overeducation, job mobility, and earnings mobility among holders of first degrees in israel aviad...

Overeducation, Job Mobility, and Earnings Mobility among Holders of First Degrees in Israel

Aviad Tur-Sinai (Israel Central Bureau of Statistics & Tel-Aviv University)

Dmitri Romanov (Israel Central Bureau of Statistics) Galit Eizman (Planning & Budgeting Committee - ICHE)

The Society of Labor Economists Annual Meeting, May 8-9, 2009

To begin with…To begin with…

Over-education is defined as a situation in which an individual

possesses a level of education in excess of what is required for

her/his particular job.

MotivationMotivation - - I I

A steep increase in the tertiary education enrollment and graduation

rates in the last decades in Israel

Students in Isreali Higher Education Institutions

50,821

101,286

163,525

68,236

135,886

213,835

80,000

160,000

240,000

1985/86 1988/89 1991/92 1994/95 1997/98 2000/01 2003/04 2006/07

Bachelor's degree Total

Proportion of Israeli Students Entering Higher Education of the Average Age Cohort

44.242.141.8

43.742.240.5

37.636

28.826.7

1990/91 1994/95 1998/99 2001/02 2003/04 2005/06

MotivationMotivation - - I I

A steep increase in the tertiary education enrollment and graduation

rates in the last decade in Israel

This increase has slowed the rate of return on schooling, and even

caused a decline in the return on academic education in certain

fields/professions

Over-education provides a micro-level explanation for this trend

Motivation - Motivation - IIII

learning outcomes

Over-education indicates human capital under-utilization

Higher Education Institutions pay attention to employability (=the

probability of employment) of their graduates;

However, given relatively low rates of unemployment among

graduates, it seems that the major issue is the degree of

education applicability (=match between the acquired

knowledge and job requirements);

Motivation - Motivation - IIIIII

More than one third of Israeli graduates immediately proceed to

advanced academic studies.

Israeli Advanced Degree Students, 1989/90-2006/7

10,000

20,000

30,000

40,000

50,000

1989/90 1992/93 1995/96 1998/99 2001/02 2004/05

10,000

12,000

Master Degree Doctoral Degree

Israeli Advanced Degree Students, 1989/90-2006/7

10,000

20,000

30,000

40,000

50,000

1989/90 1992/93 1995/96 1998/99 2001/02 2004/05

10,000

12,000

Master Degree Doctoral Degree

Motivation - Motivation - IIIIII

More than one third of Israeli graduates immediately proceed to

advanced academic studies.

Is it a flight from over-education or a trap into over-education

with more years of schooling?

Prior research and open questionsPrior research and open questions

Sicherman & Galor (1990) and Sicherman (1991) claim that over-

education is a temporary phenomenon, while the empirical

studies by Battu et al. (1999) and Dolton & Vignoles (2000) show

this may be a persistent condition.

Question 1: Is over-education a temporary or a long-run

phenomenon ?

Does over-education imply a higher job mobility (occupational

mobility)? Scarce empirical evidence (Alba-Ramirez. 1993) says

‘yes’, but does it happen through intra-firm mobility or by

changing employers?

Question 2: Is over-education associated with a higher job

mobility?

To what degree over-education can be explained by

relatively low (unobserved) cognitive abilities? Dolton & Kidd

(1998) and Dolton & Vignoles (2000) use grades to control for the

abilities, having confused the “sheepskin effect” with abilities’

effect.

Question 3: How do individual’s cognitive abilities affect

the chances of being overeducated and the chances of

escaping from over-education ?

Further QuestionsFurther Questions

• How widespread is over-education among the Israeli graduates?

• What factors affect the chances of being over-educated?

• What wage loss entails over-education?

• Does learning to an advanced degree reduce the probability of

being over-educated ?

DataData

Survey “Recipients of Degrees from the Universities and Other Institutions of

Higher Education”, conducted by the ICBS (on the cohorts 2000/2001 and

2001/2002) :

– Field of study

– Continuing academic studies (mostly to the second degree)

– Information regarding current employment (occupation, employer, job duration)

– Subjective question regarding the relation between the individual’s current job and first-degree studies

– Satisfaction from quality of teaching, facilities and services

Total 8578 graduates of universities and public academic colleges

Data (cont.)Data (cont.)

Employment and wages:

ICBS’s matched employer-employee database for 2000-2005 provides,

for each employee job, with:

Cognitive abilities as measured by the NITE psychometric exams: total

score and its components—verbal thinking, quantitative thinking, and

English.

Annual gross wage Tenure on the job Number of months worked annually Firm’s size

t0t-1 t1 t2 t3

Graduation

Survey

Timetable of eventsTimetable of events

Cohort200020012002200320042005

2001/2002t-1t0 graduation

t1t2survey

2002/2003t-1t0 graduation

t1t2survey

Measuring Over-educationMeasuring Over-education

• Objective Measure: systematic job evaluation, which states the level

of qualifications required to perform a particular job, usually in terms

of occupation vis-à-vis years of schooling.

• Subjective Measure: worker’s self-assessment.

• Empirical Method: workers whose years of schooling lie outside of

the s.d. bound around the mean schooling, by occupation.

Measuring Over-educationMeasuring Over-education

Survey question used as a Subjective Measure:

To what degree is your current job related to your studies? (refer to all your first-degree studies)

[A] A very high degree [B] A high degree

[C] A low degree [D] Not related at all

Defined as Over-educated: if answer [C] or [D]

Estimates of Over-education among Employed First-Degree Graduates, by Occupation (%)

23%21% 21%

Humanities Social sciences Business andadministration

sciences

Physical,biological

sciences andagriculture

Mathematics,statistics, and

computersciences

Law Engineering andarchitecture

Medicine andParamedicalprofessions

Mean = 37%

Over-education, Job Mobility and Wage Gap

12,000Y

Avg. wage, overeducated graduates Avg. wage, non-overeducated graduates

Over-education, Job Mobility and Wage Gap

12,000Y

Avg. wage, overeducated graduates Avg. wage, non-overeducated graduates

No. of jobs, overeducated graduates No. of jobs, non-overeducated graduates

Model I: Probability of Being Overeducated

iiikiijijk PastJobsTAbilityXOE 321)1Pr(

where:

OE – indicator of overeducation on the job

X – a an array of the graduate’s demographic traits, the institution that awarded

h/her degree, and the discipline studied

Ability – a proxy for cognitive abilities

T – tenure, number of months on the job

PastJobs – Number of employers in the last 3 years

Probability of Being Overeducated: Results (1)

Explanatory variableAll disciplines

Male 0.0217

Age0.1469***

Age squared-0.0020***

Jewish0.5484***

Immigrated 1989 or later0.0467

Married-0.2180***

University graduate-0.0549

Continuing studies—parallel degree/certification0.3799***

Continuing studies—advanced degree-0.0886***

*, **, *** 10%, 5%, 1% significance, respectively.

Total psychometric score-0.0012***

Psychometric score—quantitative reasoning-0.0057***

Tenure with employer-0.0386***

Tenure with employer squared0.0027***

No. of employers in 3 years preceding survey-0.0446***

R2 max-rescaled0.3980

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Male 0.0217

Age0.1469***

Jewish0.5484***

Married-0.2180***

Probability of Being Overeducated:The Impact of Cognitive Abilities (2)

Model I

Cont. study – 1st degree/diploma

0.3799***

Cont. study – Advanced degree

-0.0886***

Psychometric exam – total

-0.0012***

Psychometric exam – math

-0.0057***

R2 0.3980

Model IModel II

University graduate-0.0549-0.1508***

0.3799***0.3499***

-0.0886***-0.1178***

-0.0012***

-0.0057***

N59196819

R2 0.39800.3689

Model IModel IIModel III

University graduate-0.0549-0.1508***-0.1688***

0.3799***0.3499***

-0.0886***-0.1178***

-0.0012***

-0.0057***

N591968196819

R2 0.39800.36890.3629

Model II: Wage Equation

iitikikijkiktijijkt uJobChangesTTOEEmpXW 42

321)ln(

where:

W – monthly wage in the graduate’s principal job in year t

Emp – employer characteristics: positioning in the public sector and size of business

JobChanges – a measure of job mobility from year of degree award to year t

Note: slope estimate means % changes dY/dx [i.e., (dY/dx)/Y]

Wage Equation Sensitivity analysis: (Ln) Monthly wage in main job two/three years after

graduation

2 years after award of degree

Over-education-0.1119***-0.1246***

Average annual No. of jobs (since graduation)

-0.1569***-0.1941***

Tenure0.0656***0.0465***

Tenure (square)-0.0014***-0.0009***

graduation

Over-education-0.1119***-0.1246***

-0.1569***-0.1941***

Tenure0.0656***0.0465***

Tenure (square)-0.0014***-0.0009***

graduation

Over-education-0.1119***-0.1246***

-0.1569***-0.1941***

Tenure0.0656***0.0465***

Tenure (square)-0.0014***-0.0009***

graduation

Over-education-0.1119***-0.1246***

-0.1569***-0.1941***

Tenure0.0656***0.0465***

Tenure (square)-0.0014***-0.0009***

Wage Equation: (Ln) Monthly wage in main job two years after graduation

Male0.1573***

Age***0.0627

Age (square)-0.0007**

Jewish0.1571***

Immigrant from 1989

-0.0300

Married0.0502***

University graduate0.1084***

Ln (Psychometric exam)

0.0599

Cont. study –

1st degree/diploma

-0.2545***

Cont. study –

Advanced degree

-0.1341***

Employment in public sector

-0.3986***

No. of employees in business:

0 – 9-0.2552***

10 - 49-0.0436*

50 - 99-0.0102

100 - 4990.0521**

Male0.1573***

Age***0.0627

Jewish0.1571***

Immigrant from 1989

-0.0300

Married0.0502***

0.0599

Cont. study –

1st degree/diploma

-0.2545***

Cont. study –

Advanced degree

-0.1341***

-0.3986***

0 – 9-0.2552***

10 - 49-0.0436*

50 - 99-0.0102

100 - 4990.0521**

Male0.1573***

Age***0.0627

Jewish0.1571***

Immigrant from 1989

-0.0300

Married0.0502***

0.0599

Cont. study –

1st degree/diploma

-0.2545***

Cont. study –

Advanced degree

-0.1341***

-0.3986***

0 – 9-0.2552***

10 - 49-0.0436*

50 - 99-0.0102

100 - 4990.0521**

Male0.1573***

Age***0.0627

Jewish0.1571***

Immigrant from 1989

-0.0300

Married0.0502***

0.0599

Cont. study –

1st degree/diploma

-0.2545***

Cont. study –

Advanced degree

-0.1341***

-0.3986***

0 – 9-0.2552***

10 - 49-0.0436*

50 - 99-0.0102

100 - 4990.0521**

Male0.1573***

Age***0.0627

Jewish0.1571***

Immigrant from 1989

-0.0300

Married0.0502***

0.0599

Cont. study –

1st degree/diploma

-0.2545***

Cont. study –

Advanced degree

-0.1341***

-0.3986***

0 – 9-0.2552***

10 - 49-0.0436*

50 - 99-0.0102

100 - 4990.0521**

Model III: Wage Dynamics

iitijijijt

ijijt JobChangesOEWXWW 3201/1

0 ln1)(

where:

Wt – monthly wage in graduate’s principal job in year t (t=1,2,3)

W0 – monthly wage in graduate’s principal job in year of award of degree

Note: a positive estimator positive impact to wage growth over t years.

Wage Dynamics: Is Over-education Effect Temporary or Persistent?

Dependent Variable

One-year

growth rate of wage

Two-years average growth rate of

Three-years average growth

rate of wage

University graduate-0.00190.01120.0153*

Cont. learning – 1st degree/diploma

-0.3805***-0.1354***-0.0905***

Cont. learning – Graduate degree

-0.2096***-0.0611***-0.0157**

Over-education-0.0299-0.0514***-0.0243***

-0.1432***-0.0723***-0.0575***

N553153635086

R2 0.13550.34840.3883

Wage Dynamics: Is Over-education Effect Temporary or Persistent?

Dependent Variable

One-year

growth rate of wage

Two-years average growth rate of

Three-years average growth

rate of wage

University graduate-0.00190.01120.0153*

Cont. learning – 1st degree/diploma

-0.3805***-0.1354***-0.0905***

Cont. learning – Graduate degree

-0.2096***-0.0611***-0.0157**

Over-education-0.0299-0.0514***-0.0243***

-0.1432***-0.0723***-0.0575***

N553153635086

R2 0.13550.34840.3883

Model IV: Probability of Studying to an Advanced Degree

iijkikiijijk OEUniversityWorkAbilityXAdvanced 321 _)1Pr(

where:

Advanced – an indicator of taking advanced studies two years after receiving degree

Work_University – an indicator of working at the University during Year 3

Probability of Studying to an Advanced Degree: Demographic, Educational and Employment Factors

MaleAgeAge (square)

JewishImmigrant from 1989

Married

0.2214***0.3386***-0.0039**0.9363***-0.1735***-0.2694***

University graduate

Work in University during BA

studies

Over-education

0.5432***0.0029***0.5938**-0.1292***

*** ,** ,*represents 10%, 5%, 1% significance, respectively.

Probability of Studying to an Advanced Degree: Demographic, Educational and Employment Factors

MaleAgeAge (square)

JewishImmigrant from 1989

Married

0.2214***0.3386***-0.0039**0.9363***-0.1735***-0.2694***

University graduate

Work in University during BA

studies

Over-education

0.5432***0.0029***0.5938**-0.1292***

*** ,** ,*represents 10%, 5%, 1% significance, respectively.

Main FindingsMain Findings

• Two years after graduation, 37% of the first-degree holders are over-educated (53% in Humanities, 47% in Social Sciences).

• There is a 13% loss of wage for the over-educated graduates.

• In the first three years after graduation – the wage gap between matched and over-educated graduates is widening.

• Education and tenure are substitutes in the human capital model (one year of tenure decreases the chances of being over-education by 4%).

Main Findings (cont.)Main Findings (cont.)

• Changing one more job per year (in the first three years after graduation) decreases wage by 19%.

• University graduates seem to have lower chances of over-education – unless individual’s cognitive abilities are explicitly controlled for. That means that the graduating from university variable indicates positive (self)-selectivity into the

universities.

• Over-educated graduates have a lower propensity to study for an advanced degree.

Thank You

overeducation, job mobility, and earnings mobility among holders of first degrees in israel aviad...

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