How Much Does it Pay? The Return to Education in Italy

Abstract

Based on a representative sample of over 3,600 Italian employees, the paper assesses the existence and the characteristics of the educational mismatch in Italy. Results show that educational mismatch is a not negligible fact and the observed patterns reflect those already reported for other countries of continental Europe. Nonetheless, the Italian case is characterised by the prevalence of undereducation over overeducation and by consistently high levels of matching. The exam of the returns to educational mismatch confirms the relative penalisation of overeducation and the absolute penalisation of undereducation. Moreover, the inclusion of additional explanatory variables proves that the focus on the sole human capital masks the impact of other important factors such as gender, professional occupation, or industry. The patterns observed for the full sample significantly change with the age of the employees. The Job Competition Model shapes the wage equation of younger workers, while the Assignment model proves to be superior for other age groups. Younger workers on temporary contracts suffer from consistent wage penalisations, but gender gaps and occupational gaps tend to blur. Substitution effects between firm-specific experience and formal education only take place among older workers.