Overeducation wage penalty for university graduates: evidence from the MENA region using machine learning techniques

ABSTRACT This study estimates the causal effect of overeducation on wages using cross-sectional survey data from three countries in the Middle East and North Africa region. The Labour Market Panel Survey data from Jordan in 2016, Tunisia in 2014, and Egypt in 2012 and 2018 are used. Overeducation occurs when an individual works in a job that requires someone with less education. Our analysis focuses on employees with high school or college education in paid-wage jobs. Overeducation in the data is self-reported. Between 10% and 50% of the samples in the various countries are overeducated, with overeducation being more pronounced among high school than college-educated people. The novel causal forest method as well as the nearest neighbour and propensity score matching methods are used to estimate the over-education wage penalty. The overeducation job mismatch wage penalty is significant in both total wage and basic wage. The size of the penalty, however, varies considerably between the three countries and is negatively associated with the prevalence of overeducation in the job market in each country. The penalty in total wage ranges from 17% in Egypt in 2012 to approximately 50% in Tunisia. High school graduates have smaller penalties. We recommend policies such as conducting more active labour market programmes to reduce the stock of mismatched workforce, enhancing job search services to improve the quality of matching in new vacancies, and following strategies that motivate entrepreneurship.