The effects of over, required and under-education on earnings in manufacturing

• Main Author: Zakariya, Zainizam
• Format: Article
• Published: Universiti Utara Malaysia 2014
• Subjects: L Education (General)
• Online Access: http://repo.uum.edu.my/15867/; http://ijms.uum.edu.my/index.php/component/jdownloads/download/27-ijms-vol-21-no-1-june-2014/144-the-effects-of-over-required-and-under-education-on-earnings-in-manufacturing

This paper presents returns to education by taking into account the quality of jobs match held by workers in the manufacturing sector of Malaysia. This type of study is quite rare not only in the country but also across developing nations.Using the Second Malaysia Productivity Investment Climate Survey (PICS-2), nearly 20 per cent and 30 per cent of workers employed in jobs for which they are over-educated and under-educated, respectively.Further findings indicated that over-education is more acute among-st highly-educated workers whilst under-education is more evident for lowly educated workers.By gender, women have a higher proportion of over-educated workers compared to men.Consequently, over-education leads to lower productivity in terms of earnings.In the study, augmented Mincer earnings equation, i.e. the ORU model clearly showed that although returns to surplus education was positive ( ), the return was lower than the returns to required education ( ), approximately 6 per cent against 10 per cent. This means that overeducated workers earn significantly lower than their co-workers who are in similar jobs but who have less education, but well matched. Moreover, the ORU model signified that returns to required education was much greater than returns to actual educational attainment.All of these implied that the rate of return to education depends on the allocation of skills over jobs where earnings is not fully embodied but is (partly) determined by job characteristics and/or by the quality of the match between skills supplied by the worker and skills required by the job.Nevertheless, the situation of over-education among highly educated workers in the Malaysian labour market may impede the country’s intention to move toward the state of being a high-income country, as outlined in the “New Economic Model” blueprint, since it reduces individuals’ productivity.