Education and wage inequality before and during the fiscal crisis: A quantile regression analysis for Greece 2006-2016

The Greek labour market has undergone dramatic changes during the last 10 years. Wage inequality, especially at the bottom end of the earnings distribution, increased sharply. At the same time, the past trend towards educational upgrading of the labour force has further been boosted. In this paper, we analyze the relationship between education and the dispersion of male earnings, using Labour Force Survey data for years 2006 and 2016. We address the issue of unobserved heterogeneity by employing a quantile regression approach. We also account for potential endogeneity by employing the IVQR approach introduced by Chernozhukov and Hansen (2008). Our best estimates suggest that education exerts a negative effect on earnings inequality in the pre-crisis period. However, during the recession, the returns to education appear to be significantly higher at the upper end of the wage spectrum, thereby contributing to increased inequality. We also find evidence that the impact of education on the dispersion of earnings is stronger in the private sector. Finally, we also account for the incidence of over-education. Interestingly, the penalty that overqualified workers suffer, declines across the conditional earnings distribution and disappears completely at the highest quantile in 2016.