Over-education and its opportunity cost in Japan

Abstract

In this paper, we investigate the determinants of over-education in Japan and evaluate its opportunity costs for university graduates. To this end, we use the REFLEX data. Results reveal that over-education level in Japan is high and it brings an important wage penalty for Japanese workers. Large firm and high occupations point toward a significant reduction in the likelihood of over-education. Results for wage regressions for over-education indicate that Japanese workers who achieve jobs in large organizations will experience 20 % increase in their wage due to the firm size and, if over-educated, their increase in wage will remain positive. Results for women are puzzling as there is no significant effect associated with gender.

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Notes

  1. 1.

    The only paper which addresses match quality in Japan that we are aware of is that of Esteban-Pretel and Fujimoto (2012), where a theoretical model of match quality specific to Japanese labor market is developed. Esteban-Pretel and Fujimoto (2012) do not present, however, any empirical evidence for neither quantity nor the opportunity costs of over-education.

  2. 2.

    We use the terms “opportunity cost” and “opportunity wage penalty” as synonyms in the rest of the text.

  3. 3.

    A full description of the survey is provided in the report by Allen and Van der Velden 2009. More information is also available at http://www.reflexproject.org.

  4. 4.

    We follow the firm size categorization widely adopted in the empirical labor literature on Japan (Clark and Ogawa 1992; Hashimoto and Raisian 1992; Jung and Cheon 2006; Ohkusa et al. 1997). The reference category for the firm size is small firms with <100 employees.

  5. 5.

    Ono (2004) shows that there are a handful of top universities in Japan, which should be explicitly accounted for when analyzing school-to-work transitions. Therefore, controlling for them in the empirical Bayes predictions seemed to us crucial for obtaining unbiased predictions.

  6. 6.

    We aggregate the firm size categories due to the small sample size. However, a disaggregated incidence of over-education across firms suggests a higher level of over-education (over 32 %) in the smallest firms (1–49 employees), followed by a slightly lower levels (29 %) at the medium firms (50–250 employees) and sharply declining for the larger firms (250 + employees) with slightly over 24 %.

  7. 7.

    The only contrary evidence so far is that of Buchel (2002), who found over-educated workers in German firms to be healthier, more motivated and less prone to quits than the adequately educated workers.

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Kucel, A., Molina, I.F. & Raya, J.M. Over-education and its opportunity cost in Japan. Asia Pacific Educ. Rev. 17, 299–312 (2016). https://doi.org/10.1007/s12564-016-9427-8

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Keywords

  • Over-education
  • Japan
  • Opportunity cost
  • Wages