Overeducation's Impact on Wages across Industries and Occupations

Abstract

Overeducation, where workers possess more education than required by their jobs, has become a concern in labor economics. The problem of overeducation and its impact on wage is due to its negative consequences on wage dynamics, economic efficiency, and the returns on educational investments of the individual and society. Overeducation generally leads to a wage penalty compared to properly matched people with the same education and a wage premium compared to workers with the same job who are properly matched. Despite the vast amount of studies covering the topic of overeducation, there is a gap in understanding how its effects on wages vary across different industries and occupational groups. Also, Dutch data has not been used to examine the Dutch labor market in detail. This study aims to address this gap by answering the following research question: To what extent does overeducation’s effect on the wage of a worker vary across occupational groups and industries in the Netherlands?

This thesis examines the impact of overeducation on wages across various industries and occupations in the Netherlands, utilizing data from the Programme for the International Assessment of Adult Competencies (PIAAC).
Regression analyses are used to examine the influence of overeducation on wages and the influence of industry and occupation types on this relationship. For control variables age, gender, and work experience are used.

The key findings of this research is that Dutch overeducated workers face a wage penalty compared to properly matched workers with the same education. However, the extent of this penalty varies across certain industries and occupations, namely the construction industry and high skilled blue collar workers.
The findings contribute to academic discussions on overeducation and its impact on wage, while highlighting the need to examine the influence of occupational groups and industry types. The insights are relevant for individuals, employers, educational institutions, and policymakers. Individuals can better assess the value of their educational investments and educational institutions and policymakers can create policies to mitigate the negative impacts of overeducation.