RETURNS TO EDUCATION: WHAT DOES OVER-EDUCATION PLAY
This paper attempts to study returns to education by taking into account of 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% and 30% of workers employed in jobs for which they are overeducated and undereducated, respectively. Further findings indicate that Over-education is more acute amongst highly-educated workers whilst under-education is more evident for lowly educated workers. By gender, women have a higher proportion of overeducated workers compared to men. Consequently, over-education leads to a lower productivity in terms of earnings. The augmented Mincer earnings equation, i.e. the ORU model clearly show that although returns to surplus education was positive (So), the return was lower than the returns to required education (Sr), approximately 6% against 10%. 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 imply 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 towards the state of being a highincome country, as outlined in the “New Economic Model” blueprint since it reduces individuals’ productivity.
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