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Wage penalty of overeducation: New micro-evidence from China

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  • Wu, Na
  • Wang, Qunyong

Abstract

This paper studies the wage penalty of overeducation using the World Bank's STEP (Skills Towards Employability and Productivity) survey in China. Based on the measurements of cognitive, technical, and non-cognitive skills, the overeducated have systematically lower abilities compared with the well-matched, just as the skill heterogeneity theory predicts. Endogenous switching model is adopted to estimate the effect of overeducation on wage. We find that the overeducated workers with tertiary education suffer from significant loss compared with the well-matched workers, while overeducation has no significant effect on workers with high school education. The causality inference using nearest neighbor matching and propensity score weighted regression methods reveals that our conclusions are robust.

Suggested Citation

  • Wu, Na & Wang, Qunyong, 2018. "Wage penalty of overeducation: New micro-evidence from China," China Economic Review, Elsevier, vol. 50(C), pages 206-217.
    • Handle: RePEc:eee:chieco:v:50:y:2018:i:c:p:206-217
    DOI: 10.1016/j.chieco.2018.04.006
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    2. Sun, Ting & Bian, Xuezi & Liu, Jianxu & Wang, Rui & Sriboonchitta, Songsak, 2023. "The economic and social effects of skill mismatch in China: A DSGE model with skill and firm heterogeneity," Economic Modelling, Elsevier, vol. 125(C).
    3. Iwasaki, Ichiro & Ma, Xinxin, 2020. "Gender Wage Gap in China: A Large Meta-Analysis," CEI Research Paper Series 2020-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    4. Mariana Olga De Santis & María Cecilia Gáname & Pedro Esteban Moncarz, 2022. "The Impact of Overeducation on Wages of Recent Economic Sciences Graduates," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 409-445, August.
    5. Iwasaki, Ichiro & Ma, Xinxin, 2020. "Gender wage gap in China: a large meta-analysis," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 54, pages 1-17.
    6. Hao, Zedong & Wang, Yun, 2022. "Education signaling, effort investments, and the market's expectations: Theory and experiment on China's higher education expansion," China Economic Review, Elsevier, vol. 75(C).
    7. Anning Hu & Xiaogang Wu & Tao Chen & Dongyu Li, 2023. "Family Socioeconomic Status and Chinese College Students’ Premarital Sexual Attitudes and Behavior," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 42(3), pages 1-23, June.
    8. Chen, Jie & Pastore, Francesco, 2021. "Does Vocational Education Pay Better, or Worse, Than Academic Education?," IZA Discussion Papers 14445, Institute of Labor Economics (IZA).
    9. Zheng, Yanqiao & Zhang, Xiaoqi & Zhu, Yu, 2021. "Overeducation, major mismatch, and return to higher education tiers: Evidence from novel data source of a major online recruitment platform in China," China Economic Review, Elsevier, vol. 66(C).
    10. S.D. Kapelyuk & E.N. Lishchuk, 2020. "The Scale of Overeducation in the Rural Labor Market," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 19(3), pages 370-397.
    11. Yang, Li & Milanovic, Branko & Lin, Yaoqi, 2023. "Anti-Corruption Campaign in China: An Empirical Investigation," SocArXiv b3jze, Center for Open Science.
    12. Jones, Melanie K. & Kaya, Ezgi & Nan, Jiarui, 2024. "Overeducation, Earnings and Job Satisfaction among Graduates in China," IZA Discussion Papers 17161, Institute of Labor Economics (IZA).
    13. Obbey Ahmed Elamin, 2018. "Impact of Informal Job-search on Wages for University Graduates in Egypt and Jordan," Working Papers 1272, Economic Research Forum, revised 19 Dec 2018.
    14. Marius-Cristian Pană & Mina Fanea-Ivanovici, 2019. "Institutional Arrangements and Overeducation: Challenges for Sustainable Growth. Evidence from the Romanian Labour Market," Sustainability, MDPI, vol. 11(22), pages 1-19, November.
    15. Aidt, Toke S. & Hillman, Arye L. & Qijun, LIU, 2020. "Who takes bribes and how much? Evidence from the China Corruption Conviction Databank," World Development, Elsevier, vol. 133(C).
    16. Xiaohang Zhao & Yang Feng & Lei Jin & Skylar Biyang Sun, 2024. "Unraveling the Nexus between Overeducation and Depressive Symptoms in China: The Roles of Perceived Fairness of Earnings and Job Autonomy," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 19(4), pages 1877-1902, August.
    17. Jiang, Shengjun & Guo, Yilan, 2022. "Reasons for college major-job mismatch and labor market outcomes: Evidence from China," China Economic Review, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    Overeducation; Wage penalty; STEP survey of the World Bank; Treatment effect;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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