Sector-Based Analysis of the Education–Occupation Mismatch in the Turkish Labor Market

Abstract

AbstractThe aim of this study was to investigate the existence of sectorial undereducation and overeducation problems in the Turkish labor market. In order to cope with this issue, the 2009 Household Labor Force Survey (TurkStat), which covers 145,934 individuals within 27 sectors, was utilized. An objective measure of education-occupation mismatch based on the mean level of schooling was used as the main tool in the analysis. The results revealed two important points. Firstly, high levels of undereducation and overeducation problems in the sectoral job groups were found. Secondly, the results showed that these problems are not specific to a few sectors, but they are widespread among many sectoral job groups, which has created serious problems for the Turkish economy. Moreover, we employed Oaxaca decomposition to investigate the effects of overeducation and undereducation on wage outcomes, and the findings indicate that education-occupation mismatches in the Turkish labor market are also reflected on such outcomes. Finally, the Turkish labor market penalizes workers who acquire less education than the adequate level to perform their jobs, whereas it rewards the workers who obtain more education than the adequate level, but not to a considerable extent.Keywords: Overeducation * Undereducation * Sector-based education-occupation mismatch * Human capital * Turkish labor marketIn economics, there is a consensus that education is an essential ingredient of economic growth and personal welfare. The growth literature (i.e., Barro, 1989, 1999; Lucas, 1988; Mankiw, Romer, & Weil, 1992) theoretically and empirically shows that education, ensuring human capital accumulation, positively and significantly affects long-term economic growth.1 In a similar vein, the human capital literature, following the seminal paper of Becker (1964), argues that education increases personal income, as it constitutes the main determinant of workers' productivity, and the workers are paid according to their marginal products. Consistent with this argument, the majority of the existing empirical studies show that the return of education is significantly positive. For example, measures of the return of education in the Turkish labor market indicate a high return for each year of schooling (Bakis, 2012; Dayioglu & Kasnakoglu, 1997; Oksuzler, 2008; Ozcan, Ozcan, & Ucdogruk, 2003; Tansel, 1994).2An implicit assumption in these literatures is that workers' human capital is efficiently utilized in the labor market and, relatedly, workers earn wages equal to their marginal products. However, another strand of literature, following the seminal papers of Freeman (1976) and Duncan and Hoffman (1981), questions this implicit relationship and draws attention to potential labor market inefficiencies in matching occupations and workers according to the required and actual skill levels. This mismatch in the labor market potentially leads to some workers being placed in occupations that require less human capital than the worker has acquired. Such a worker who has acquired more education and has more human capital than his/her job requires is said to be overeducated, whereas a person with less education than what his/her job requires is classified as undereducated. An implication of this overeducation and undereducation problem is that overeducated (undereducated) workers are likely to earn less (more) income compared to similarly educated ones whose education levels actually match their jobs.In this paper, we examine the prevalence of overeducation and undereducation in Turkey since there are there are substantial inefficiencies in the Turkish labor market that may lead to education- occupation mismatches. According to results of Turkish Household Labor Force Surveys, more than half of the workers found jobs on their own rather than through employment agencies, which indicates possible inefficiencies in job searching and matching. …