Economics of Education Review 19 2000 159–168 www.elsevier.comlocateeconedurev
Incidence and wage effects of overschooling and underschooling in Hong Kong
Elchanan Cohn
a,
, Ying Chu Ng
b
a
Department of Economics, The Darla Moore School of Business, University of South Carolina, Columbia, SC 29208, USA
b
Department of Economics, Hong Kong Baptist University, Kwonloon Tong, Kwonloon, Hong Kong Received 19 June 1998; accepted 11 January 1999
Abstract
Data from the 1986 Hong Kong By-census and the 1991 Hong Kong Census were used to study the following issues: 1 What is the incidence of adequate schooling, overschooling and underschooling in Hong Kong, and has it changed
between 1986 and 1991? 2 What are the wage consequences of adequate schooling, overschooling and underschooling, and have they changed over time? Also, are the results influenced by potential labor-market experience? The empirical
results are discussed in the context of recent changes in the structure of the Hong Kong economy and the labor market. [JEL I21, J31]
2000 Elsevier Science Ltd. All rights reserved.
Keywords: Earnings; Labor markets
1. Introduction
It is by now well known that a comprehensive analysis of wage determination requires inclusion in a wage equ-
ation not only the actual level of schooling completed by a worker SCHOOL, but also the extent of the “mis-
match” over- or underschooling between a worker’s SCHOOL and the “required” or “adequate” level of
schooling associated with her or his occupation. Research results confirm the above observation for a
number of countries see the survey by Hartog, 2000, in this issue. The typical result found was that the econ-
omic return to an extra year of overschooling is positive but smaller than the return to an extra year of adequate
schooling. In contrast, the economic return to an extra year of underschooling is typically negative. On the other
hand, workers tend to have lower wages in jobs for which they are overschooled compared with the wages
they would have received in a job for which they are adequately schooled. In contrast, workers tend to have
Corresponding author. Tel.: 1 1-803-777-2714; fax: 1 1- 803-777-6876; e-mail: feu....4dorla.sc.edu
0272-775700 - see front matter
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higher wages in jobs for which they are underschooled compared with the wages that would have been received
in a job for which they are adequately schooled. Although the occupational mobility theory suggests
that overschooling for a given individual might represent a temporary mismatch because overschooled workers
prepare to move to higher-level jobs or to be promoted Rosen, 1972; Sicherman Galor, 1990, the job-com-
petition model proposed by Thurow 1975 and the job- screening model discussed by Spence 1973 suggest that
overschooling can be a persistent phenomenon. If it is a persistent phenomenon, overschooling might have an
adverse effect on a worker’s productivity and may also cause a misallocation of resources in the labor market.
Another implication of the job-competition model and Sicherman 1991’s work is the existence of a trade-off
between overschoolingunderschooling and other forms of human capital investment, such as experience. If
workers are able to substitute experience for schooling, allocation of human resources in the labor market may
yet be optimal.
As noted earlier, studies of overschooling and under- schooling in the labor market have been conducted for
several countries. This is not, however, the case for Hong
160 E. Cohn, Y.C. Ng Economics of Education Review 19 2000 159–168
Kong. Data obtained from the 1986 Hong Kong By-cen- sus and the 1991 Hong Kong Census allow us to study
the labor market behavior of overschooled and under- schooled workers in Hong Kong.
There are two main purposes for the present study. First, the incidence of overschooling and underschooling
in the Hong Kong market for 1986 and 1991 will be examined. Second, the study will address the effects of
overschooling and underschooling on earnings and how these effects change over time. Finally, we will also
examine the effect that labor-market experience might have on the economic returns to overschooling and
underschooling.
2. Methodology
