Educational mismatch and its impact on earnings: evidence from Indian labour market

Abstract

Purpose The purpose of this paper is to examine the incidence and determinants of educational mismatch in the Indian labour market. It also attempts to measure the wage effects of educational mismatch, and other individual and work-related characteristics. Design/methodology/approach Educational mismatch is modelled using multiple Mincerian equations. Wage effects are measured using the novel identification strategy of Lewbel (2012), which constructs internal instruments to obviate potential endogeneity problems. Findings The authors find that the returns to over-education are positive and significant, while the returns to under-education are negative and significant. However, over-educated would earn less than the workers who have the same educational level, but who are engaged in occupations for which they are adequately educated. Originality/value This study is one of the earliest attempts to identify the determinants of educational mismatch in the Indian labour market. Additionally, it measures the effect of educational mismatch on labour market earnings, as well as marginal wage effects of each surplus (or deficit) year of education. Methodological improvements ensure that the results are robust to the sample selection bias, as well as the endogeneity bias.