 Earnings effects of educational mismatch in New Zealand: evidence over a decadeIshari Madukala Jayasinghege and Min Bai International Journal of Manpower, 2026, vol. 47, issue 10, 171-191 Abstract: PurposeThis paper examines the earnings effects of educational mismatch in the New Zealand labour market over a decade. Using longitudinal data from 2013, 2018, and 2023, it applies a fixed-effects model to analyse how overeducation and undereducation affect real hourly wages. The study finds that overeducated workers face persistent wage penalties, while undereducated workers earn premiums over the observed period. It further reveals that graduates suffer larger wage penalties from overeducation than non-graduates. By illustrating wage trajectories over a decade, the research highlights the long-term nature of these earnings disadvantages and underscores the need for policies that better align educational qualifications with occupational demands.Design/methodology/approachThis study employs a fixed effects panel regression model using longitudinal data from the 2013, 2018, and 2023 New Zealand Censuses and the Administrative Population Census (APC), accessed via Stats NZ’s Integrated Data Infrastructure. The analysis utilises a balanced panel of 510,983 individuals. Educational mismatch is measured using the realised matches method, classifying workers as overeducated, undereducated, or well-matched based on occupational education benchmarks. The model controls for human capital variables, demographic factors, and occupational characteristics to estimate the impact of mismatch on real hourly log wages, while accounting for unobserved time-invariant heterogeneity. Dynamic analysis using transition matrices and trajectory classifications is conducted to examine mobility and stability across mismatch categories over the period. Occupation fixed effect, random effect with the Hausman test, experience sensitivity and Quantile regression are used as robustness checks.FindingsThe analysis reveals that overeducated workers in New Zealand experience a significant and persistent wage penalty of approximately 5%, while undereducated workers earn a wage premium of 2–4% compared to their well-matched counterparts. This earnings disadvantage is notably more severe for graduates, who face a 6.7% wage penalty for overeducation, compared to 3.2% for non-graduates. Crucially, wage trajectory analysis from 2013 to 2023 confirms that these penalties and premiums remain stable over time, indicating that educational mismatch is a long-term, rather than transitory, issue in the New Zealand labour market.Research limitations/implicationsThe findings have significant implications for policymakers and educators in New Zealand. They underscore the need for enhanced career guidance and robust employer-education partnerships to better align graduate skills with labour market demands. University enrolment and funding should be strategically reviewed to address skill shortages and reduce overeducation. Furthermore, promoting lifelong learning and work-integrated learning can help workers adapt their skills. For individuals, the persistent wage penalty for overeducated graduates highlights a potential risk to the return on investment in higher education, suggesting a need for careful career planning informed by labour market trends.Practical implicationsThe study’s results call for concrete actions. Policymakers should strengthen career guidance services, using real-time labour market data to inform students about in-demand fields and potential mismatch risks. Tertiary institutions must adapt curricula and intake numbers to align with economic needs, prioritizing sectors with skill shortages. Employers can contribute by expanding internship and work-integrated learning programs to ensure a smoother school-to-work transition. For workers, the findings highlight the long-term financial risk of overeducation, emphasizing the importance of strategic upskilling and lifelong learning to maintain alignment between their qualifications and their job roles.Social implicationsThe persistent wage penalties for overeducation carry profound social implications. They can devalue higher education, potentially deterring investment in human capital and undermining social mobility. This mismatch may exacerbate income inequality, as graduates face reduced returns on their significant educational investments. At a societal level, widespread overeducation leads to inefficient use of skills, lowering overall productivity and hindering economic growth. Furthermore, it can fuel worker dissatisfaction and psychological distress, negatively impacting well-being. These effects collectively threaten the social contract that education leads to better life outcomes, demanding urgent policy intervention to realign educational pathways with labour market needs.Originality/valueThis study provides original value by being the first to analyse the earnings impact of educational mismatch in New Zealand across census waves using a decade of longitudinal data (2013–2023). Its application of a fixed effects model to a large, balanced panel offers robust evidence by controlling for unobserved individual heterogeneity. The study differentiates cross-sectional sorting from within-person wage changes connected to the mismatch level by examining within-individual differences over time. The research uniquely constructs and compares wage trajectories over time, demonstrating the persistent nature of mismatch penalties. Furthermore, it delivers novel insights by separately analysing graduates and non-graduates, revealing that the wage penalty for overeducation is significantly more severe for tertiary-educated individuals, a critical finding for national policy. Keywords: Educational mismatch; Earnings; Overeducation; Undereducation; Wage penalty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmpps:ijm-11-2025-0976 Access Statistics for this article International Journal of Manpower is currently edited by Professor Adrian Ziderman More articles in International Journal of Manpower from Emerald Group Publishing Limited |
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