Bureaucracy, overschooling and credentials inflation
In this paper we investigate whether the amount and level of overschooling is higher in the private sector than in the public sector. We investigate differences in the rate of return on (over)schooling too. The idea is that within the public sector the wage and allocation process behaves more according to Thurow’s job-competition model or according to the view of the credentialists whereas in the private sector the wage and allocation process behaves more according to the neo-classical human capital model. These differences should result in different wage equations which if added up can explain the mixed results of previous research. However, we could not find support for neither of these ideas in the Dutch Labour Supply Panel Study of the Dutch Institute for Labour Studies (OSA). Contrary to our expectations employees in the private sector were more often overschooled than those in the public sector, but the rate of return on overschooling is the same. This means that none of the investments in education is wasted and also that we have no substantial proof for credentials inflation as advocated by others. The increase in the rate of return on schooling since 1985 shows that investments in education have become even more rewarding.
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