The impact of overeducation on earnings in China

Abstract

The paper estimates the returns to overeducation by the Over-Required and Undereducation (ORU) model. The estimated results indicate that the returns to overeducation are positive, but lower than the returns to required education, which suggests that while overeducated employees’ earnings are diminished, they still can benefit from it. The paper also attempts to estimate the returns to overeducation by occupations, industries and regions. The result shows that in the field where educational level has much to do with the skills required by employers, education-job match has a greater effect on one’s earnings, such as professionals and skilled persons. On the contrary, education-job mismatch has little effect on one’s earnings, such as non-skilled employees, administrative and clerical employees. In addition, the returns to overeducation are lower or insignificant for those working in competitive but lower paid industries and areas. Conversely, the returns to overeducation are higher for those working in the highly monopolized and highly paid industry and area. It can be argued that regardless of the incidence of overeducation, those with higher level of education prefer to choose the lower level of job in these industries and areas.