Overeducation in Developing Economies: How Can We Test for It, and What Does It Mean?

Abstract

A worker is said to be overeducated if he/she has acquired more education than is required to perform his/her job. In the absence of data measuring the number of years of schooling required to perform particular jobs, we propose a new approach to testing for overeducation. Overeducation is confirmed by rising education levels in jobs that offer very low returns to education and underwent little technological change. We find evidence of overeducation in technologically stagnant unskilled jobs in the Philippines, mild evidence in Mexico, and little evidence in India and Thailand. We show that a job’s mean and modal years of schooling are poor proxies for required education. We also show that overeducation sometimes increases within technologically stagnant unskilled jobs, even while skill biased technological change pulls other workers into jobs offering higher returns to schooling. This may be because the quality of education segments the labor market.

Keywords: Returns to education; human capital, economic development

JEL Classification: I21, J24, J33