Job-Education Mismatch and Its Impact on the Earnings of Immigrants: Evidence from Recent Arrivals to Canada

Using the most recent Longitudinal Survey of Immigrants to Canada, this paper measures the incidence of job-education mismatch, particularly over-education, examines its determinants, and estimates its impact on the earnings of immigrants. Job-education mismatch is measured using the realized match method, and the corresponding earnings impact is estimated using an over-required-under education technique. Determinants of over-education are examined using a bivariate probit model to account for selectivity into employment. Panel data estimation methods are used to estimate earnings equations and the analysis is stratified by gender. Results show that recent immigrants to Canada have a persistent high incidence and intensity of over-education with a substantial negative impact on their earnings. In particular, two-thirds of recent immigrants to Canada are over-educated with a wage loss of 8%, while an under-educated immigrant loses around 2% on average. Results also show that proficiency in English or French and post-immigration investment in education and training significantly reduce the likelihood of being over-educated. The findings of this study could benefit policies directed to help immigrants integrate in the labour market. 1. Introduction The contribution of immigrants to a host country’s welfare largely depends on the degree to which their foreign education translates into useable qualifications and skills in the host labour market. A common finding is of the imperfect transferability of human capital across countries (see, e.g., [1–3]). New immigrants typically face barriers when searching for a job which, in principle, matches their qualifications. Such barriers either prevent or delay integration into the host labour market. In particular, immigrants who find a job on arrival in the host country usually work in a job which requires a level of education which is less than they actually possess. This form of job-education mismatch is known in the literature as over-education. If a worker is employed in a job requiring more years of schooling than the worker actually has, then the worker is under-educated. Most of the job-education mismatch literature focuses on studying over-education in view of its high incidence and significant adverse effects. Several studies have examined the occupational outcomes of immigrants relative to their source-country educational attainment (see, e.g., [2, 4–6]). The general finding is that there is a substantial earnings disadvantage and a high incidence of over-education among immigrants. For example, Li et al.