Over-education and its opportunity cost in Japan

Asia Pacific Education Review volume 17, pages299–312(2016)Cite this article

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.

This is a preview of subscription content, log in to check access.

Access options

Buy single article

Instant access to the full article PDF.

US$ 39.95

Tax calculation will be finalised during checkout.

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.

References

  1. Abe, Y. (2012). A cohort analysis of male labor supply in Japan. Journal of the Japanese and International Economies, 26, 23–43.

    Article  Google Scholar 

  2. Agut, S., Peiró, J. M., & Grau, R. (2009). The effect of overeducation on job content innovation and career-enhancing strategies among young Spanish employees. Journal of Career Development, 36, 159–182.

    Article  Google Scholar 

  3. Albaramirez, A. (1993). Mismatch in the Spanish labor market. Overeducation? Journal of Human Resources, 28, 259–278.

    Article  Google Scholar 

  4. Allen, J., Inenaga, Y., Velden, R. V. D., & Yoshimoto, K. (2007). Competencies, higher education and career in Japan and the Netherlands. Dordrecht: Springer.

    Google Scholar 

  5. Allen, J., & Van der Velden, R. (2001). Educational mismatches vs. skill mismatches: Effects of Wages, job satisfaction and on-the-job search. Oxford Economic Papers, 3, 434–452.

    Article  Google Scholar 

  6. Allen, J., & Van der Velden, R. (Eds.). (2007). The flexible professional in the knowledge society: General results of the REFLEX project. Maastricht: Research Centre for Education and the Labour Market.

    Google Scholar 

  7. Allen, J. & Van der Velden, R. (2009). Competencies and early labour market careers of higher education graduates. Higher education as a generator of strategic competencies (HEGESCO). Ljubljana: University of Ljubljana.

  8. Arcidiacono, P. (2004). Ability sorting and the returns to college major. Journal of Econometrics, 121, 343.

    Article  Google Scholar 

  9. Ariga, K., Brunello, G., Ohkusa, Y., & Nishiyama, Y. (1992). Corporate hierarchy, promotion, and firm growth: Japanese internal labor market in transition. Journal of the Japanese and International Economies, 6, 440–471.

    Article  Google Scholar 

  10. Battu, H., Belfield, C. R., & Sloane, P. J. (1999). Overeducation among graduates: A cohort view. Education Economics, 7, 21–38.

    Article  Google Scholar 

  11. Becker, G. (1993). Human Capital: A theoretical and empirical analysis with special reference to education. Chicago and London: The University of Chicago Press.

    Google Scholar 

  12. Belfield, C. R., & Harris, R. D. F. (2002). How well do theories of job matching explain variations in job satisfaction across education levels? Evidence for UK graduates. Applied Economics, 34, 535–548.

    Article  Google Scholar 

  13. Bender, K. A., Donohue, S. M., & Heywood, J. S. (2005). Job satisfaction and gender segregation. Oxford Economic Papers, 57, 479–496.

    Article  Google Scholar 

  14. Brunello, G., & Cappellari, L. (2008). The labour market effects of Alma Mater: Evidence from Italy. Economics of Education Review, 27, 564–574.

    Article  Google Scholar 

  15. Buchel, F. (2002). The effects of overeducation on productivity in Germany: Firms’ viewpoint. Economics of Education Review, 21, 263–275.

    Article  Google Scholar 

  16. Buchel, F., & Mertens, A. (2004). Overeducation, undereducation, and the theory of career mobility. Applied Economics, 36, 803–816.

    Article  Google Scholar 

  17. Cheng, M. M., & Kalleberg, A. L. (1996). Labor market structures in Japan: An analysis of organizational and occupational mobility patterns. Social Forces, 74, 1235–1260.

    Article  Google Scholar 

  18. Chevalier, A. (2003). Measuring overeducation. Economica, 70, 509–531.

    Article  Google Scholar 

  19. Clark, A. E. (1997). Job satisfaction and gender: Why are women so happy at work? Labour Economics, 4, 341–372.

    Article  Google Scholar 

  20. Clark, R. L., & Ogawa, N. (1992). Employment tenure and earnings profiles in Japan and the United States: Comment. The American Economic Review, 82, 336–345.

    Google Scholar 

  21. De Grip, A., Bosma, H., Willems, D., & Van Boxtel, M. (2008). Job–worker mismatch and cognitive decline. Oxford Economic Papers, 60, 237–253.

    Article  Google Scholar 

  22. Dolton, P., & Vignoles, A. (2000). The incidence and effects of overeducation in the UK graduate labor market. Economics of Education Review, 19, 179.

    Article  Google Scholar 

  23. Edwards, L. N., & Pasquale, M. K. (2003). Women’s higher education in Japan: Family background, economic factors, and the Equal Employment Opportunity Law. Journal of the Japanese and International Economies, 17, 1–32.

    Article  Google Scholar 

  24. Esteban-Pretel, J., & Fujimoto, J. (2012). Life-cycle search, match quality and Japan’s labor market. Journal of the Japanese and International Economies, 26, 326–350.

    Article  Google Scholar 

  25. Frei, C., & Sousa-Poza, A. (2011). Overqualification: Permanent or transitory? Applied Economics, 44, 1837–1847.

    Article  Google Scholar 

  26. Frenette, M. (2004). The overqualified Canadian graduate: The role of the academic program in the incidence, persistence, and economic returns to overqualification. Economics of Education Review, 23, 29–45.

    Article  Google Scholar 

  27. Garcia-Aracil, A. (2008). College major and the gender earnings gap: A multi-country examination of postgraduate labour market outcomes. Research in Higher Education, 49, 733–757.

    Article  Google Scholar 

  28. Garcia-Aracil, A., Mora, J. G., & Vila, L. E. (2004). The rewards of human capital competences for young European higher education graduates. Tertiary Education and Management, 10, 287–305.

    Article  Google Scholar 

  29. Garcia-Aracil, A., & Van Der Velden, R. (2008). Competencies for young European higher education graduates: Labor market mismatches and their payoffs. Higher Education, 55, 219–239.

    Article  Google Scholar 

  30. Gaston, N., & Kishi, T. (2007). Part-time workers doing full-time work in Japan. Journal of the Japanese and International Economies, 21, 435–454.

    Article  Google Scholar 

  31. Genda, Y., Kondo, A., & Ohta, S. (2010). Long-term effects of a recession at labor market entry in Japan and the United States. Journal of Human Resources, 45, 157–196.

    Article  Google Scholar 

  32. Genda, Y., & Kurosawa, M. (2001). Transition from school to work in Japan. Journal of the Japanese and International Economies, 15, 465–488.

    Article  Google Scholar 

  33. Groeneveld, S., & Hartog, J. (2004). Overeducation, wages and promotions within the firm. Labor Economics, 11, 701–714.

    Article  Google Scholar 

  34. Groot, W., & Massen Van Den Brink, H. (2000). Overeducation in the labor market: A meta-analysis. Economics of Education Review, 19, 149–158.

    Article  Google Scholar 

  35. Groot, W., & Massen Van Den Brink, H. (2003). The dynamics of skill mismatches in the Dutch labour market. In F. Buchel, A. Degrip, & A. Mertens (Eds.), Overeducation in Europe: Current issues in theory and practice. Cheltenham, Northampton: Edward Elgar.

    Google Scholar 

  36. Hamaaki, J., Hori, M., Maeda, S., & Murata, K. (2013). How does the first job matter for an individual’s career life in Japan? Journal of the Japanese and International Economies, 29, 154–169.

    Article  Google Scholar 

  37. Hanson, S. L., & Sloane, D. M. (1992). Young children and job satisfaction. Journal of Marriage and the Family, 54, 799–811.

    Article  Google Scholar 

  38. Hartog, J. (2000). Over-education and earnings: Where are we and where should we go? Economics of Education Review, 19, 131–147.

    Article  Google Scholar 

  39. Hashimoto, M., & Raisian, J. (1992). Employment tenure and earnings profiles in Japan and the United States: Reply. The American Economic Review, 82, 346–354.

    Google Scholar 

  40. Heckman, J. J., Lochner, L. J. & Todd, P. E. (2003). Fifty years of Mincer earnings regressions. NBER Working Papers, 9732.

  41. Hersch, J. (1991). Education match and job match. The Review of Economics and Statistics, 73, 140–144.

    Article  Google Scholar 

  42. Hersch, J. (1995). Optimal ‘mismatch’ and promotions. Economic Inquiry, 33, 611–624.

    Article  Google Scholar 

  43. Hung, C.-Y. (2008). Overeducation and undereducation in Taiwan. Journal of Asian Economics, 19, 125–137.

    Article  Google Scholar 

  44. Ishida, H. (1998). Educational credentials and labour-market entry outcomes in Japan. In Y. Shavits & W. Muller (Eds.), From school to work: A comparative study of educational qualifications and occupational destinations. New York: Clarendon Press.

    Google Scholar 

  45. Ishida, H., Spilerman, S., & Su, K.-H. (1997). Educational credentials and promotion chances in Japanese and American organizations. American Sociological Review, 62, 866–882.

    Article  Google Scholar 

  46. Jung, E., & Cheon, B.-Y. (2006). Economic crisis and changes in employment relations in Japan and Korea. Asian Survey, 46, 457–476.

    Article  Google Scholar 

  47. Kato, T. (2001). The End of lifetime employment in Japan? Evidence from national surveys and field research. Journal of the Japanese and International Economies, 15, 489–514.

    Article  Google Scholar 

  48. Kiker, B. F., Santos, M. C., & Oliveira, M. M. D. (1997). Overeducation and undereducation: Evidence for Portugal. Economics of Education Review, 16, 111–125.

    Article  Google Scholar 

  49. Kondo, A. (2007). Does the first job really matter? State dependency in employment status in Japan. Journal of the Japanese and International Economies, 21, 379–402.

    Article  Google Scholar 

  50. Korpi, T., & Tahlin, M. (2009). Educational mismatch, wages, and wage growth: Overeducation in Sweden, 1974–2000. Labour Economics, 16, 183–193.

    Article  Google Scholar 

  51. Kucel, A., & Bufí, M. V. (2013). Job satisfaction of university graduates. Revista de economía aplicada, 21, 29–55.

    Google Scholar 

  52. Lindley, J. & Mcintosh, S. (2010). Is the over-education wage penalty permanent? Discussion Papers in Economics. University of Surrey.

  53. Ma, Y. (2011). College major choice, occupational structure and demographic patterning by gender, race and nativity. The Social Science Journal, 48, 112–129.

    Article  Google Scholar 

  54. Mcguinness, S. (2003a). Graduate overeducation as a sheepskin effect: Evidence from Northern Ireland. Applied Economics, 35, 597–608.

    Article  Google Scholar 

  55. Mcguinness, S. (2003b). University quality and labor market outcomes. Applied Economics, 35, 1943.

    Article  Google Scholar 

  56. Mcguinness, S. (2006). Overeducation in the labor market. Journal of Economic Surveys, 20, 387–418.

    Article  Google Scholar 

  57. Mcguinness, S., & Sloane, P. J. (2011). Labour market mismatch among UK graduates: An analysis using REFLEX data. Economics of Education Review, 30, 130–145.

    Article  Google Scholar 

  58. Mcguinness, S., & Wooden, M. (2009). Overskilling, job insecurity, and career mobility. Industrial Relations: A Journal of Economy and Society, 48, 265–286.

    Google Scholar 

  59. Miyoshi, K. (2008). Male–female wage differentials in Japan. Japan and the World Economy, 20, 479–496.

    Article  Google Scholar 

  60. Nordin, M., Persson, I., & Rooth, D.-O. (2010). Education–occupation mismatch: Is there an income penalty? Economics of Education Review, 29, 1047–1059.

    Article  Google Scholar 

  61. Ogawa, N., & Ermisch, J. F. (1996). Family structure, home time demands, and the employment patterns of Japanese married women. Journal of Labor Economics, 14, 677–702.

    Article  Google Scholar 

  62. Ohkusa, Y., Brunello, G., & Ariga, K. (1997). Occupational and internal labor markets in Japan. Industrial Relations: A Journal of Economy and Society, 36, 446–473.

    Google Scholar 

  63. Ono, H. (2004). College quality and earnings in the Japanese labor market. Industrial Relations: A Journal of Economy and Society, 43, 595–617.

    Google Scholar 

  64. Ono, H. (2010). Lifetime employment in Japan: Concepts and measurements. Journal of the Japanese and International Economies, 24, 1–27.

    Article  Google Scholar 

  65. Quintini, G. (2011). Right for the job: Over-qualified or under-skilled? OECD Social, Employment and Migration Working Papers (Vol. 120).

  66. Rebick, M. E. (1993). The persistence of firm-size earnings differentials and labor market segmentation in Japan. Journal of the Japanese and International Economies, 7, 132–156.

    Article  Google Scholar 

  67. Rebick, M. (2000). The importance of networks in the market for university graduates in Japan: A longitudinal analysis of hiring patterns. Oxford Economic Papers, 52, 471–496.

    Article  Google Scholar 

  68. Robst, J. (1995a). Career mobility, job match, and overeducation. Eastern Economic Journal, 21, 539–550.

    Google Scholar 

  69. Robst, J. (1995b). College quality and overeducation. Economics of Education Review, 14, 221–228.

    Article  Google Scholar 

  70. Robst, J. (2007). Education and job match: The relatedness of college major and work. Economics of Education Review, 26, 397.

    Article  Google Scholar 

  71. Robst, J. (2008). Overeducation and college major: Expanding the definition of mismatch between schooling and jobs. The Manchester School, 76, 349–368.

    Article  Google Scholar 

  72. Rubb, S. (2003). Overeducation: A short or long run phenomenon for individuals? Economics of Education Review, 22, 389–394.

    Article  Google Scholar 

  73. Ryan, P. (2001). The school-to-work transition. Journal of Economic Literature, 39, 34.

    Article  Google Scholar 

  74. Scherer, S. (2004). Stepping-stones or traps? The consequences of labour market entry positions on future careers in West Germany, Great Britain and Italy. Work, Employment & Society, 18, 369–394.

    Article  Google Scholar 

  75. Shimizutani, S., & Yokoyama, I. (2009). Has Japan’s long-term employment practice survived? Developments since the 1990s. Industrial and Labor Relations Review, 62, 313–326.

    Article  Google Scholar 

  76. Sicherman, N. (1991). ‘Overeducation’ in the labor market. Journal of Labor Economics, 9, 101–122.

    Article  Google Scholar 

  77. Sicherman, N., & Galor, O. (1990). A theory of career mobility. Journal of Political Economy, 98, 169–192.

    Article  Google Scholar 

  78. Skalli, A., Theodossiou, I., & Vasileiou, E. (2008). Jobs as Lancaster goods: Facets of job satisfaction and overall job satisfaction. The Journal of Socio-Economics, 17, 1906–1920.

    Article  Google Scholar 

  79. Skrondal, A., & Rabe-Hesketh, S. (2012). Multilevel and longitudinal modeling using Stata. College Station: Stata Press.

    Google Scholar 

  80. Sloane, P. J., & Williams, H. (2000). Job satisfaction, comparison earnings, and gender. Labour, 14, 473–502.

    Article  Google Scholar 

  81. Sousa-Poza, A., & Sousa-Poza, A. A. (2000). Taking another look at the gender job-satisfaction paradox. Kyklos, 53, 135–152.

    Article  Google Scholar 

  82. Sousa-Poza, A., & Sousa-Poza, A. A. (2003). Gender differences in job satisfaction in Great Britain, 1991–2000: Permanent or transitory? Applied Economics Letters, 10, 691–694.

    Article  Google Scholar 

  83. Sousa-Poza, A., & Sousa-Poza, A. A. (2007). The effect of job satisfaction on labor turnover by gender: An analysis for Switzerland. The Journal of Socio-Economics, 36, 895–913.

    Article  Google Scholar 

  84. Thurow, L. C. (1974). Generating inequality. New York: Basic Books.

    Google Scholar 

  85. Tsang, M. C. (1987). The impact of underutilization of education on productivity: A case study of the US Bell companies. Economics of Education Review, 6, 239–254.

    Article  Google Scholar 

  86. Tsang, M. C., & Levin, H. M. (1985). The economics of overeducation. Economics of Education Review, 4, 93.

    Article  Google Scholar 

  87. Tsang, M. C., Rumberger, R. W., & Levin, H. M. (1991). The impact of surplus schooling on worker productivity. Industrial Relations, 30, 209–228.

    Google Scholar 

  88. Van De Werfhorst, H. G. (2004). Systems of educational specialization and labor market outcomes in Norway, Australia and the Netherlands. International Journal of Comparative Sociology, 45, 315–335.

    Article  Google Scholar 

  89. Verdugo, R. R., & Verdugo, N. T. (1989). The impact of schooling surplus on earnings: Some additional findings. Journal of Human Resources, 24, 629–643.

    Article  Google Scholar 

  90. Verhaest, D., & Omey, E. (2006). The impact of overeducation and its measurement. Social Indicators Research, 77, 419–448.

    Article  Google Scholar 

  91. Verhaest, D., & Omey, E. (2010). The determinants of overeducation: Different measures, different outcomes? International Journal of Manpower, 31, 608–625.

    Article  Google Scholar 

  92. Verhaest, D., & Van der Velden, R. (2012). Cross-country differences in graduate overeducation. European Sociological Review, 29, 642–653.

    Article  Google Scholar 

  93. Werfhorst, H. V. D. (2002). Fields of study, acquired skills and wage benefit from a matching job. Acta Sociologica, 45, 287.

    Article  Google Scholar 

Download references

Author information

Affiliations

  1. Escola Superior de Ciències Socials i de l’Empresa de Tecnocampus, Universitat Pompeu Fabra, Avda. Ernest Lluch 32, Edifici TCM1, 08302, Mataró, Barcelona, Spain

    Aleksander Kucel, Ivette Fuentes Molina & Josep Maria Raya

  2. CREB, Universitat de Barcelona, Barcelona, Spain

    Aleksander Kucel

Authors
  1. Aleksander Kucel
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ivette Fuentes Molina
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Josep Maria Raya
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Aleksander Kucel.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

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

Download citation

Keywords

  • Over-education
  • Japan
  • Opportunity cost
  • Wages