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Signalling and Productivity Effects of Overeducation: Is It Really a Waste of Resources?

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  • Abbi Kedir

    ()

  • Andri Kyrizi

    ()

  • Francisco Martinez-Mora

    ()

Abstract

Overeducation raises concerns that governments may be overinvesting in education. To inform the debate, this paper studies the impact of overeducation on productivity. We advance the literature by considering that returns to overeducation may be due both to productivity and signalling effects. To disentangle both effects, we apply Wolpin’s (1977) methodology and compare the rates of return of screened (employed) and unscreened (self-employed) workers. To overcome well-known endogeneity problems due to unobserved heterogeneity, we estimate a panel with individual and employment-status fixed effects. Our results show that signalling effects are relevant and that overeducation does not carry a productivity penalty.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/19.

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Date of creation: Sep 2012
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Handle: RePEc:lec:leecon:12/19

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Keywords: Overeducation; signalling model; human capital model; unobserved heterogeneity;

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  24. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
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