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Educational mismatches and earnings in the New Zealand labour market

Jian Z. Yeo and Sholeh A. Maani

New Zealand Economic Papers, 2017, vol. 51, issue 1, 28-48

Abstract: Mismatch of educational skills in the labour market is an emerging topic in the field of labour economics, partly due to its link to labour productivity. In this paper, we examine the incidence of educational mismatch and its earnings effects in the New Zealand labour market. Using micro-data drawn from the Household Labour Force Survey and the New Zealand Income Supplement (HLFS/NZIS) for the years 2004–2007, we find a noteworthy incidence of both over- and under-education in New Zealand – approximately half of workers in some occupations were well matched to their jobs. We also find that earnings returns to required years of education exceeded the returns with over- and under-education, with a greater earnings penalty associated with under-education. We test hypotheses on three alternative models of educational mismatch. Our results imply that public spending on education is not wasteful. However, better allocation of workers to jobs may be needed to increase overall labour productivity.

Date: 2017
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