. Three primary measures of education—job mismatch can be distinguished based on how the required education level is determined.…”

The effects of ability on returns to over‐ and under‐education: Evidence from Malaysia

“…It follows that the adverse effects of over-education could be mitigated when the earnings of over-educated graduates are determined by the unobserved characteristics of the job and the individual (Dolton and Vignoles, 2000). In fact, Iriondo and Pérez-Amaral (2016) argue that the wages of workers over the age of 35 depend on the educational requirements of their job, while the wages of those under 35 depend on their educational attainment, indicating an adverse effect of depreciated skills on human capital accumulation. These studies imply that younger workers may rely on higher educational attainment than that required to remain competitive for the purposes of wage determination, while the wage penalties for over-education will be eliminated as they get older and accumulate sufficient experience and other unobserved abilities required by their job.…”

The Effects of Macroeconomic Conditions at Graduation on Overeducation

“…This is important because workers of higher ability may purposefully delay their graduation in order to avoid entering the labor market during a recession. Wage differentials between overeducated and well‐matched workers have been linked to unobserved factors including workers' literacy or specific components of skill (Boothby ; Sohn ) and unobserved innate ability (Iriondo and Pérez‐Amal , for the EU and Tsai , for the United States), suggesting that overeducated individuals are of lower ability than their well‐matched counterparts with similar qualifications.…”