A Panel Study of Immigrants’ Overeducation and Earnings in Australia
| Published date | 01 April 2018 |
| Author | Sholeh A. Maani,Le Wen |
| Date | 01 April 2018 |
| DOI | http://doi.org/10.1111/imig.12425 |
A Panel Study of Immigrants’Overeducation
and Earnings in Australia
Le Wen* and Sholeh A. Maani*
ABSTRACT
The recent literature on overeducation has provided divergent results on whether or not overe-
ducation bears an earnings penalty. In addition, few studies have considered overeducation
among immigrants. This article uses panel data analyses to investigate the match between edu-
cation and occupation and resulting earnings effects for immigrants from English-Speaking
and Non-English Speaking Backgrounds, relative to the native-born population in Australia.
Based on nine years of longitudinal data, the panel approach addresses individual heterogene-
ity effects (motivation, ability, and compensating differentials) that are crucial in overeducation
analysis. First, we find that immigrants have significantly higher incidence rates of overeduca-
tion than the native-born. This probability increases, rather than diminishes, once we control
for unobserved correlated effects. Second, based on panel fixed effects analyses there is no
penalty for overeducation for ESB immigrants. However, NESB immigrants receive a lower
return to required and overeducation compared to the other groups after controlling for individ-
ual heterogeneity.
INTRODUCTION
It is not uncommon to hear of immigrants being employed in occupations that are below the level
of their educational attainment, such as those from professional occupations driving taxis or work-
ing in a kitchen. Are these isolated occurrences of overeducation which have attracted exaggerated
interest, or are immigrants more likely to experience education and occupation mismatches than
native-born people with similar qualifications? If so, to what extent does overeducation explain
immigrant earnings, and in particular returns to education among English Speaking Background
(ESB) and Non-English Speaking Background (NESB) immigrants relative to native-born workers?
In addition, do these labour market outcomes change with years since migration for immigrants?
These questions have received recent attention among researchers and policymakers due to the
greater role that skilled migrants now play in developed countries. As an increasing number of
immigrant-receiving countries (e.g. Canada, New Zealand, and Australia) have adopted skilled
migration policies, and other countries are considering such policies, these questions continue to
demand current in-depth and recent research across international settings to better understand their
parameters for policy fine tuning.
1
In addition, the link between such mismatches and economic
productivity is further recognized (e.g. Quinn and Rubb, 2006; Tsang and Levin, 1985).
Overeducation refers to the incidence of actual education exceeding, or the extent to which actual
education exceeds, the educational requirement to perform a job. There is evidence that immigrants
suffer a higher incidence of overeducation (Aringa and Pagani, 2010; Fern
andez and Ortega, 2008;
* University of Auckland
doi: 10.1111/imig.12425
©2018 The Authors
International Migration ©2018 IOM
International Migration Vol. 56 (2) 2018
ISSN 0020-7985Published by John Wiley & Sons Ltd.
Kler, 2007), and that immigrants experience an earnings loss from education-occupation mis-
matches (Chiswick and Miller, 2008, 2010; Green et al., 2007; Lindley, 2009; Wald and Fang,
2008; Yeo and Maani, 2015). Aringa and Pagani (2010) further found that, for immigrants, work
experience acquired in the host country (Italy) did not help to improve their occupation-education
match.
However, very few studies in the overeducation literature have focused on overeducation with
panel data for immigrants. Notably, the findings of the pioneering studies for overeducation among
immigrants are generally based on cross-sectional or pooled OLS analyses (see e.g. Leuven and
Oosterbeek (2011), and Sloane (2014) for a discussion of methods).
The few emerging studies that have applied panel data techniques to the study of overeducation,
have, in general, found controversial results on whether or not education and occupational mis-
matches with earnings penalties effects are verified once individual heterogeneity is accounted for,
e.g. Tsai (2010), finds no effect, whereas Dolton and Vignoles (2000), Leuven and Oosterbeek
(2011) and Mavromaras et al. (2012), indicate a reduced but significant effect, and Carroll and Tani
(2013) finds wage penalties for overeducated older workers. These studies have generally focused
on overall populations combining native-born populations with immigrants or Non-English Speak-
ing Background populations. In addition, they cover very different data sets, time periods, popula-
tion groups and techniques. Given these facts, greater research in this area can shed light on the
factors contributing to differing results.
Our study fits into this literature by examining the incidence and the determinants of overeduca-
tion among immigrants and the native-born in Australia, and the impact of overeducation on earn-
ings after accounting for individual heterogeneity. We utilize nine years of a rich longitudinal data
set: Household, Income, and Labour Dynamics in Australia Survey (HILDA). We apply the corre-
lated random effects (CRE) logit model and the fixed effects earnings model to address endogeneity
and unobserved individual heterogeneity. Traditional estimation methodology ignores correlations
between explanatory variables and unobserved heterogeneity (such as unobserved personal and job
characteristics) leading to potentially biased estimation results. Our approaches alleviate these major
estimation concerns that are pertinent for determining individual job mismatches. To the best of
our knowledge, this is the first examination of the determinants of overeducation and its impact on
earnings among immigrants using these longitudinal techniques based on panel data and for Aus-
tralia. We further examine effects for both English-Speaking Background (ESB) and Non-English
Speaking Background (NESB) immigrants compared to the Australian-born population.
The remainder of this article is organized as follows: The next section, Section 2, provides a
brief overview of immigrants’overeducation literature and identifies the main factors that affect
immigrant mismatch and labour market outcomes in the host country. Section 3 outlines the data
and variables. Section 4 develops the econometric framework. The results are presented in Section 5
and conclusions are presented in Section 6.
REVIEW OF THE LITERATURE
Incorporating the match between the educational requirements of a job and the actual education of
a worker in earnings models extends the human capital model by incorporating earnings variations
across individuals with similar qualifications. The standard ORU (overeducation, required educa-
tion, and undereducation) framework of earnings as originally proposed by Duncan and Hoffman
(1981) and Hartog (2000) is widely used in overeducation empirical research. While this frame-
work is usually applied to the labour market in general, it lends itself well to further understanding
of immigrants’differential returns to years of schooling. As such, the potential effect of education
and occupation mismatches in a major immigrant-receiving country such as Australia can shed light
on this topic.
178 Wen and Maani
©2018 The Authors. International Migration ©2018 IOM
To continue reading
Request your trial