Overeducation in the Chinese labour market

The match between education and job is an important indicator of the functioning of the labour market. Overeducation can be described as when an individual’s educational level is higher than the schooling required for his job. Since the college expansion in 1999 in China, more graduates are reported to be found in jobs for which they are overeducated. This thesis focuses on the exploration of the phenomenon of overeducation and its impact on the Chinese labour market. Using longitudinal data from the China Health and Nutrition Survey (CHNS) from 1989 to 2009, the extent and determinants of overeducation are investigated in Chapter 2. A variety of techniques are employed to study the wage effect of overeducation in the Chinese labour market. Based on the empirical results of this chapter, the extent of overeducation and undereducation in China, using two indexes to define required education, are found to be different. In addition, it is found that males and workers who have urban registration are more likely to be overeducated in both indexes. Furthermore, workers who have less experience tend to be overeducated, which is only found in the mean index. In terms of wage returns to overeducation, time effects indeed play an important role in China. The wage penalty to overeducation becomes smaller and even disappears between overeducated people and correctly educated people after taking unobserved heterogeneity into consideration. Additionally, this chapter attempts to ascertain if there are distinct wage effects of overeducation for different age groups and explores the patterns of wage effects of overeducation over time. The results indicate that different patterns of wage effects of overeducation by age groups and over time can be explained by the education and labour market reform in China since 1978. Chapter 3 explores detailed links between educational mismatch, skill mismatch and job satisfaction in China. Results in this chapter suggest that overeducated people are more satisfied with their workload, working conditions and facilities, their relationship with colleagues and their housing benefits than correctly educated individuals in similar jobs. When educational mismatch and skill mismatch are included simultaneously into the analysis of job satisfaction, skill mismatch demonstrates stronger negative effects on overall job satisfaction and many facets of job satisfaction except for job satisfaction with welfare, workload and commuting distance to job location than educational mismatch, which suggests that firms and policy makers should put more emphasis on improving the match between the labour market’s needs and individuals’ skill levels. Given the important role played by rural-to-urban migrant workers in contemporary China, Chapter 4 provides a picture of education and educational mismatch issues associated with rural-to-urban migrant workers. This chapter contributes to the existing literature on the education of migrant workers by taking the generation of migrant workers into consideration, i.e. we distinguish between an old generation of migrant workers and a new generation of migrant workers. Based on OLS regression, the new generation of migrant workers has higher wage returns to schooling than the old generation of migrant workers. Quantile regression results indicate that the new generation of migrant workers have higher wage returns to schooling in the lower half of the wage distribution (i.e. 10th, 25th and 50th percentiles). Wage effects of undereducation between old and new generation migrant workers exist at the 25th percentile and 75th percentile of the wage distribution. However, distinct wage effects of overeducation between old and new generation migrant workers can only be found in the high end of the wage distribution (90th percentile). In addition, a comparative study of the issue of educational mismatch between rural-to-urban migrant workers and urban residents is made in this chapter. Negative effects of overeducation appear across the wage distribution of urban residents except for the 90th percentile. Positive impact of undereducation on wages can be seen from 25th percentile to 90th percentile. However, for migrant workers, overeducation doesn’t exhibit negative effects on migrant workers on the conditional wage distribution. Wage premiums enjoyed by undereducated migrant workers are only present in the lower and middle part of the wage distribution except for the 90th percentile. This thesis concludes that empirical patterns of overeducation in the literature in terms of the incidence, determinants and wage effects are present in the Chinese labour market. Empirical results in this thesis indicate that overeducation may not result in negative effects on job satisfaction as a priori expectations and skill mismatch is a better indicator to explain job dissatisfaction than educational mismatch. Although there are no significant wage effects of overeducation for migrant workers, the new generation of migrant workers enjoys higher wage returns to education than their older counterparts. This thesis provides strong evidence that enhancing skills to commensurate with the market needs should be the main concern of policy makers if China desires to sustain its economic growth in the future.