Impact of vertical and horizontal mismatches on earnings among highly educated employees in Japan

Abstract

This study investigates the vertical and horizontal mismatches among highly-educated employees in Japan. The critical point of view is that job-education mismatches lead to the waste of human capital accumulated during undergraduate or graduate study years and bring adverse consequences-earnings penalties. The main contribution of our study is that it is the first attempt to investigate both vertical and horizontal mismatches using Japanese data. Our analysis reveals that vertical mismatch is more likely to significantly lower annual earnings than horizontal mismatch for both men and women. We also find that it mainly applies to university graduates, and no significant penalty exists among employees with a graduate degree. Additionally, horizontal mismatch is more common among female employees and the penalty for overeducation is severely pronounced in the fields of natural sciences, medicine, and pharmacy.