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Over-education, under-education and wage premiums on the Hungarian labour market, 1994-2002

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Galasi P.

Kozgazdasagi Szemle (Economic Review)

2004

vol. 51

issue 5

449-471

The paper looks at the impact of over-education and under-education on earnings in Hungary over the period 1994-2002, using a large set of cross-section data representative of employees. Schooling was measured in years of education, while required education was proxied by modal years of education in occupations, and the difference between employees' observed education and the modal education of their occupation allowed them to be classified as under-educated, over-educated or educated as required. The standard results were gained. 1. An extra year of required education and over-education yields positive and an extra year of under-education negative wage premiums. 2. The economic return on required education is higher than on over-education. 3. The penalty for under-education is smaller than the return on required education. Rising demand for educated workers and increases in higher-education supply were seen over the period. Initially, supply seems to have been rather inelastic, which brought rising wage premiums for the over-educated. Then it gained elasticity, leading to higher economic returns on required education. The proportion of over-ucated workers increased from 11 per cent in 1994 to 24 per cent in 2002.

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1 Kozgazdasagi Szemle (Economic Review)

1 2004

1 Galasi P.

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Over-education, under-education and wage premiums on the Hungarian labour market, 1994-2002