Educational mismatch, wages, and wage growth: Overeducation in Sweden, 1974-2000

We examine the impact of educational mismatch on wages and wage growth in Sweden. The empirical analyses, based on cross-sectional and panel data from the Level of living surveys 1974-2000, are guided by two main hypotheses: (a) that educational mismatch reflects human capital compensation rather than real mismatch, and (b) that educational mismatch is real but dissolves with time spent in the labour market, so that its impact on wages tends toward zero over a typical worker's career. Our findings do not support these hypotheses. First, significant differences in contemporaneous economic returns to education across match categories remain even after variations in ability are taken into account. Second, we find no evidence that the rate of wage growth is higher among overeducated workers than others. Our conclusion is that the overeducated are penalized early on by an inferior rate of return to schooling from which they do not recover.