THE INCIDENCE AND WAGE EFFECTS OF OVER AND UNDER-EDUCATION AMONG ETHNIC GROUPS IN MALAYSIA

Abstract

This paper extends the study of over-education in Malaysia by looking at the incidence and wage effects of over- and under-education across ethnic groups. Using the second Malaysia Productivity Investment Climate Survey (PICS-2), around 18% and 28% of workers employed in jobs for which they are overeducated and undereducated, respectively. By ethnic group, around 19% of Malays were overeducated with the corresponding figure of 15% each for the Chinese and The Indians. By contrast, around one-third of Chinese and Indian were undereducated as compared to 26% for the Malay. With respect to earnings outcomes, Ordinary Least Square (OLS) models showed that being over educated resulted in a greater earnings loss, around 9 to 11% irrespective of gender. However, being undereducated increases the individuals’ wage premium by around 9 to 12%. Close examination by ethnic groups revealed that the penalty is greater for the Indians (15%) and followed up by the Malays (10%) and Chinese (5%).Nevertheless, the wage premium for being undereducated was higher for the Malays compared to the other two groups. These results imply that there are significant costs to work in an occupation unrelated to the major due to human capital acquired is not completely general and cannot simply be transferred to other occupations.