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Is the Over-Education Wage Penalty Permanent?

  • Joanne Lindley

    (University of Surrey)

  • Steven McIntosh

    (University of Sheffield)

Much has been written about the impact of over-education on wages using cross-sectional data, although there have been few studies that analyse the returns to over-education in a dynamic setting. This paper adds to the existing literature by using panel data to investigate the impact and permanence of over-education wage penalties, whilst controlling for unobserved individual heterogeneity. Our fixed effects estimates suggest that the over-education wage penalty cannot solely be explained by unobserved heterogeneity. Over-education is permanent for many workers since around 50 percent of workers over-educated in 1991 are still over-educated in 2005. However, we also show that these workers are of lower quality compared to around 25 percent who find a match within five years of being over-educated. Finally, there is a significant scarring effect for workers over-educated in 1991 since they never fully reach parity compared to those who were matched in 1991, although this is not the case for graduates who manage to find a match within 5 years.

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File URL: http://www.fahs.surrey.ac.uk/economics/discussion_papers/2010/DP01-10.pdf
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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0110.

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Length: 39 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:sur:surrec:0110
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